Breakthrough to - Prima Acre Farms PLC AR 2018.pdf · Pages 19 to 21 of this report covers the material aspects relevant to the Company. 5 Thr C Annual Report 2018 Compliance The

Carving a unique position as a market leader for breeder and commercial farm operations we possess an established and enviable track record. Expanding the scale and scope of our operations has provided us the impetus to explore new horizons of opportunities. Leveraging on our technological and business expertise we have edged up on enhancing production quality and capacity.

With improved profitability paving the way for overall growth we are confident of creating an enhanced value proposition to all our stakeholders.

Our achievements are a breakthrough to the realms of business excellence.

Breakthrough to

Our Corporate philosophy is centred upon the 3H principles of building a Healthy Organisation, being an Honourable Winner and

making an Honest Fortune. This business philosophy is derived from our Parent Company, Prima Limited of Singapore.

Healthy OrganisationDeveloping a sound, effective

and efficient organisation system. Promoting team spirit and reaching

out to create a ‘PRIMA FAMILY’ identity.

Honourable WinnerAchieving success through fair competition. Striving towards

excellence.

Honest FortuneEstablishing trust, fairness and mutual

benefits with all within our business circle. Contributing to the well-being

of society.

Our Vision

“To achieve complete poultry integration synergies, ultimately gaining export market competitiveness”

Our MissionTo tap and harness business opportunities by expanding into various vertical integration projects. This will lead to increase in Agriculture, Aquaculture and Livestock production, thus encouraging national progress through nutritious protein-rich food to the people of this Nation.

Contents

CHAIRMAN’S STATEMENT

12Page

CHIEF EXECUTIVE OFFICER’S REVIEW

14Page

About our Report 4

Our History 6

Group Structure 7

Milestones 8

Financial Highlights 10

TAF at a Glance 11

Chairman’s Message 12

Chief Executive Officer’s Review 14

Creating Value for Stakeholders

Our Value Creation Model 17

Business Strategy, Resource Allocation and Portfolio Management 18

Material Aspects and Boundaries 19

Stakeholder Engagement 22

Management Discussion & Analysis

Operating Environment 28

Operational Reviews 32

Financial Capital 33

Manufactured Capital 37

Intellectual Capital 40

Human Capital 43

Social and Relationship Capital 49

Natural Capital 53

Future Outlook 57

Governance Reports

Board of Directors 59

Corporate Governance Review 61

Audit Committee Report 73

Remuneration Committee Report 75

Nomination Committee Report 76

Related Party Transactions Review Committee Report 77

Enterprise Risk Management Review 79

Financial Information

Financial Calendar 85

Report of the Board of Directors on the State of Affairs of the Company 86

Statement of the Directors’ Responsibility 90

Independent Auditors’ Report 91

Statement of Profit or Loss and Other Comprehensive Income 94

Statement of Financial Position 95

Statement of Changes in Equity 96

Statement of Cash Flows 97

Notes to the Financial Statements 99

Investor Highlights and Information

Five Year Financial Summary 146

Statement of Value Added 147

Shareholder Information 148

Glossary of Financial Terminology 149

Notice of Meeting 150

Form of Proxy 151

Corporate Information Inner Back Cover

4Three Acre Farms PLC | Annual Report 2018

AbOUT OUR REpORT

This is our second Integrated Annual Report in our journey of integrated reporting. This report provides a comprehensive yet concise account on how Three Acre Farms PLC (the Company) created value to stakeholders through the performance and conformance in the financial year ended 31 December 2018.

The Company creates value through the Business Model, which takes inputs from the six capitals and transforms through business activities to produce outputs and outcomes that create value over time for its diverse stakeholders.

Report Structure

The Annual Report of the Company covers the period of 12-months from 1 January 2018 – 31 December 2018 which is the annual reporting cycle.

The Annual Report 2018 discusses several aspects of the business in a holistic manner. This includes governance, strategy, financial and non-financial performance in the context of the value creating process. It also examines the key risks facing the Company in the context of the current operating environment.

The Annual Report for the financial year ending 31 December 2018 represents a balanced review of our financial, environmental and social performance, our governance framework and how we manage risk. Our objective is to provide our readers with an overview of how we nurtured our capitals to deliver sustainable growth and deliver value to our stakeholders.

Scope and boundary

The Report covers the entirety of operations of our two subsidiaries – Millennium Multibreeder Farms (Private) Limited and Ceylon Pioneer Poultry Breeders Limited which are related businesses collectively referred to as the “Group” in this Annual Report. The key financial aspects are discussed in the context of the Company as well as the Group, the non-financial aspects are discussed in the perspective of the Company.

Materiality Determination

We apply the principles of materiality in assessing the information that is to be included in the integrated report. Matters which are identified as material are those that affect the value creation capacity. Pages 19 to 21 of this report covers the material aspects relevant to the Company.

5 Three Acre Farms PLC | Annual Report 2018

Compliance

The financial information has been prepared in accordance with the Sri Lanka Accounting Standards (SLFRS/LKAS) issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka). The reported financial and non-financial information complies with all the laws applicable, with the Companies Act No 7 of 2007.

The following standards, frameworks and guidelines were used to prepare the report to ensure that we go beyond regulatory compliance:

Companies Act No. 7 of 2007

Company’s Articles of Association

Sri Lanka Accounting

Standards issued by the Institute of Chartered

Accountants of Sri Lanka

Code of Best Practice on Corporate

Governance

Listing Rules of the Colombo Stock

Exchange

Securities and Exchange Commission

Rules

Integrated Reporting

Framework <IR> Framework adopting the International Integrated

Reporting Council (IIRC)

Feedback

We welcome your comments, suggestions and queries on this Annual Report; please direct your feedback to:

AddressThree Acre Farms PLCNo. 15, Rock House Lane, Colombo 15, Sri Lanka.

E [email protected]

Telephone+94 11 2522556 or 8


OUR HISTORy

Three Acre Farms PLC (TAF) was established in 1963, primarily as a commercial layer farm. The Company’s name was derived from the original three acres of land on which the farm was situated. On 2 September 1992, TAF was acquired by Ceylon Grain Elevators PLC (CGE) for the purpose of expanding their own chick production facility.

The main business of the Company is the selective breeding, hatching and sale of commercial Day Old Chicks (DOCs), both Broiler (for chicken meat) and Layer (for the production of table eggs) and Commercial Broiler Farming.

The Company has two wholly-owned subsidiaries, viz., Ceylon Pioneer Poultry Breeders Limited (CPPBL), which undertakes the Grandparent farm operation, and Millennium Multibreeder Farms (Private) Limited (MMF), which employs advanced hatchery. The Grandparent poultry farm imports Grandparent DOCs and after careful high-technology breeding, vaccination, feeding and selection, will hatch fertilised eggs, which when hatched (after 6 months) will give rise to Parent Stock DOCs. TAF holds the valuable sole franchise for the “INDIAN RIVER” parent stock breed. TAF also holds the franchise in Sri Lanka for “HY-LINE” breeds of commercial layers.

Three Acre Farms PLC (TAF) was established in 1963, primarily as a commercial layer farm. The Company’s name was derived from the original three acres of land on which the farm was situated. On 2 September 1992, TAF was acquired by Ceylon Grain Elevators PLC (CGE) for the purpose of expanding their own chick production facility.

The Company currently operates from five (5) poultry breeder farms, viz., Meegoda, Kosgama, Halwathura, Aswatta and Makuluwatta while its wholly-owned subsidiary, MMF operates from Wewelpanawa. The farms are located along the High Level road linking Colombo to Avissawella while Halwathura farm is in the District of Kalutara. The Company is constantly upgrading its farm infrastructure to levels more commonly found in the more developed nations. The farms at Bulathsinhala and Beruwala undertake Commercial Broiler Farming.

Another significant achievement for the TAF Group is that as at the end of the calendar year, it owned a total land extent of 321 acres with a total cost in the books of LKR 367 Million, on a freehold basis. The Directors have sanctioned the expansion of both breeder and commercial farms and the Management is vigorously functioning on this.

The Company was listed on the Colombo Stock Exchange on 20 March 1995 and is quoted in the Food and Beverage Sector. The holding company, CGE, held 57.21% of the issued share capital of TAF at the reporting date.


GROUp STRUCTURE

Millennium Multibreeder Farms (Private) Limited

Ceylon Pioneer Poultry Breeders Limited

Bulathsinhala Farm

Hijra-A Farm

Hijra-B Farm

Attanagalla Farm

Aswatta Farm

Makuluwatta Farm

Meegoda Farm

Kosgama Farm

Halwathura Farm

Ittapana Farm

Wewelpanawa Farm

Commercial Broiler Farms

Poultry Breeder Farms

ActivitiesOperation of poultry breeder

farms and hatchery

ActivitiesRenting of farm operation

THREE ACRE FARMS pLC

ActivitiesOperation of poultry breeder

farms, hatcheries and commercial broiler farms

100%

100%


1963 Incorporation of Three Acre Farms (TAF)

1992 Acquisition of Three Acre Farms by Ceylon Grain Elevators (CGE)

1994 Issued 6,000,000 Ordinary Shares of Rs.10 as a Bonus

1994 TAF IPO officially launched 8,500,000 shares offered to the general public at Rs.45 each. 3,000,000 shares reserved for CGE shareholders in a priority scheme. 500,000 shares offered to the employees and business associates / dealers also at the same price

1995 Acquisition of Kosgama farm and Ceylon Pioneer Poultry Breeders from CGE

1995 The Company was listed in the Colombo Stock Exchange in the Food and Beverage Sector

1996 Acquisition of Bulathsinhala and Halwathura Farms by TAF

1999 Incorporation of Millennium Multibreeder Farms (Private) Limited, a wholly-owned subsidiary of TAF

2003 Acquisition of Hijra Farms by TAF

MILESTONES


2004 The Company further allotted 445,000 Ordinary Shares of Rs.10 each

2007 Commencement of Environment Controlled House Projects at Commercial Farms

2009 Implementation of ERP system

2018 Freehold ownership of Ittapana

land to increase the capacity of Breeder

Farms


FINANCIAL HIGHLIGHTS

Group 2018 2017 % Change

performance highlightsRevenue Rs. Mn 2,626 2,404 9 Net finance income Rs. Mn 197 105 88 Profit for the year Rs. Mn 749 654 15 Cash dividends paid during the year Rs. Mn 71 94 -24Earnings per share Rs. 31.80 27.77 15 Return on Shareholders’ Equity (ROE) % 32 29 10

Financial strengthShareholders' fund (Equity) Rs. Mn 3,638 2,960 23 Total assets Rs. Mn 4,363 3,557 23 Value added Rs. Mn 1,775 1,499 18 Net assets per share Rs. 154.51 125.73 23 Current ratio No. of times 4.87 4.28 14 Dividend payout proposed % 14 11 31

Group Value added

0

500

1,000

1,500

2,000

2018

2017

2016

2015

2014

Rs. Mn

727

1,21

4

1,69

8

1,49

9 1,77

5

Group - Net Cash Used in Investing Activities

0

100

200

300

400

500

600

700

2018

2017

2016

2015

2014

Rs. Mn

426 45

2

575

539 58

3

Group - Earnings per Employee per Annum

0

100

200

300

400

500

600

2018

2017

2016

2015

2014

Rs. 000

288 35

1

494

444 49

0

Market Price per Share

30

60

90

120

150

2018

2017

2016

2015

2014

Rs.

51.0

0

120.

70 135.

10

113.

00

101.

40


TAF AT A GLANCE

Operating Profit

Rs. 699 MnRs. 676 Mn in 2017

3%

RevenueRs. 2,626 Mn

Rs. 2,404 Mn in 2017

9%

Earnings Per ShareRs. 31.80

Rs. 27.77 in 2017

15%

Total Assets

Rs. 4,363 MnRs. 3,557 Mn in 2017

23%

Our Human Capital

Our Manufactured Capital

Our Intellectual Capital

Our Social and Relationship Capital

Shareholders’ Fund

Rs. 3,638 MnRs. 2,960 Mn in 2017

23%


CHAIRMAN’S MESSAGE

Dear Valued Stakeholder,

It is with pleasure that I present the integrated annual report of Three Acre Farms PLC(TAF) for the year ended 31 December 2018. While the Company pursues excellence in business operations by exploiting and capitalising on emerging opportunities, it gives me great pleasure that equal importance is given to improving reporting standards year-on-year.

Growth Amidst Challenging Economic and Market Conditions

The Company operated under challenging macroeconomic and market conditions. The adverse weather conditions, the fluctuating fuel prices and the unprecedented depreciation of the Sri Lankan Rupee caused a myriad of challenges that the Company had to overcome and circumvent throughout the year under review.

Yet, the Company achieved sustained growth, mainly a result of the focused efforts to maintain operational efficiencies by adopting enhanced processes. The Company’s efforts were also supported by the improved market conditions for the Broiler Day-Old-Chicks (DOCs) and the positive impact from the effective and efficient farm management of the Company’s Commercial Farm operations.

The Company was able to increase its revenue by 9% to Rs. 2,625.6 Million compared to Rs. 2,404.1 Million in the year 2017. The profit for the year realised a 15% growth to Rs. 748.8 Million, despite increased taxation.

I am pleased to announce that your Company has proposed a First and Final dividend of Rs. 4.50 per share amounting to Rs. 106.0 Million for the year 2018 subject to the approval of shareholders at the Annual General Meeting. We remain committed to growing shareholder wealth in a sustainable manner.

Stakeholder Contribution to business Success

Much of the accomplishments of TAF is attributed to the tireless efforts of the Company’s employees who relentlessly pursue business excellence and explore new opportunities. In turn, the Company rewards them by enabling them to pursue career greatness assisted by the learning culture and the encouragement of individualism.

TAF optimised the service quality and quality output through the implementation of new technology and process to retain long-term customers for the Company. The Company’s values ensure that our suppliers and other business partners are treated fairly and equally and appreciate their co-operation in these challenging times.


“The Company was able to increase its revenue by 9% to Rs. 2,625.6 Million compared to Rs. 2,404.1 Million in

the year 2017.”15 %The profit for the year realised a 15% growth to Rs. 748.8 Million, despite increased taxation.

Sustained Excellence in Corporate Governance practices

TAF is governed by compulsory adoption of legal and regulatory framework, and fully comply with all mandatory requirements. However, the Company continues to pursue further excellence in governance, accountability and transparency and adopts voluntarily mechanisms with the belief that these concepts are the foundation which build a successful and sustainable business organisation.

progressing the Company’s Sustainability Journey

Sustainability has now become an integral part of the Company’s core operations and TAF continued to pursue progressive sustainability practices year-on-year. Business operations are developed in consideration of not only profitability but safeguarding of the environment and contribution to the society at large. Key areas of the Company’s efforts revolve around the effective utilisation of natural resources to eliminate environmental impact and to develop communities and villages surrounding the business operations.

Future plans

The forthcoming financial year bodes well for the Company. Expectations of improved market conditions coupled with the Company’s operational improvements with Environmentally Controlled houses in both Breeder Farms and Commercial Farms will enable readiness to take advantage of opportunities in the marketplace. The Company will also continue to improve farm management practices to remain relevant and up-to-date with international industry norms.

Appreciations

I take this opportunity to thank my fellow Board of Directors for their support throughout the year under review. I would also like to take this opportunity to mention the commitment and guidance given by the late Mr. Sunil Karunanayake (Non-Executive Independent Director) to the Company. He will continue to be a part of the legacy of TAF for years to come. It is with much pleasure that I together with my fellow Board of Directors welcome Dr. Prathap Ramanujam as part of our team to help us steer the Company to greater heights as he brings his vast experience and to benefit TAF’s future growth and success.

I also would like to thank all the regulators and other government officers for their support throughout the year. It is due to the trust, commitment, and confidence of all our stakeholders which has enabled the Company to thrive and grow despite the challenging operating environment.

I look forward to many more years of business excellence and success supported by all.

Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

Colombo, Sri Lanka8 April 2019


CHIEF EXECUTIVE OFFICER’S REVIEW

Dear Valued Stakeholder,

It is my pleasure to share with you the Annual Report of Three Acre Farms PLC, for the financial year ended 31 December 2018. The Company continues its journey of sustainable business operations, meeting challenges head-on to retain our leadership position in Sri Lanka’s poultry industry. During the year under review, we have set our three long-term priorities: Performance, Trust and Innovation. These enabled the management to focus and respond more effectively to our operating environment while allowing us to deliver better returns and broader societal contribution.

A Challenging Operating Environment

The Sri Lankan economy continued to face challenges due to global market developments, stagnating foreign direct investments, tightened monetary policy, higher debt servicing ratio of the country and negative net exports. Despite these challenges the country recorded a moderate economic growth of 3.3% during the first nine months ended September 2018. However, economic conditions took a negative turn in the last quarter with the fuel hike and rupee depreciation which in turn increased the prices of imported goods for all industries raising inflation.

The subdued agricultural sector which was affected by the erratic weather conditions and in turn affected farmer incomes adversely grew at 4.3% during the first nine months of 2018. The livestock sector which contributed 0.6% of

national GDP in 2018, saw growth driven by increase in egg production, with the increased importation of Layer Parent Stock. The intervention by Department of Animal Production & Health (DAPH) to stabilise the Layer market is appreciated by industry players as it benefitted the market as a whole.

2018 performance

The Company made substantial progress by achieving Revenue of more than Rs. 2.6 Billion during the year. The strong growth in Revenue of 9% Year-on-Year (YoY) was driven mainly by the demand for Broiler Day Old Chicks (DOCs) coupled with effective capacity utilisation in Commercial Farms. However, export revenue saw a reduced performance as a result of lower Parent Stock DOCs production due to import restrictions placed on Grandparent Stock DOCs.

Operating Profit improved marginally by 3% YoY to Rs. 698.8 Million due to increase in cost of production as a consequence of increase feed prices during the year. However, emphasis on cash management generated operational cash flows of Rs. 1,185.3 Million by the end of the year.

During 2018, management delivered its exceptional performance of Profit after Tax of Rs. 748.8 Million, reflecting a 15% growth YoY. This was achieved despite the increase in income tax rate to 14% from 10%. Consequently, the earnings per share increased to Rs. 31.80 in 2018 when compared with Rs. 27.77 in the previous year.


The Company’s financial stability continued to strengthen in the year under review as seen by the increase in the total asset base by 23% YoY to Rs. 4,362.7 Million together with a working capital increase of Rs. 701.8 Million to Rs. 1,914.7 Million which showed a 58% increase during the year under review. Once again TAF was able to deliver superior value to its shareholders by posting a net asset per share of Rs. 154.51 in 2018, as compared with 2017 net asset per share of Rs. 125.73.

pipeline progress

Towards the end of 2018, we received the freehold ownership of Ittapana land which was previously held as leasehold for unexpired period of 99 years. Our focus in 2019 is to successfully implement the planned capacity increase in state-of-the-art Breeder Farm facilities in Ittapana, which will enhance our production capacity over the mid-to-long-time period. Further, we will continue the construction of the Environmentally Controlled houses for the Commercial Farms. This is the Company’s direction for sustainable and long-term growth.

Outlook

The Company has been successful on ensuring the quality of the DOC with the Rodent Control Programme currently in place. Similarly, we will step up the skills development programmes for our employees to improve their expertise and technical know-how in breeder farming.

Improved market conditions for table eggs should see increase in demand and better prices for Layer DOCs. Furthermore, the continued growth of the tourism industry should positively impact sales of boiler and layer DOCs.

With these positive signs and our focused expansions, we are optimistic that we will be able to deliver stronger and more balanced performance to stakeholders in years to come.

Acknowledgement

I would like to take this opportunity to thank our parent company for the continued support in business operations which has enabled Three Acre Farms PLC to grow amidst challenging market conditions. I wish to express my appreciation to the Board of Directors for their continued guidance and direction. The employees of the company deserve much praise for persevering during challenging times and their commitment to meet set target and goals. Our loyal customers must also be acknowledged as they have continued to believe in the Company thereby sustaining business growth and operations. I wish to thank our shareholders and other stakeholders for your continued trust in the Company.

We are committed to continue to forge ahead with our strategic intent to excel in our growth levels whilst delivering on continued business excellence.

Cheng Chih Kwong, PrimusExecutive Director and Chief Executive Officer


“During 2018, management delivered its exceptional performance of

Profit after Tax of Rs. 748.8 Million, reflecting a 15% growth YoY.”23 %

The Company’s financial stability continued to strengthen in the year under review as seen by the increase in the total asset base by 23% YoY to Rs. 4,362.7 Million

CreatingValue for Stakeholders


Risk

Man

agem

ent

Corporate Governance

OUR VALUE CREATION MODEL

Capital Inputs Value Creating Activities Value Created and Impacts

Vision and Mission

Strategy

Operations

breeder Farm Operation

Grandparent Stock Operation

Parent Stock Operation

Hatchery Process

Commercial Farm Operation

Rearing of Broiler Birds

Sustainability Framework

Value Drivers

Procurement and Warehousing

Lab Services and Research & Development

Human Resource Management

Engineering

IT Services

Finance

OutcomeAltered capital arisen as a result of value creation process is either shared or redeployed.

Financial CapitalRevenue Rs. 2,626 Mn

Profit after Tax Rs. 749 Mn

Dividends to the Shareholders Rs. 106 Mn

Manufactured CapitalEnvironmental Friendly Manufacturing Plants

Human CapitalPersonal and Professional Growth

International Exposure

Social and Relationship CapitalImprovements to Local Community

Fostering Win-win Partnerships

Natural CapitalPerseverance of Biodiversity Conservation of Natural Ecosystem

Intellectual CapitalPrima Branded for Best Quality

Association with Global Poultry Leaders

ImpactEconomic, Social & Environmental Impacts which are generated from value creation process

Financial CapitalTotal Equity

Rs.3,638 Mn

Non-current and Current Liabilities Rs. 725 Mn

Cash and Cash Equivalents Rs. 1,956 Mn

Manufactured CapitalProperty, Plant and

Equipment Rs. 1,397 Mn

Biological Assets Rs. 574 Mn

Human CapitalTotal Workforce of 773

Employees

Employee Benefit Expenses Rs. 379 Mn

Social and Relationship CapitalFocus on Sustainable

Development

Multi-channeled Engagement Plans

Long-term Stakeholder Relationships Fostering

Partnership with Suppliers

Natural CapitalEnvironmentally focused

Business Practices

Biodiversity

Natural Ecosystem

Intellectual CapitalPrima Brand

Refined Systems and Processes

Knowledged based Culture


bUSINESS STRATEGy, RESOURCE ALLOCATION AND pORTFOLIO MANAGEMENT

business Strategy

The business strategy of Three Acre Farms PLC (TAF) is built on the premise of creating value to stakeholders. This results in all business operations being geared towards ensuring the effective and efficient use of resources to ensure optimal return to the business and resultantly all stakeholders. The Company therefore practices prudent capital management and returned based resource allocation.

The Company strategy is developed annually to build on past successes and exploit emerging and future expected opportunities. Our strategy also focuses on the continuous improvement of our sustainability practices as detailed with the Capital reports that follow on pages 33 to 56. Integrating the company strategy to our principle beliefs, corporate vision, mission, and cultural values ensures that decision making takes a 360-degree view and considers material aspects and accounts for stakeholders’ concerns and expectations. This in turn helps us to create value by carrying out day-to-day business operations.

The Company’s strategic pillars and capabilities allow for delivering value by integrating business operation and effectively and efficiently utilising scarce resources to create long term value to stakeholders.

The Company’s value delivery system illustrated above is connected to the Company’s enterprise governance mechanisms thereby driving transparent and ethical business processes and practices. Details in the Enterprise Governance Report on pages 61 to 72.

Allocating Scarce Resources

All Company resources are scarce, be they natural resources such as water and land, financial resources, or human capital resources. Therefore, resource allocation is a critical element of the corporate strategy to ensure the business is sustained in the long run. Accordingly, the Capital reports on pages 33 to 56, details how the Company optimally uses scarce resources while employing techniques and processes to preserve and conserves such scare resources.

Through this process it is believed that TAF is well-positioned to create value to stakeholders in the long term.

portfolio Management

Portfolio management is a key aspect which will ensure the Company balances its fiduciary duties with its non-monetary value creation activities to satisfy stakeholders expectations. The Company has in place a prudent financial management model to help make investments in capital assets and other securities while maintaining an environment of ‘zero’ gearing. Optimal capital management together with efficient operations drives business growth, while ensuring returns to all stakeholders. The Financial Capital Report on pages 33 to 36 gives a more comprehensive view of the Company’s portfolio management activities.

Creating Value Today and Tomorrow

The Company’s purpose is to be a sustainable business to enable survival in the long term amid environmental and market challenges. The allocation of scarce resources, portfolio management and strategy setting process all integrate to ensure the Company proceeds along with its chosen path of sustainable success, while creating value for stakeholders today and tomorrow.

Strategic pillars � Deliver superior quality products

� Expand geographical footprint (local & export markets)

� Cost optimisation

� Ensure sustainable consumption of natural resources

� Build long-term stakeholder relationships

Capabilities � Efficient and Ethical business

systems, processes and practices

� High standards of compliance

� Ingrained knowledge through virtue of multi-decade experiences

Value Delivery platforms � Year-on-Year RoE growth

� Market capitalisation of Rs. 2,387.5 Million as at 31 December 2018

� High levels of customer service

� Enabling employees to build careers


MATERIAL ASpECTS AND bOUNDARIES

To ensure value creation, Three Acre Farms PLC (TAF) has in place a process to identify the impact of business operations and activities on the sustainably of the economy, environment, and society. The process helps identify aspects within these three areas which are classified broadly as material or non-material from the point of view of both the Company and our key stakeholders in the short, medium and long terms. The Company tends to focus on material aspects which have the highest impact on sustainability of business operations, thereby helping to improve sustainable business performance. Accordingly the materiality matrix segregates the material aspects identified as impacting our business and stakeholders from the highest to medium and to lowest levels of significance.

Materiality process

As a sector leader, we uphold the highest standards of operating a sustainable business. An important part of this is ensuring the Company’s management pays due attention to, and reports on, issues of critical importance to both our stakeholders as well as to business operations. We therefore have developed a sustainability metrics aligned with our business strategy designed to reflect changes and trends in our operating environment as well consider the risks and opportunities that could affect business performance in the short, medium and long terms.

TAF applies a 3-step approach to creating the final materiality map and the identification of material issues.

The materiality process followed by the Company is circular and undertaken annually in order to identify and keep up-to-date of changes and trends within the dynamic environment within which TAF operates. Material issues are identified in conjunction with stakeholders perspective and evaluated and prioritised according to their impact on stakeholder and business concerns in the short, medium and long term.

Identify Material Issues

Consider the material issues of key stakeholders with a view to long, medium and short term creation of corporate value.

Interview Stakeholders

The materiality issues are identified through the stakeholder engagement process.

Develop the Materiality Matrix

The materiality issues identified in Step 2 are then plotted into the Materiality Matrix.

1Step

2Step

3Step

MaterialityProcess of

TAF

Identification of Material Issues from

a Company and Stakeholder Perspective

Segregate Material Issues under Economic, Environmental

and

Soci

al A

spec

tsPrioritisation of M

aterial Is

sues

as

Iden

tified

by S

ta

keholders

Iden

tify

Mat

eria

l Iss

ues and Related Boundaies for Disclosure

Evaluation of Material Issues


MATERIAl ASpECTS And BOundARIES (COnTd.)

Material Issues Across Our business Model

Our focused areas Identified topics Impact

TAF Business partners

Customers Community

Responsible Marketing 1. Marketing Communication � � � �

2. Supply Chain and Commitments � � � �

Fair Employment 3. Gender Diversity and Inclusion

4. Occupational Health and Safety� � � �

Employee Welfare 5. Employee Engagement and Career Development

6. Labour Grievances� � � �

Community Welfare 7. Corporate Citizenship

8. Community Engagement� � � �

Food and Product Safety 9. Product Responsibility

10. Product Authenticity� � � �

National Exchequer 11. National Economic Contribution � � � �

Financial Performance 12. Operational Excellence and Efficiency

13. ROE

14. Profitability

� � � �

Natural Resource Stewardship

15. Preserving Biodiversity

16. Energy Efficiency� � � �

Customer Welfare 17. Customer Satisfaction � � � �

Human Rights 18. Child Labour

19. Labour Rights� � � �

20. Forced labour in supply chain

21. Indigenous Rights� � � �

Business ethics 22. Governance and transparency

23. Fraud, bribery and corruption

24. Data privacy and protection

� � � �

� High � Medium� Low


Materiality Matrix

TAF’s materiality issues for the year under review were identified after engaging with stakeholders and identifying their concern areas, as well as by consideration of the issues from a Company perspective. The materiality of issues which impact both stakeholders and the Company are illustrated below. As shown, even in the same quadrant, material issues can still be higher ranking than other material issues depending on its impact to stakeholders and the Company.

Impa

ct o

n St

akeh

olde

rs

Hig

hM

ediu

mLo

w

Low Medium High

Impact to the Company

18

19

20 212

3 15

1

5

4

9 10

17

12 1316

22

2423

7

6

14

11

8


STAkEHOLDER ENGAGEMENT

As part of the Company’s efforts to be a sustainable and responsible corporate citizen, we concentrate on achieving sustainable business operations by following four key sustainability policies which are integrated within corporate strategy development and decision making (Figure 1). As part of our efforts, Three Acre Farms PLC (TAF) also focuses on ensuring our stakeholders are given an opportunity to engage with and provide input towards business operations.

Our Approach to Stakeholder Engagement

Taking a stakeholder centric approach to enhance business operations and thereby create value, TAF continuously engages with our key stakeholder groups, disseminating material information which helps them make informed decisions about the Company while enabling them to

Cultivating a Culture of ComplianceTAF practices strong regulatory oversight, and have implemented policies of simple and straightforward contracts with stakeholders

Improving our Sustainable products and DevelopmentsTAF continues to focus on developing and enhancing sustainable business practices through tried and tested, as well as new and innovative emerging methodologies

Entwining Sustainability into Customer EngagementTAF assures a faster and superior service to our customers

promoting Social InclusionTAF concentrates on giving back to the society in we operate by helping build community equity

Figure 1 : TAF’s sustainability policies

Reputation

Dem

onst

ra

te

Disclosure

Balance

Bes

t Identify and

Equitable C

omm

itm

ent

Inte

rest

Engage

Treatment

Providers of CapitalM

embers of the M

ediaCustom

ers

Business Partners

Commun

ities

Gov

ernm

ent

Employees

Providers of capital including shareholders, institutional and retail investors

Employees

Members of the media including journalists and editors

Government and regulatory bodies

Customers

Communities, educational institutions and research

organisations

Business partners, suppliers and financiers

Figure 2 : Our stakeholders


better understand the Company’s processes, polices and business operations. While some information is mandatory to comply with regulatory and statutory requirements, TAF also communicates with stakeholders on topics which are of concern to them (Figure 2).

The Company takes several direct and indirect communication routes to engage with stakeholders at different levels and on different topics. Information dissemination is specific and relevant to meet the needs of different stakeholder groups and disclosed in a timely manner. TAF continues to focus on the below key stakeholders and meet their needs by setting overarching objectives for satisfying their requirements.

STAkEHOLDER GOALS AND ObJECTIVES

Employees Motivate, engage, and create loyalty by implementing high levels of HRM practices

Shareholders/Investors

Keep them informed of all material activities and developments of the business in timely manner to help with decision making

Customers Keep them engaged and informed about products and contractual obligations, while providing exemplary services

Government and Regulators

Comply with all mandatory requirements and inform through timely and adequate disclosures and reporting requirements

Community Undertake relevant CSR activities and projects to help develop community equity

Business Partners, Suppliers and Financiers

Ensure timely payments and regular updates

Media Provide information on compliance, product and service affordability, and other key business developments

The Company’s stakeholder engagement process is focused on receiving productive feedback to ensure the Company is well-positioned to develop honest and trustworthy long-term relationships which create value to all stakeholders through our business operations. As part of this process, the Company also keeps updated records which helps focus management efforts in fostering sustainable growth by improving policies and practices to maintain and enhance sustainable long-

term business results. The stakeholder engagement process also allows for the management of organisational risks while endeavouring to meet sustainable business growth.

Stakeholder Engagement process

Set engagement

objectives

Assess engagement

process

Measure and

Communicate progress

Respond to engagement

resultsImplementation of engagement

plan

Development of engagement

plan and techniques

Identify and assess

stakeholders

The Company is very clear as to who our key stakeholders are, their predominant areas of concern and concentration, and their expectation from TAF. Accordingly, we communicate with our stakeholders honestly and openly and endeavour to manage their concerns to their satisfaction while meeting the Company’s economic and social agendas. Stakeholders are prioritised according to the impact they have on business operations and their levels of power and influence.

TAF’s Stakeholder prioritisation Matrix

Those stakeholders with the highest power and influence have the highest impact on our business. As such, TAF’s strategy is to continuously address their concerns and ensure meeting their expectations from business operations. Stakeholders who have a high interest in the Company but have less power are kept well-informed of business decisions and engaged on a more frequent basis. They are also involved as required when topics of their individual concerns are discussed. Stakeholders with high levels of power but less interest in the Company are kept satisfied by meeting their basic needs


STAkEHOldER EngAgEMEnT (COnTd.)

and expectations. Media which falls within the minimal effort category is provided with information for public dissemination and enlisted to help with building awareness about the Company’s business activities and sustainability progress. (Figure 3)


As seen, the Company uses a range of communication channels to reach stakeholders and engage them on topics of their interests and to understand and obtain feedback on business activities. The engagement process is customised to suit individual stakeholder groups and provide them with quality and relevant information which helps build long-term trust with the Company. During the year under review TAF endeavoured to satisfy the needs and objectives of the Company’s key stakeholder groups by engaging with them as illustrated in the below table.

Minimal Effort

Media

Keep Satisfied

Government & Regulators

keep Informed

Employees, Environment and

Community

key players

Shareholders / Investors, Business Partners, Suppliers & Financiers and

Customers

Low

Hig

hLo

w

High

Interest

Pow

er

Figure 3 : TAF’s Stakeholder prioritisation Matrix

Shareholders Concerns Responses Engagement

Methodology Frequency

These are the owners of the Company. We make every effort to increase shareholder value.

� Dividend growth

� Growth in profits

� Future prospects and sustainability

� Governance and transparency

� Shareholder centric business strategy, Productivity improvements

� Cost optimisation initiatives

� Timely disclosure of information

Regular one-on-one engagements As necessary

AGM Annually

Annual report Annually

Interim financial statements Quarterly

Immediate market disclosures Ad-hocAs necessary

Extra-ordinary General Meetings Ad-hocAs necessary

Press conferences and press release

As necessary

Corporate website Online

CSE website Online


Customers Concerns Responses Engagement


Our products have gained a reputation for reliability and trust, and are accessible to consumers throughout the country, via a network, at an affordable price.

� Product quality and availability

� Convenience

� Customer satisfaction

� Credit facilities

� Trade discounts

� Continuous improvement in product quality

� Access and reach

� Food safety

� Trade discounts based on customer loyalty

� Provide credit facilities based on credit worthiness

Customer surveys across the country Quarterly



Technical support and site visits Regular

Dealer convention Annual

Regular dealer meetings Periodically

Business Partners, Supplier & Financiers

Concerns Responses Engagement


Establish mutually beneficial relationships through and encourage them to engage in socially and environmentally friendly practices.

� Long term business relations

� On time payment

� With years of trust, maintain solid relationship with its suppliers

� Payment will be made on time to build trust and credit worthiness

Supplier surveys across the country

Quarterly



Telephone discussion and emails On a regular basis

Procurement based interactions On a regular basis

Training As necessary

Employees Concerns Responses Engagement


They are the lifeblood of the Company, its resource for creating value. They achieve the Company’s goals through their commitment, expertise, skills and talents.

� Increments on salaries and wages

� Employee Motivation

� Job satisfaction

� Training and continuous development

� Welfare facilities

� Job security

� Work life balance

� Annual performance evaluation.

� Inbound and outbound training sessions

� Industry specialised training and development

� Superior rewards for superior performance

� On the job training

� Succession planning

� Friendly corporate environment

Performance appraisals and individual review meetings

Annually

Open door policy As necessaryTraining sessions As necessaryCorporate communication through email, telephones, memo and notice board

On a regular basis

Career progression and succession planning

Ad-hoc As necessary

Corporate events such as sports day, get-togethers, other events and activities

Annually

Regular one-on-one engagements As necessaryEmployee council QuarterlyEmployee reward and recognition Annually


STAkEHOldER EngAgEMEnT (COnTd.)

Government and Regulatory Bodies



Productive and constructive dialogue with our regulators and the Government to ensure a conducive industry environment.

� Adaptation with business best practices

� Compliance with the regulatory framework

� Contribution to the economic growth

� Good governance

� Adhered to all applicable rules and regulations

� Growth and business expansions

Communication through press releases

As necessary

Periodic returns As specified

Meetings and consultations As necessary

Community & Environment



We have a cordial and mutually beneficial relationship with the communities we operate in. It is crucial to our success and we strive to conduct business in a manner that mitigates our environmental footprint.

� Employment opportunities

� Community works and hours

� Responsible business practices

� Fair competition

� Social wellbeing

� Externalities

� Creating employment opportunities

� Corporate Social Responsibility (CSR)

� Responsible Corporate Citizenship

� Always try to win the market through quality output and service

� Avoids market dilutive action

� Optimise positive environmental impact from the company

One-on-one meetings As necessaryPublic events and sponsorships RegularCorporate website OnlineCSE website OnlineMaintaining environmental licenses

As specified


Despite the challenging macroeconomic and market conditions, the fundamental business principles of TAF enabled the Company to sustain business growth and add value to our stakeholders through optimal resource utilisation and efficient management practices.

MANAGEMENT DISCUSSION & ANALySIS


OpERATING ENVIRONMENT

Global Economic Outlook [1] [2]

Global growth continues to steadily expand since mid-2016, despite the reduced growth projections by 0.2 percentage points to 3.7% for 2018 by the World Bank in October 2018. While this equates growth to 2017 levels, the growth momentum slowed and became less balanced as some advanced economies in the Euro region realised only moderated economic activity having reached their growth peaks, while the United Kingdom showed a slowdown in growth due to suppressed economic activity in early 2018. However, the growth momentum in the United States continued to be strong, despite the new trade measures and the $200 Billion tariffs imposed on US imports from China.

The emerging Asian economies continued to register strong growth, supported by a domestic demand-led pickup in the Indian economy from a four-year-low pace of expansion in 2017, even as activity in China moderated in the second quarter of 2018 in response to regulatory tightening of the property sector and nonbank financial intermediation. However, the growth among fuel-exporting economies in sub-Saharan Africa and the Middle East regions remained strong, while the recovery in Latin America continued, though at a more subdued pace than expected due to tighter financial conditions, a drought in Argentina, and a nationwide truckers’ strike which disrupted production in Brazil.

The World Bank identified high energy prices, tighter global financial conditions, policy and political uncertainty, rising trade barriers, the strengthening US dollar, and other country-specific factors as key reasons for the slowdown in, and dispersed growth projections between advanced and emerging market and developing economies.

The high energy prices also resulted in the increase in headline year-over-year inflation rates in advanced and Emerging Market and Developing Economies (EMDE) in the

1 Source: https://www.imf.org/en/Publications/WEO/Issues/2018/09/24/world-economic-outlook-october-2018

2 Source: http://www.worldbank.org/en/publication/global-economic-prospects

second and third quarters of 2018. The rising oil prices also had varying impacts on short-term prospects for fuel exporters and importers. While the strengthening of the US dollar in mid-September 2018 resulted in weakening the euro, the yen, and the pound sterling and caused the depreciation of emerging market currencies, which in turn affected economic growth projections.

The World Bank’s growth projects for 2019 is set at 3.7% although growth projections for China and several other Asian economies are expected to be weaker in the aftermath of the recently announced trade measures by the United States. Further, growth prospects for 2019 remain below average for commodity exporters within the emerging market and developing economies category as these economies continue to face substantial fiscal consolidation needs or are mired in war and conflict.

Sri Lankan Economic Outlook [3] [4] [5]

The Sri Lankan economy realised a 3.6% growth in the first half of 2018 and was in line to meet the 4% growth projection for 2018 as predicted by the Central Bank of Sri Lanka until the global market developments caused a cascading negative impact on the growth of the Sri Lankan economy coupled with unfavourable domestic developments, and the political instability in the country in the last quarter of 2018.

The cascading effects of the increase in crude oil prices, increased volatility in global financial markets, and the strengthening of the US dollar in the latter half of 2018 all collaborated to cause a slowdown in economic growth by increasing costs of imported goods, reducing spending power and therefore domestic demand for goods and services.

The continued impact of the tight monetary policy stance resulted in reduced money supply in the market and an increase in real interest rate in the economy. However, the

3 Source: Central Bank of Sri Lanka – Recent Economic Developments 2018, Chapter 1

4 Source: https://www.adb.org/countries/sri-lanka/economy5 Source: http://www.ft.lk/columns/Sri-Lankan-economy-in-2018-

and-2019-outlook/4-669976


headline inflation remained in low single digit levels during most of the year although increasing to 5.6% by August 2018 due to the continued slowdown in food inflation and low money supply. The trade deficit widened to USD 8,857 Million during the first ten months of 2018, increasing by 16.7% compared to the corresponding period of 2017, due to a higher growth in import expenditure and only a marginal growth in the exports sector of the economy. The country also experienced high levels of Foreign investments outflows in 2018. All these factors colluded to the depreciation of the Sri Lankan Rupee by over 18% against the USD in 2018 compared to the 2% depreciation experienced in 2017.

Furthermore, certain structural reforms initiated by the Government of Sri Lanka supported by the IMF to address the key structural problems in the economy such as twin deficits and the greater exchange rate flexibility while strengthening reserve buffers to ensure resilience against external shocks all construed to affected economic performance in the short-term. The ‘Vision 2025’ program launched by the Government of Sri Lanka in September 2018 which is expected to address economic growth constraints over the next three years aligned to the IMF program also negatively impacted economic performance in the short-term while laying the foundation for stronger economic growth in the medium- to longer- terms.

The country, however, experienced a strengthening current account earnings from tourism which increased by 10.6% during the first ten months of 2018 amounting to USD 3,496 Million. Sri Lanka was also ranked as the No. 1 country to visit in 2019 by Lonely Planet in October 2018 and expectation for increased earnings from the tourism sector are projected for 2019.

Overall, the country’s economic performance was subdued and well below that of other South Asian and Southeast Asian countries who mostly recorded over 5% economic growth despite the challenges faced due to global economic developments. Key reasons for this slower than predicted growth is the weaker domestic demand, continued tightening of monetary policy conditions, inconsistent economic policies, stagnant investments, Government

consumption spending, lower net exports, and a weak currency.

Global poultry Industry Overview [6] [7] [8]

2018 was a challenging year for the global poultry industry mainly due to the continued effects of the Avian Influenza outbreaks resulting in trade and disease restrictions such as the EU restriction on several Brazilian plants, changing standards in import markets and local supply issues in exporting countries such as China and Brazil. The rising volatility of the global grain prices also negatively impacted the poultry industry in 2018. These factors combined to result in a decrease in poultry prices between Q2 and Q4 2018 as well as a fall in demand. Production, however, was high in many markets, particularly the US, the EU and Thailand and this in turn further affected global poultry prices.

A key development in the year was a shift in worldwide trade volumes, especially as Brazil, the world’s leading chicken exporter, was affected by global trade restriction imposed a local oversupply situation and the truckers strike which took place in Q2 2018 which resulted in loss of birds and trouble to reach ports on time. The 20% drop in volumes in Brazil was one of the key impacting factors for volume changes, as well as temporary fall in supply during the second quarter and a peak in July (Q3) when exports orders were released.

Most regional poultry players have performed well during 2018, with China, South Africa, EU, India, Indonesia, and Mexico leading the way. The industry continued its trend of retaining supply locally and regionally with only 13% of global chicken production entering global trade. Exporters, excluding the EU are the weakest performers in the global industry, with Brazil leading the way. Both the US and Thai local industries are also facing oversupply issues thereby

6 Source: https://www.poultryworld.net/Home/General/2018/10/Rabobank-Global-poultry-trade-requires-fresh-market-strategies-345840E/

7 Source: https://services.rabobank.com/publicationservice/download/publication/token/Gg697fbfiK8vXyjuLWlJ

8 Source: https://www.poultryworld.net/Meat/Articles/2019/3/Global-poultrymeat-prices-on-the-rise-405288E/


OpERATIng EnVIROnMEnT (COnTd.)

facing price pressures.

Weather conditions and climate change continued to put pressure on the poultry industry as changes affect the grain and feed supply industries in many regions including South Africa, the US, and countries in Western Europe. This has resulted in increasing feed prices in many countries, putting pressure maintaining costs of production and resulting in increased prices of poultry products.

However, 2019 is expected to have a more positive impact on the poultry industry, due to expected increase in demand from China. The slowly improving global prices and the supply discipline being realised in many markets is also expected to improve industry and market conditions in 2019. Still, challenges will abound with the volatility experienced due to changing global trade access, but more growth expected emerging markets, which will essentially be locally supplied, and the growing supply from relatively new exporters such as Russia, Ukraine and Vietnam, will change industry operating conditions.

Local poultry Industry Overview [9]

The Sri Lankan agricultural sector recovered in the first half of 2018 recording a growth of 4.9% compared to 3.8% contraction seen in the same period during 2017. While supported by the favourable weather conditions which prevailed in the country in the first six months of 2018, this growth was also realised due to the recovery in the growth of rice, vegetables, cereals, fruits, spices, forestry and logging, as well as fisheries and animal production. As a result, the Livestock and other crops (fruits, vegetables and other field crops) sub-indices contributed positively to the overall index, recording a growth of 9.4% and 18.9% respectively in the first half of the year.

9 Source: Central Bank of Sri Lanka – Recent Economic Developments 2018, Chapter 2

Regional Outlook for Q4 2018

US: Slowdown, but still profitable

� Weakening chicken prices and margins expected to remain soft

� Rising chicken and other protein supply

� Rising export to Cuba, Vietnam and Taiwan

brazil: perfect storm hits brazillian industry

� Historic drop in exports in Q2 (-20%) especially in EU and Saudi Arabia

� Production down - 5% in Q2

� Weaker real could offset some trade impact

EU: Strong conditions, with rising breast meat price

� Strong margins due to increasing breast meat price

� Imports down 11% in 2H (Brazil - 100,000 tonnes)

� Concerns about the future impact of fast central and eastern European production growth.

China: Ongoing profitable conditions

� Ongoing strong broiler and DOC prices

� Good margins, ongoing low GPS supply

� 14% increase in imports but new duties in Brazil

Figure 1 : global poultry industry outlook for Q4 2018


The poultry industry in Sri Lanka continued to gain momentum in 2018 mainly due to the country continuing to be free of Avian flu, a disease which continues to plague the global poultry industry as well as the increased demand for poultry meat as a source of protein and the increased demand from restaurants and hotels due to the increase in tourism experienced in 2018. The poultry sub-sector which is part of the livestock industry realised a 25.2% growth in egg production in the first half of 2018, due to the increased importation of Layer Parent Stock that took place in 2017. The poultry meat production also increased by 7.7% in first half of 2018, while production of Broiler Day-Old-Chicks (DOCs) grew by 3.7% in the ten months to October 2018. The average cost of poultry meat production increased during the first half of 2018, mainly due to the increase in prices of DOCs.

The livestock sector contributed 0.6% of national GDP, saw a growth driven by increase in egg Production, with the increased importation of Layer in year 2017. The intervention by Department of Animal Production and Health (DAPH) to stabilise the Layer market is appreciated by industry players.

A key area of concern for the poultry industry remains the requirement for Maize which is the primary ingredient for feed. The high rates of import duties on Maize continues to affect the operational cost of the industry and resultantly increases the cost of eggs and poultry meat.


OpERATIONAL REVIEWS

Three Acre Farms PLC’s (TAF) business operations are segregated into two primary operations – Breeder and Commercial Farms. The Company’s Breeder farm operations focus on selective breeding and hatching of commercial Day-Old-Chicks (DOCs). The Commercial farm operations of the Company consist only of rearing live Broiler chicken for chicken meat. The Company’s facilities are designed and maintained to leverage on technological advancements such as Environmentally Controlled (EC) houses, bio-security measures and other aspects to ensure effective and efficient production processes. The Company grows and supplies Broilers to its immediate parent, Ceylon Grain Elevators PLC.

The year ended 31 December 2018 was a challenging year for TAF. While the Company’s operations were affected by the myriad upheavals in both the local and global macroeconomic environments, the overall business performance was sustained mainly due to the focus on managing processes and procedures, and strategically deploying resources to create value for all stakeholders and business activities. Resultantly, TAF was able to experience growth amidst the prevalent fluctuations within the business’s operating environment.

Capitalising on Opportunities and Challenges

The Sri Lankan economy continued to be affected by fluctuating weather patterns which impacted the performance of the agricultural industry in the year 2018. The overall pressure from inflation rates which spiked several times during the year also impacted the Company’s business volume growth and had an indirect negative impact on other financial aspects of business operations. In addition, the Government’s decision to increase income taxation rates had an adverse impact on the Company’s bottom line.

The depreciation of the Sri Lankan Rupee affected TAF’s business operations by increasing feed costs which in turn increased the operational costs of the Company. As the Rupee depreciated, it also increased the cost of living and the prevalent inflationary pressures in the Sri Lankan economy, thereby resulting in reducing the purchasing power of consumers. However, the overall market demand for Broiler DOCs continued to increase during the year under review due to the trend of the fast food culture, increasing tourism and the growth in the HoReCa sector1. Growing urbanisation in Sri Lanka and the increasing demand for processed and value added poultry meat products caused by the changing socioeconomic structures of Sri Lankan families with an

1 Source: http://www.thepoultrysite.com/poultrynews/39268/poultry-output-to-fall-in-2017-due-to-constraints-in-supply-side/

increasing number of women opting to enter into full-time employment were also attributed to the increasing market demand during the year under review resulting in an overall sales volume growth for the Broiler DOCs supported by increase in selling price. The Company’s export market operations for Parent Stock DOCs remained stable during the year and the currency depreciation resulted in the Company gaining an advantage as Parent Stock is valued in USD.

The continued glut market conditions for table eggs negatively impacting the Company’s business operations due to oversupply leading to reduced market selling prices. However, the improvement in demand for Layer DOCs in the third quarter of 2018 enabled the TAF to recover some costs through realised sales. Avian flu remains a key concern for the global poultry industry as does other disease outbreaks such as the Newcastle Disease2. However, the Company ensured the continued supply of illness free and healthy products further upheld by TAF’s stringent quality control measures, bio-security standards, and effective farm and capacity management operations. This in turn resulted in the Company’s continued supply of the highest quality DOCs to the Sri Lankan market as Prima Quality Chicks, and enabled TAF to export Parent Stock DOCs to meet the increased demand from countries in the region as Sri Lanka remains an Avian flu free country.

Creating Value to Stakeholders

The overall business performance of TAF in the year under review continued on an upward growth trend propelled by the increasing demand for Broiler DOCs. The Company’s focused efforts to streamline process efficiencies coupled with the improvements in the capacity of the breeder and commercial segments also assisted in creating value to the Company’s stakeholders. Furthermore, the sole franchise for Hy-Line breeds for Commercial Layers and the Indian River Grandparent Stock breed for Commercial Broilers enables the TAF to remain competitive in market that is facing increasing year-on-year competition.

The value created for all stakeholders is from a combination of monetary and non-monetary elements as shown in the Value Creation Model on page 17 of this report.

2 Source: https://www.poultryworld.net/Meat/Articles/2018/12/Poultry-outlook-challenging-but-set-to-recover-374163E/


FINANCIAL CApITAL

Financial Capital represents the funds that are available to finance the daily operations and the expansion plans of TAF. By adopting technically sound financial principles, policies and procedures, we implement prudential financial management processes to achieve sustainable growth and profitability, thereby ensuring returns to

shareholders and other stakeholders.

One of the key objectives of Three Acre Farms PLC’s (TAF) business operations is to create and enhance the financial capital of the Company. By adopting technically sound financial principles, policies and procedures, the Company can implement prudential financial management processes to achieve sustainable growth and profitability, thereby ensuring returns to shareholders and other stakeholders.

The management of the Company’s financial capital plays an integral role in our value creation process. Through focused efforts, TAF ensures that funds available to the Company to produce goods and services is utilised in an optimised manner to generate higher returns with minimal input. The Company’s financial capital management process is therefore integrated within the holistic business operations through the corporate strategic planning process.

Our Approach to Managing Financial ResourcesTAF manages its financial capital in compliance with best practices and standards of all relevant statutory and regulatory bodies and has in place effective safeguards to deal with uncertainty and associated financial risks. Using generally accepted accounting principles and frameworks the Company allocates financial resources which satisfies the going concern concept of financial management. The Company’s financial objectives are set to achieve short and long-term financial goals.

The Company’s emphasises on the below practices to manage to gain resource efficiency and propel business growth.

� Proactive management of cash flows to ensure availability of sufficient funds for internal operations including diversifications

� Profitability optimisation through value additions and efficient resource utilisation through prudent capital expenditure management

� Maintaining a healthy Statement of Financial Position.

� Pursuing opportunities for process and cost efficiencies

� Driving business strategies towards preserving profitability margins

� Maximising returns on cash resources

Retained Earnings, cash generated

from operations and investments

Financial Strength,

Operation efficiency, Sustainable,

performance, Dividends

Review strategic plan, monitor, optimal capital allocation, Risk Management

Investment Monitoring,

Performance Review, Adjusting budgets and re- forecast as

necessary

Input

Outputs

Actions

Control and

monitor


FInAnCIAl CApITAl (COnTd.)

During the year under review, TAF’s financial operations were impacted by the challenging market and business conditions in both the global and local economic environments. Despite these challenges the Company was able to achieve 15% growth in profitability, 14% growth in shareholder returns, and 23% growth in net assets. These impressive financial indicators are testament to the Company’s strong financial management policies and practices which enables TAF to create tangible value to our stakeholders.

Our key performance Indicators

2018 2017 YoY % Growth

Revenue (Rs. Mn) 2,625.6 2,404.1 9%

Profit before taxation (Rs. Mn) 896.0 780.3 15%

Profit after taxation (Rs. Mn) 748.8 653.8 15%

Earnings per share (Rs.) 31.80 27.77 15%

Total assets (Rs. Mn) 4,362.7 3,557.1 23%

Shareholders’ funds (Rs. Mn) 3,637.8 2,960.4 23%

Share price as at 31 December (Rs.)

101.40 113.00 (10%)

Market capitalisation as at 31 December (Rs. Mn)

2,387.5 2,660.6 (10%)

An overview of TAF’s key financial indicators and their performance in relation to the previous year is discussed below.

Monitoring Financial performance

RevenueDuring the year under review the Company’s revenue increased by 9% to Rs. 2,625.6 Million from Rs. 2,404.1 Million

in the previous year, mainly due to the increased demand and resultant sales for Broiler DOCs, while contribution from the Layer DOCs remained minimal due to the glut in the table egg market. The majority of the revenue generated by TAF was from its Breeder operations, which is the largest segment of the Company’s overall business operations and amounted to 79% of total revenue.

Gross ProfitTAF’s gross profit growth was relatively slower than its revenue growth. The Company’s gross profit for the year was Rs. 714.6 Million compared with the gross profit of Rs. 709.8 Million for the previous year. The gross profit margin of TAF for the year ended 31 December 2018 was 27% which is 3% below that of the previous year.

Gross ProfitRs. Mn

0

200

400

600

800

1,000

10

15

20

25

30

35

40

20182017201620152014

219.

0 617.

8

973.

7

709.

8

714.

6

%

13%

30%

38%

30% 27%

Gross Profit Margin Gross Profit

Operating Profit and EBIT MarginDespite reduced gross profit margins, TAF was able to improve its operating profit during the year under review to Rs. 698.8 Million, from Rs. 675.7 Million in the previous year thereby resulting in an improved EBIT margin to reach 34% in the year

RevenueRs. Bn

0.0

0.5

1.0

1.5

2.0

2.5

3.0

20182017201620152014

1.68

2.09

2.55

2.40 2.

63

Operating profit and EBIT MarginRs. Mn

0

200

400

600

800

1,000

10

15

20

25

30

35

40

20182017201620152014

193.

6

617.

7

930.

8

675.

7

698.

8

%

12%

30%

37%

32% 34%

EBIT Margin Operating Profit


under review. The Company’s continued focus on prudential financial management coupled with the management of its interest income enabled this positive result despite the many financial challenges faced during the year under review.

TaxationDuring the year under review the taxation to the Government by TAF increased by 16% to Rs. 147.2 Million compared to Rs. 126.5 Million in the previous year. The main reason for this increase was the increase in income tax rates imposed by the Government to 14% from 10%.

Tax ExpensesRs. Mn

0

30

60

90

120

150

20182017201620152014

9.0 52

.5

119.

7

126.

5 147.

2

Net ProfitTAF’s net profit for the year ended 31 December 2018 was Rs. 748.8 Million compared to Rs. 653.8 Million in the previous year. The increase of 15% in the net profit margin is attributed to the concentrated efforts by TAF to manage overhead costs and interest income during the year under review. It is a notable accomplishment that net profit margin increased during the year despite the increased income tax rates.

Return Information

Earnings per Share (EpS)TAF was able to overcome operational and business challenges to increase EPS by 15% to Rs. 31.80 for the year under review compared to Rs. 27.77 achieved in the previous year and thereby ensure the continued value creation to shareholders. There were no changes in the number of shares in issue during the year.

Return on Equity (RoE)TAF was able to achieve a higher return by 2.4 percentage points on equity during the year under review compared to the previous year mainly as a result of the revenue increase by 9% during the year. This showcases the company’s continued sustainability and year-on-year value creation to shareholders. The RoE of the Company stood at 31.5% as at 31 December 2018, compared to 29.1% as at 31 December 2017.

price Earnings RatioTAF’s price earnings ratio for 2018 was 3.68, was achieved that of 6.12 achieved in 2017. The share price which fluctuated during the year stood at Rs. 101.40 as at 31 December 2018 (Rs. 113.00 as at 31 December 2017).

DividendThe Company plans to offer shareholders a first and final dividend of Rs. 4.50 for the year ended 31 December 2018 on approval at the Annual General Meeting to be held on 8 May 2019.

2018 2017

Earnings per Share (Rs.) 31.80 27.77

Return on Equity (%) 31.5% 29.1%

Price Earnings Ratios (No. of times) 3.68 6.12

Dividend (Rs.) 4.50 3.00

Managing Financial position

Fixed and Current Assets positionTAF’s assets position is very strong with total assets increasing by 23% during the year under review to Rs. 805.6 Million from Rs. 3,557.1 Million as at 31 December 2017. Our asset base includes property, plant and equipment, biological assets, inventories, cash and cash equivalents and other short-term assets. The asset growth was a result of many factors including effective and efficient asset management during the year, the implementation of an improved inventory

Net ProfitRs. Mn

0

200

400

600

800

1,000

10

15

20

25

30

35

20182017201620152014

165.

3 550.

7

812.

8

653.

8

748.

8

%

10%

26%

32%

27%29%

Net Profit margin Net Profit for the year


FInAnCIAl CApITAl (COnTd.)

management system, and company’s improved profitability position.

Assets%

0

10

20

30

40

50

60

70

80

90

100

201820172016

53%

17%3%

28%

41%

15%4%

40%

32%

13%10%

45%

Cash and cash equivalents

Other short term assets

Biological assets

Property, plant and equipment

Funding Structure and GearingThe gearing position of TAF is zero with key funding for continued business operations derived from re-investment of shareholders’ funds showcasing the financial health of the Company and its ability to grow amidst the challenging operating environment. During the year under review, TAF’s shareholders’ funds increased by 23% to Rs. 3,637.8 Million from Rs. 2,960.4 Million in the previous year.

Equity and Liabilities%

0

10

20

30

40

50

60

70

80

90

100

201820172016

80%1%

18%

83%2%

15%

83%1%

16%

Other liabilities Trade creditors Shareholder funds

Current RatioThe current ratio of TAF stood at 4.87 as at 31 December 2018 compared to 4.28 as at 31 December 2017. The increase was mainly due to the increase in the assets base realised and the effective working capital management policies which prevailed during the year under review.

Current RatioRs.

0

1

2

3

4

5

20182017201620152014

0.19 0.35

2.29

4.28

4.87

Net Assets per ShareThe net assets per share of TAF as at 31 December 2018 was Rs. 154.51 compared to Rs. 125.73 as at 31 December 2017. This increase was mainly a result of the improved profitability of the Group.

Group Net Assets Per ShareRs.

0

50

100

150

200

20182017201620152014

46.5

4 69.4

0 101.

87 125.

73 154.

51

Market Capitalisation and Market priceMarket prices and market capitalisation were affected by declining capital market conditions.

2018 2017

Highest market price (Rs.) 120.00 138.50

Lowest market price (Rs.) 92.60 110.50

Closing market price (Rs.) 101.40 113.00


MANUFACTURED CApITAL

Manufactured Capital is a critical element of TAF’s business model as these assets are the basis on which the Company achieves its

business goals and sustains long-term business growth.

As part of business operations, Three Acre Farms PLC (TAF) relies on manufactured capital such as buildings, facilities and equipment to enable the creation of value to stakeholders. Accordingly, the Company substantially invests in fixed assets such as office premises, farm facilities and equipment to carry out day-to-day business operations. Furthermore, the Company also uses infrastructure facilities developed and maintained by the Government and third parties to enable business operations.

Manufactured Capital is a critical element of TAF’s business model as these assets are the basis on which the Company achieves its business goals and sustains long-term business growth.

TAF’s manufactured capital consists of three key elements as illustrated below ;

Infrastructure Facilities

Office Premises and Related Equipment

breeder and Commercial Farm

Facilities

Our Approach to Managing Manufactured Resources

To ensure the effective management of the Company’s fixed assets and careful use of infrastructure facilities, TAF has in place a planned strategy to build, maintain and optimise use of these resources to sustain business operations and enhance core capabilities and competencies. The Company’s strategy creation process accounts for the capital expenditure required for the acquisition, enhancement and maintenance of such manufactured resources annually. Being in the poultry industry, the Company’s focus is to capitalise on technological and other industry specific equipment upgrades to retain its competitive advantage and position as a leading player in the industry.

TAF annually reviews the conditions of all manufactured resources/assets and develops a plan for maintenance, upgrades and capacity enhancements in the short to medium terms to comply with industry standards and meet the high-quality expectation of Company standards. Requirements for new and state-of-the-art manufactured resources to enable business growth and take advantage of emerging opportunities in the long term are also carefully planned and implemented. To optimise production costs and ensure no lost time in business operations, TAF has prioritised the use of machinery and equipment which can be maintained in-house.

The Company ensures that all medium to large scale new construction and maintenance work is carried out by reputed contractors who are selected by the technical evaluation committee supported by a tender process. Cost and quality are critical factors in the decision-making process for contractors as the Company’s manufactured capital determines the quality and success of business operations. The Company has in-house maintenance staff to carry-out


MAnuFACTuREd CApITAl (COnTd.)

these equipment manufacturers. All engineering and technical staff are also expected to study the manufacturer specification manuals and guidelines to ensure optimal maintenance of equipment. Periodically, the Company also employs the technical expertise of external consultants, both local and international, to ensure all machinery operates at optimum efficiency.

The process for maintaining equipment and machinery by the Company is detailed below ;

day-to-day and routine maintenance of premises, farms and equipment without disruption to business operations.

Maintenance work is carried out in a consistent and methodical manner by the Company’s in-house engineering department who are competent and knowledgeable in their field. The engineering department has in place a process which monitors machinery performance on a continuous basis. Maintenance work includes periodic servicing and replacement with quality spare parts which are readily available at the Company’s stores. As most machinery and equipment utilised by TAF are imported, all maintenance is undertaken by implementing best practices as advised by

Manufactured Capital � Office Premises and Buildings

� Environmentally Controlled / Open Houses

� Farm Equipment and Machinery

� Technology

Maintenance processes & practices

� General Maintenance

� Quality Assurance

� Safety & Security

� Control and Monitoring

business Operations

planning � Maintenance plan

� Readily available tools and equipment

� Record system of Machinery breakdown and failures

Execution � Routine machinery services

� Preventive machinery services

� Cost analysis

� Activity based requisitions

� Warehouse handling

Continuous Monitoring � Continuous evaluation of man

and machine hours

� Monitoring of service records

� Evaluation of service records with maintenance plan


TAF’s Quality and Safety programsAn integral part of the manufactured capital, maintenance process is the quality and safety programs in place to ensure employee health and safety, and business continuity during emergencies and other unforeseen situations. The details are given below.

Employee Safety program � Implemented at the departmental

level. � Regular training to ensure employees

are aware and up-to-date on safety measures and what to do in case of emergency situations.

� Benchmarked with international standards.

Emergency preparedness / Disaster Management plan

� Clearly defined disaster management plan for any emergency situation.

� Annually reviewed and updated.

Fire Safety program � Ensures the safety of human capital,

business property and facilities in the event of fire.

� Once every six months, all employees must undergo compulsory training on fire prevention and safety.

� Designated employees as Emergency Response Team is always on standby.

Material Management program � Provides information, guidelines

and procedures for the purchasing, storage, use, and disposal of materials.

Infection Control program � Structured mechanism whereby the

infection prevention and control activities are streamlined, governed, improved and monitored in order to reduce the risks on healthcare.

As a measure to safeguard the Company’s manufactured capital resources, TAF has comprehensive insurance cover to protect

assets and resources to ensure business continuity. Specific insurance coverage for fire and other natural disasters also protect the assets of the Company from unexpected risks.

Activities to Create Value to StakeholdersDuring the year under review the Company’s manufactured capital was Rs. 992.4 Million. The key contributors were the expansions undertaken in the Breeder and Commercial Farms with the addition of modern technology and Environmental Controlled houses respectively. The capital costs of these expansion amounted to Rs. 2.2 Million and is expected to create long term value to stakeholders by enabling the Company to exploit emerging opportunities in the marketplace in the coming years. The Company also invested Rs. 8.5 Million for the purchase of new machinery and equipment during the year under review.

The table below provides details of manufactured capital of TAF for three financial years ;

For the Year Ended 31 December (Group)

2018 2017 2016

Rs. Mn Rs. Mn Rs. Mn

Buildings 868.3 901.0 916.5

Plant and machinery, electrical and farm equipment 124.1 180.3 239.7

Carrying value of manufacturing capital

Additional details for property, plant and equipment can be found in Note 10 on pages 118 to 121.

Farm FacilitiesTAF uses Environmental Controlled (EC) houses and open houses for operating our Commercial and Breeder Farms. During the year under review, two EC houses were under construction to comply with industry standards and enable the Company to remain competitive while optimising operational efficiencies. All EC houses are automated through an advanced climate control system which preserves quality and welfare of poultry stock.

TAF also has in place dedicated equipment for each stage of the production process. Using such state-of-the-art equipment and machinery enables a smooth, safe, and high-quality operation which is simultaneously healthy and hygienic for poultry stock and for people who consume poultry meat.

ComplianceIntegrated within our business strategies is the compliance required for all Farm and production facilities to adhere to and comply with national standards and regulations. The Company also regularly undertakes in-house audits to ensure compliance in process flows to meet the required standards.


INTELLECTUAL CApITAL

The intellectual capital of Three Acre Farms PLC (TAF) is derived from several key elements which combine to give greater synergistic value. These elements together give TAF sustainable competitive advantage in the marketplace and help to retain the Company’s position as a market leader. These intangible elements create value to stakeholders by supporting business operations to remain sustainable into the foreseeable future by translating these non-monetary elements into viable economic value generating factors.

Our Approach to Managing Intellectual Capital

TAF takes a holistic view in managing intellectual capital elements by incorporating these within our corporate strategy. One way in which this is done is by focusing on the Company’s Research and Development (R&D) capabilities to create value for the intellectual capital factors of Tacit Knowledge, Corporate Culture (vision, mission, philosophy & values), Brand and Reputation, and Systems and Processes to assist in business growth and success. (Figure 1)

The Intellectual Capital represents the collective skills, experience, systems and processes, brand and reputation, corporate

culture and tacit knowledge that the Company possesses which synergistically creates the strong foundation for our business to

grow. These elements provide TAF with the sustainable competitive advantage in the marketplace and help to retain the Company’s

position as a market leader.

Elements ofIntellectual

Capital

Brand andReputation

FranchiseArrangements

Systems andProcesses

CustomerRelationships

TacitKnowledge

CorporateCulture

Figure 1 : Elements of Intellectual Capital

Value to the stakeholders

Brand and Reputation

Systems and Processes

Customer relationships

CorporateCulture

FranchiseArrangement

TacitKnowledge

Marketing & Stakeholder Relationship Activities

Rese

arch

and

Dev

elopment

Training & Development

Figure 2 : Activities which create value for stakeholders


Activities to Create Value for Stakeholders

Through the implementation of research & development, marketing, relationship building and training & development initiatives TAF continues to build on and create added value for all our stakeholders. (Figure 2)

brand and Reputation

The Company’s brand and reputation reflects the personality, culture and values attributed to TAF by both internal and external stakeholders. Every business operation impacts the brand and reputation of the Company and hence, we strive to ensure that the Company is perceived as a responsible and sustainable corporate citizen with a purpose to deliver value to all stakeholders without causing negative impacts to the overarching business operating environment. Our brand and reputation also help the Company’s knowledge gathering activities, drives technology-driven and innovative production operations and empowers our leadership to think bigger and better to create greater and more value for stakeholders in the long term.

As TAF is a part of the Prima Singapore Group, the Company enjoys an inherent reputation for being ethical, quality conscious and environmentally friendly in our business operations by our stakeholders.

Franchise Agreements

The Company holds the sole franchise for the Hy-line breed of Commercial Layer and the Indian River brand of Parent Stock. This long-standing partnership has only been possible with these world-renowned brands due to the Company’s established international presence and reputation based on quality and trust. The brand equity of TAF which has been built over half a century enables us to stand strong and compete in the marketplace in a leading position. Such agreements also form the basis of the Company’s sustainable long-term competitive advantage and enable us to pursue strategically challenging expansion strategies which help create value for all stakeholders by propelling business growth.

Corporate Culture

TAF’s corporate culture is derived from the Company’s vision, mission, philosophy, values and traits and plays a critical part in enhancing the value of intellectual capital by inculcating within business operations the basic premise by which business operations must be carried out. The Company’s stakeholder relationships are also dependent and based on the corporate culture advocated for adoption by TAF.

Driving brand and Reputation Growth

Corporate Culture


TAF Traits

TAF Vision

TAF 3H Principles

TAF Mission

TAF 4C Values

3H principles � Healthy Organisation

� Honourable Winner

� Honest Fortune

4C Corporate Values � Capability

� Character

� Commitment

� Compassion

4 Traits � Common sense

� Logic

� Analytical skills

� Fairness and respect


InTEllECTuAl CApITAl (COnTd.)

Tacit knowledge

TAF takes a two-pronged approach to developing and retaining tacit knowledge within business operations. The first is derived from the existing knowledge and skills of the Company’s employees, and the second is a result of the capabilities, insights and specialised know-how cascaded from our parent and ultimate parent companies, as well as retained in the business through the years. As knowledge is a key component of the Company’s intellectual capital we continuously invest in training and development and R&D activities to build on existing skills and experience of employees and bring in new skills and know-how to business processes and systems.

The nature of the Company’s business operations requires a skilled and competent workforce with extensive technical and industry-specific skills and capabilities to manage and operate our poultry breeder farms. As many employees are long standing, they have cascaded their knowledge and experience to new recruits and help to further the Company’s efforts to build a learning organisation. The senior management team of the Company also brings to the table their extensive industry and business experience which is utilised to drive business goals and objectives.

The advanced technology-oriented farming and breeding operations of TAF are proof of the Company’s ability to consolidate tacit knowledge to innovate and implement effective and efficient operations to further strengthen our intellectual capital resource.

Systems and processes

The organisational systems and process knowledge of the Company have also been developed over a 54-year period through experimentation, innovation, and research and development. Such activities have assisted TAF to gain a sustainable competitive advantage which consistently helps the Company overcome challenges, capitalise on emerging opportunities, and retain a position of leadership in the marketplace by outperforming our competitors and enabling business growth. Our effectively designed systems, processes and procedures are key components of business success, and are therefore regularly monitored and enhanced to ensure they remain relevant in the dynamically changing operating environment. The process manuals, management and accounting systems, and financial controls developed over the decades confirm that our business is carried out according to the legal and statutory frameworks as required by the Government and industry regulators.

product Research and Development

Research and development related to the product, such as quality enhancements, experiments on drugs, and vaccine usage is another aspect of the Company’s organisational systems and processes. Most of the Company’s research and development capabilities are carried out by our immediate parent, Ceylon Grain Elevators PLC (CGE) and cascaded down to TAF to be used to ensure superior quality products.


HUMAN CApITAL

Our team of dedicated and highly competent staff members power the progress and development of TAF. As a labour intensive business our employees play a pivotal role in the operations of the business. Employees are the pillars of success and the key to the Company’s competitiveness in the marketplace. Having the right people with the right talent will position TAF to future success.

Human capital consists of the Company’s most critical stakeholder, employees. They are the people who ensure that the Company’s strategies are implemented, and goals are achieved. As the Company operates in a labour-intensive industry, employees play a critical role in the smooth running of our day-to-day operations. Therefore, we know that worker satisfaction and morale are paramount to ensure their productivity, loyalty, and commitment, which in turn, ensures the productivity of the Company.

Employees of Three Acre Farms PLC (TAF) are vital to the sustained success, and resultantly are the key to the Company’s competitiveness in the marketplace. Having the right people with the right talent to take the TAF to future success is the underlying premise of ensuring the management and creation of human capital value.

Our Approach to Human Resource Management

The dynamic operating environment coupled with the complexities that are inherent in people make managing them the key to business success. The Company has in place extensive Human Resource Management (HRM) strategies which ensure the Company’s recruitment, retention, development and rewards of employees are well-integrated as part of the overarching corporate strategies of TAF (Figure 1). In consideration of the complexities of the macro environment and in anticipation of the challenges and emerging opportunities, the Company annually develops a plan to manage and oversee all activities related to employees. As part of the Ceylon Grain Elevators PLC Group, we also are guided by our parent company’s HRM policies and procedures in formulating our own strategic plans.

The following process is followed by the Company to manage human capital in order to create long term value for all employees (Figure 2).

Develop an annual manpower plan

to ensure adequate employees with the right

values and skills are available to meet TAF’s current and

future business growth needs.

Adopt and institute

a planned and systematic approach

to train and develop to prepare employees to take

on emerging challenges and opportunities in the macroeconomic

environment.

Cultivate an effective internal communication

and involvement mechanism to encourage

employees to integrate with the corporate value

system.

Set up appropriate and

adequate reward systems and mechanism to show

employees that the Company considers them and believes

them to be an important part of business

success.

Figure 1 : TAF’s Human Resource Management Strategies


HuMAn CApITAl (COnTd.)

The Company adopts a top-down approach to organisational management. However, the Company’s open-door policy encourages employees to freely engage in open communication with the management to enable the effective management of labour relations. Our HRM policies and processes are guided by and conform to all applicable labour laws and regulations. The management ensures that all employees are advised of their legal, social and ethical rights and responsibilities.

Child labour is strictly prohibited in all business operations and the minimum age of recruitment is maintained at 18 years.


The Company’s HRM systems are developed to ensure that all employees are treated in a fair, non-discriminatory and equal manner. During the year under review the Company employed 246 people who were all directly involved in TAF’s business operations. Majority of the Company’s employees are non-executive due to the labour-intensive nature of business operations. Furthermore, most of the farm activities are carried out by workers of outsourced labour contractors.

Employee Data (Group) 2018 2017

Gender-wise Employees

Male 135 113

Female 111 89

Category-wise Employees

Permanent Employees 175 152

Employees on Fixed Term Contract 71 50

Total 246 202

The Company’s HRM practices create value for our employees through personal development, rewards and recognition and by giving them an environment which fosters relationship development, employee empowerment and creativity, TAF is an equal opportunity employer and do not discriminate on grounds of religion, ethnicity or gender.

2018 2017 2016

Ratio of Male to Female 1.22:1 1.27:1 1.43:1

The Company also has in place a Code of Conduct that sets out the procedures, values and policies that employees are

TAF’s Approach to the Value Creation

process � Attractive

remuneration

� Continuous training and development

� Collective engagements

� Rewards mechanisms

� Grievances handling procedure

� Team building activities

� Welfare activities

Measuring and Monitoring

� Skills development grid

� Competency matrix

� Employee Motivation

HR Governance

� Structured policies and procedures

� Performance evaluation

� Post-training evaluation

� HR administration

Expected Achievements

� Talented and skilled pool of employees

� Motivated employees

� Target driven workforce

� Succession plan

� Business success

Identified Development Areas for 2019

� Strengthen employee relationships

� Employee empowerment

� Develop multi- skilled employees

Figure 2 : TAF’s Human Resource Management process


required to follow. The fundamentals of the Code of Conduct are communicated to employees during the induction programme when they first join the Company. All employees are also compulsory required to sign the Code of Conduct and Standing Orders on first joining TAF, as well as expected to abide by its rules and regulations on trust and faith.

promoting Gender Diversity

An area which the Company keenly focuses on is the promotion of gender diversity in employment. Through an established framework of employee recruitment, development and rewards and establishing norms for equality among men and women, TAF ensures that women are treated equal to men. This also ensures the Company’s support of human rights and non-discrimination in the workplace. In fact, TAF takes this one step further by encouraging business partners, suppliers, and other industry players to ensure the health, safety and well-being of all women and men, promote equality of education, training and professional development for both, and implement enterprise development, supply chain and marketing practices that empower women. The company believes that our endeavours in this regard is one of the best ways by which we can create value to employees by giving them opportunities which can propel them to future greatness.

Recruitment

The Company’s recruitment processes are aligned to the overall HRM system and intended to attract best-in-class talent and successful professionals to enter the ranks of TAF’s employee cadre. Our reputation and track record of excellence spanning over half a century enables us to attract and retain the industry’s best talent by giving them ample opportunities for growth, development and recognition.

TAF’s recruitment practices and procedures are adopted from our parent company, Ceylon Grain Elevators PLC. The normal process is to advertise in the local press and through online websites. Through a selection process by applying the criteria required to fulfill the job role, the most suitable candidates are shortlisted for interviews. The selection process is based solely on the suitability of the candidate for the job, and no recruitment is considered on influence, and canvassing is strictly forbidden.

When recruiting for our Farm operations, the Company will give the opportunity for employing people from the surrounding communities as well. We believe that uplifting the livelihoods of our communities by providing them with employment is key to sustaining our responsibility to society as a reputed corporate. Therefore, our HRM practices ensure that non-executive farm workers are whenever possible employed from the communities which surround our business operations.

An important part of the recruitment process is the employee induction programme. This programme gives an opportunity for new recruits to obtain an overview of company history and highlights; gain an understanding of business operations; learn the vision, mission, and corporate values; understand the rewards and other benefits they are entitled to; review the performance management and grievance handling systems; learn about their individual job roles and responsibilities; and be introduced to their colleagues in their respective departments.

During the year under review the Company recruited 71 employees, while 20 employees resigned during the same period.

Service Years of the employees

Over 25 Years - 2%

21-25 Years - 4%

16-20 Years - 5%

11-15 Years - 4%

6-10 Years - 17%

0-5 Years - 68%

Age composition of the employees

56-60 Years - 4%

46-55 Years - 24%

More Than 60 Years - 0% 36-45 Years - 31%

26-35 Years - 30%

21-25 Years - 10%

Less than 21 Years - 1%



Group 2018 2017

New Hires

Male 39 34

Female 32 19

Employee Turnover

Male 9.7% 13.6%

Female 6.2% 9.1%

performance Evaluation

Performance evaluation plays an important role to enable the Company to create value to business and employees. All employees annually undergo a performance evaluation by their line managers, in collaboration with the department head and the head of Human Resources. Performance evaluation is a critical element with the overall career development and training and development initiatives are planned for each individual employee. Through this process, the Company is able to identify competency strengths and skills as well as weaknesses of employees which are then further developed or helped to eliminate with targeted training programmes. We have found the performance evaluation process adds value to employees as it enables them to understand where improvements are needed and areas in which they are performing well, thereby contributing positively to value creation by the Company. Furthermore, this process also helps improve productivity and employee motivation while simultaneously communicating expectations, establishing future goals and recording past achievements of employees.

The Company advocated supervisors and employees to conduct performance evaluation in a participative and collaborative manner to realise the highest benefit from this tool. The performance appraisal is also a tool that provides input for the annual training and development plan of TAF.

Training and Development

Training and development is an integral part of the process for creating value to employees. Accordingly, the Company has in place a training plan for employees which is created based on two main criteria; competency and skill inventory. The Competency criteria recognises the skills, educational and professional qualifications, experience, and other competencies required by the specific job description. Skill Inventory refers to a set of skills required to perform a specific job by individual employees in every function/department of the Company.

The Company employs a comprehensive training needs identification process to ensure that all employees of the Company are given an equal opportunity to benefit from these training programmes. Furthermore, TAF provides employees with local and international training both short and long-term training as well as the opportunity to attend seminars, conferences and workshops.

TAF also has in place a post-training evaluation process which helps to identify the progress made by individual employees thereby enabling the Company to understand the value created.

Succession planning

TAF also has in place a success plans for all management positions within the Company. Potential successors and leaders are annually identified and undergo comprehensive training to prepare them to take on more challenging position within the Company in the future. The chosen employees are usually high performers who have proven themselves worthy of leadership positions through their conduct at work in carrying out their job functions. No employee is discriminated based on sex, religion, caste, creed or even age or seniority.

Rewards and Remuneration

All employees are remunerated and rewarded based on their category, grade and level of Performance. This process for rewards and remuneration is pre-determined by HRM policies and systems. As a general rule, the Company’s rewards and remuneration are on par with industry standards.

The category-wise ratio of basic salary and

remuneration of women to men is the same.

Employee Recognition

As part of the Company’s performance-based culture, employees who perform above and beyond during the course of work receive performance-oriented appreciations. In addition, long serving employees are also recognised for their loyalty and dedication by the Company annually. During the year under review 40 employees received award for their untiring contribution to the Company’s success over the years.


A promotion is another form of recognising employees’ loyalty, hard work and dedication & Performance. However, the Company’s strict adherence to performance-oriented approach to recognising employees ensures that promotions are based on the performance merits obtained from the performance evaluation process described above.

Occupational Health and Safety

The health and safety of our employees is of paramount importance to the Company. Accordingly, we have in place systems and procedures to ensure all employees are safe from harm when carrying out their work-related duties. The Company ensures that the work environment is safe and clean, especially in our farms and in production facilities. Over the years we have introduced several preventive and protective safety measures to ensure employees health and safety, by providing with personal protective equipment par to the job task.

TAF ensures that all safety measures as mandated by regulatory and legal authorities are in place and comprehensively adhered to by all employees. Safety audits are also undertaken, and we conduct regular health and safety risk assessments aimed at monitoring and enhancing the Company’s safety policies and systems.

To make sure that employees are aware of these safety measures, regular mandatory training is provided, with line mangers tasked with the job of ensuring attendance. All employees also receive an annual live mock training of fire emergency evacuation procedures. In addition, signage

Training Need identification process

Selection Process Performance Appraisal Process Succession Planning

Competency Criteria

Selection Interview

Skill Inventories

Performance Review /

Appraisal / By Annual

Skill Inventories

Competency Criteria Succession

Planning

Training and Development Need Identification

Departmental Training RecordsTraining and Development Budget

External Training Internal / On the Job Training



is used as warnings and reminders to employees where appropriate. Some basic rules and regulations which all employees, and especially those working in the farm and production facilities must adhere to include;

� Following safety rules at all times and encouraging co-workers to do the same,

� Using personal protective and safety equipment and uniforms on-site,

� Reporting all injuries and incidents, and

� Being always prepared to act in case of an emergency.

As a part of the Company’s safety culture, we have formed an Emergency Response Team (ERT) of volunteer employees who are regularly trained to ensure they are prepared to help fellow employees in the event of fires or other emergency situations. First-aid training is also provided to at least one representative from each department so that he/she may help-out in case of minor injuries and in emergency situations. Basic first-aid facilities are available within the Company’s premises and is free for use by employees.

A unique aspect of occupational health and safety being in the livestock industry is the health and safety of our products, i.e., the birds. To ensure that birds are healthy and secure and do not inadvertently spread diseases or sickness not only amongst employees but also to the larger supply chain and ultimately to consumers, we have installed high-tech state-of-the-art bio-security systems in our farms.

During the year under review the Company experienced no major injuries to employees and no emergency situations.

Grievance Mechanism

The Company has in place a comprehensive grievance handling mechanism to resolve any conflicts and ensure harmonious labour relations throughout our business operations. The management maintains an open, proactive and healthy dialogue with employees, especially non-executive

workers to help address any grievance or concern at the onset. Any concerns and issues employees have regarding their work or even co-workers can be brought to the attention of their immediate supervisor for resolving before escalating to higher level managers.

As part of the process of maintaining employer-employee relationship, the Company has in place an Employee Council to oversee any grievances brought forward by employees. The top management meets quarterly with the Employee Council to discuss any issues that may have arisen and to provide advice on how to resolve matters if required and requested. Employees who bring grievances to the notice of the Employee Council are treated with respect.

During the year under review the Company did not face any formal grievances related to labour practices, human rights violations, or any other business or work process matter.

Employee Welfare

The Company believes that a healthy work-life balance is essential for the emotional and physical health and well-being of our employees. Having adequate work-life balance also enables employees to perform better at work. As part of encouraging such a balance TAF organises family get together for staff which is a major event in the company calendar.

Employee Communication

Communication with employees is an important part of TAF’s HRM processes. Using methods such as emails, memos, notice board, meetings, and even the company website, we share information with employees pertaining to our business operations and industry-based news. Matters such as new procedures and systems planned to be implemented by the Company, new employees recruited to the Company, and awards and recognitions received by employees or by the Company are regularly communicated to ensure building a connected team who consider themselves a part of the TAF family.


Three Acre Farms PLC (TAF) understands that financial performance and business growth are dependent on our ability to sustain strong relationships with external stakeholders, particularly customers, business partners, the Government, and with the wider community. By building relationships based on shared values and behaviours, TAF is able to create value for these stakeholders based on their individual needs and wants. We count these relationships as being a part of the Company’s valued assets base, as they provide us with returns which helps create value across the

SOCIAL AND RELATIONSHIp CApITAL

The relationships that we have nurtured with our stakeholders drive the creation of shared value across customers, community, business partners and the government. By building relationships

based on shared values and behaviours, TAF is able to create value for these stakeholders based on their individual needs and wants.

Customers Enable

Enhance

Empower

Engage

business partners

Soci

al a

nd R

elat

ions

hip

Capi

tal

Government and

Regulatory bodies

Communities

business. Resultantly, the Company takes an overarching view of corporate social responsibility in that we consider the impact of our business operations from the perspective of all our stakeholders.

Our Approach to Managing Social and Relationship Capital

The Company has in place different systems and procedures to manage social and relationship capital elements to maximise mutual benefits for all parties. Using a structured approach, the Company endeavours to integrate within our corporate strategy the elements of relationship management and giving back to the community in the course of business activities. An integral part of managing social and relationship capital is our stakeholder engagement process through which we are able to identify areas of importance to our stakeholders and implement initiatives towards meeting stakeholder expectations. The Company’s stakeholder engagement process is explained in pages 22 to 26. This process has helped us build long standing mutually beneficial relationships with our stakeholders over the years.

As stakeholder relationship management is paramount in successfully growing and creating business value, the Company safeguards this by regularly training and developing employees to enhance their abilities to manage these relationships. Further, the Company also embraces and upholds the highest standards of governance which reflects on our emphasis on being a highly-compliant business in the country. Our agreements and policies use unambiguous and non-complex wording enabling stakeholders ease of understanding and comprehension.


SOCIAl And RElATIOnSHIp CApITAl (COnTd.)


The Company creates value by aligning stakeholder expectations with Company strategies and goals. To ensure that stakeholders’ expectations are being met, we have in place mechanisms which continuously monitor these expectations against our delivery. A key element in building and fostering long-term relationships with our stakeholders is the focus on the excellence of our products and services. The Company’s strong brand presence together with its reputation has helped to further our efforts in creating value in this regard. The Company has in place numerous initiatives to enhance stakeholder value which translates into stakeholder satisfaction as illustrated in Figure 1.

building Customer Relationships

The Company’s sales team engages with customers on a regular basis to accept orders and ensure a high quality and satisfactory service delivery. They also regularly communicate with customers to understand their concerns and to satisfy their expectations. The Company also conducts regular customer satisfaction surveys and meets customers face-to-face and at their business premises several times a year.

Any complaints received is immediately investigated, and the Company Customer Complaints Handling Process ensures our customers get adequate and correct response to any issues they may have raised. TAF has had no customer complaints in the past few years.

By building mutually beneficial customer relationships, the Company has also been able to add value to our intellectual capital elements in addition to the social and relationship capital value. TAF’s key mechanisms to reach customers is through product responsibility, service quality, and honest and transparent communication. (Figure 2)

During the year under review, there were no fines/penalties imposed on the Company for the breach of any product/service responsibility related regulations. TAF also had no breaks in policy or any instances of statutory non-compliance in the year under review.

building Relationships with business partners

To be fair and transparent in all our dealing with suppliers, franchise partners, and other business partners, TAF has designed a procurement process which generates sustainable value to these stakeholders, while simultaneously increasing the value proposition of the Company’s business model.

The Company’s carefully designed procurement process identifies and selects the most suitable supplier who meets our standards on quality, reliability and cost. Business partnerships are entered with a view to building long-standing relationships. Hence, all business partners are valued based on their market reputation, credibility of business practices, and quality of their products and services offered at the right price and with the right attitude and values. As TAF’s business involves a sizeable volume of livestock, every precaution is

Key Stakeholder

Stakeholder View of the Company Initiatives Adopted by TAF to achieve Stakeholder Satisfaction

CustomersA trusted brand that keeps its promises

Product Responsibility, Service Quality, Honest and Transparent Communications

Business partners

An ethical brand which creates social value and meets its obligations

Supplier Evaluation, Relationship Building, Conflict Resolution

Government and Regulatory Bodies

A trusted brand that upholds the highest standards of credibility and integrity and behaves responsibly towards people and the planet.

Compliance, Monitoring and Regular Reviews of business processes and operations

CommunitiesAn ethical brand recognised as being socially responsible and environmentally friendly.

Corporate Social Responsibility Programs, Incorporating responsible and sustainable business practices within business operations

Figure 1 : Stakeholder expectations and value delivery mechanism


taken to ensure that the quality of the birds is adhered to. We also ensure that we obtain all local and international licenses and permits from respective authorities for procurement.

During the year under review, TAF entered into partnerships with several local and international suppliers and contractors with established reputations in their field of specialty for the construction of Breeder and Commercial Farm facilities, for the regular maintenance of plant and machinery, and for the purchase of spare parts and other day-to-day business requirements.

All business partners are regularly evaluated to ensure they continue to provide quality products and service levels to maintain an optimal supplier portfolio. In addition, the overall procurement process of TAF is reviewed at least once in every two years to ensure they are aligned to current market trends and other regulations and laws.

The process adopted to deliver expectation includes the evaluation of suppliers, relationship building and conflict resolution with business partners as illustrated in Figure 3.

product Responsibility

Our brand value and loyalty have always been based on high product quality and product responsibility. We assure our stakeholders of the quality of our processes, systems

and products.

An important element of our sustainable competitive advantage is the quality of the service we offer our customers which has enabled

the Company to nurture and sustain mutually beneficial, long-term

relationships with them.

The ‘PRIMA’ brand is the epitome of a quality product. We build trust

and protect brand value through our communications and draw guidance

from best practices observed by our principals. Customer rights and

privacy are ensured through the legitimate use of customer-centric

data and secure data storage.

Service Quality Honest & Transparent Communication

Our KPI - Maintenance of Customer Satisfaction Index over 80%

Feedback from customers is facilitated by a structured mechanism. Our satisfaction surveys track multiple aspects of the customer experience to gain insights in customer views on product responsibility, quality and

communication activities.

Figure 2 : Management approach to create value for customers

Supplier Evaluation � In-house checklist

� Quality control systems of supplier

� Fairness of price

� Marketing communications

Relationship building

� Regular reviews

� Satisfaction survey

� Supplier registration

Conflict Resolution � Colloborative agreements

� Healthy voice

� Win-win negotiation

Delivery of Expectations � Business partnerships

� Feedback

� Self-evaluation

+ + =

Figure 3 : Management approach to create value for business partners


SOCIAl And RElATIOnSHIp CApITAl (COnTd.)

During the year under review the Company has had no negative impacts on suppliers and nor has any negative practices or activities been reported about our suppliers. Our suppliers or contractors have also not taken any legal action against the Company during the year under review. The Company has also not received any complaints from our business partners about any delayed payments or inadequate lead time to supply goods.

building Relationships with Government and Regulatory bodies

Governments and regulatory bodies are another important stakeholder of the Company. We work within a pre-defined framework of all relevant institutions and regulatory bodies including the Sri Lanka Customs Department, Department of Animal Production and Health (DAPH), the Ministry of Agriculture, the Ministry of Livestock, Central Environmental Authority (CEA), and the Board of Investment (BOI) to ensure that all necessary licenses and approvals are obtained for legal and transparent business operations. The Company also required licenses from the Import Control Department and import permits from the Department of Animal Production and Health for every shipment of Grandparent/Parent Stock Day-Old-Chicks (DOCs).

During the year under review TAF has complied with all mandatory regulatory requirements both from a local and international perspective. The Company has also reported to the relevant Government and regulatory bodies as mandated.

Creating Value to the Community

The Company’s initiatives to give back to the community within which we operate is manifold. All Company activities are aimed at helping uplift the lives, livelihoods and living standards

of less privileged community members in the vicinity of our farms. The Company’s takes both a proactive and reactive approach to creating value to community members as we belief this gives them the greatest benefit in the long term. In the proactive approach we identify a perceived need in the community and endeavour to address it. Our reactive approach ties in with specific requests from community members to meet their needs and help them in case of natural disasters and unexpected situations such as accidents or deaths.

It is the Company’s practice to work with community members to improve public facilities, employ people from surrounding areas to our farm operations and when required make donations in cash and kind. During the year under review TAF contributed Rs. 611,000 to help community members to take care of elders, reconstruct and augment school and religious buildings and facilities, and assist with community-based religious celebrations. The Company also sponsored the Veterinary Surgeons Association Meeting and contributed by sharing our know-how and knowledge on poultry with the members.

TAF also encourages our employees to be a part of giving back to the community, and during the year under review our employees also contributed their time and efforts by participating in Dansals (which is the distribution of free food during Vesak celebrations) and also participated in staff get together.

donation of stationery for use by school children of Thissa Vidyalaya

Assisting in renovation of the of pannila Elabada Viharaya


NATURAL CApITAL

Being involved in the poultry industry, Three Acre Farms PLC (TAF) relies on natural resources in its business operations. Recognising that natural resources are scarce; the Company incorporates the premise of ‘sustainable consumption of natural resources’ as a key pillar of our strategy development process. This enables the Company to practice the effective management of our natural capital by promoting sustainable practices in business operations, thereby mitigating our environmental footprint.

The Company is affected by environmental changes from weather patterns and climate change implications which affect the performance of Breeder and Commercial Farm operations. Natural disasters such as floods and droughts are key concerns as the Company must co-exist within the boarder natural ecology within which we operate. Our efforts during the year continued to focus on harmonising environmental preservation aligned to our belief in green business operations.

Our Approach to Managing Natural Resources

Effectively managing natural resources enables the Company to lower risks, improve corporate reputation and resultantly have a positive impact on our business operations. Our approach to managing our natural capital is supported by measures to conserve as well as mitigate the impacts of the natural resources we use, at every stage of our business activities. Our efforts are focused on achieving energy efficiency, reducing water usage, adopting minimum waste generating processes and effective means of overcoming the effects of climate change.

As part of our business operations, TAF integrates environmental concerns and impact into our business

strategy setting process. We engage with our stakeholders to understand their views and concerns and incorporate their concerns into business decision making activities. We regularly communicate with stakeholders on the effectiveness of our efforts and make annual commitments which we strive to meet to the best of our abilities.

The Company undertakes Environment Impact Assessments (EIAs) in consultation with the Department of Agriculture and the Central Environmental Authority when we consider investing in new facilities and upgrades to existing facilities. This process invites inputs from all interested stakeholders. Aligned to our environment objectives, new facilities do not harm natural environment and biodiversity in our locations of operations.

In managing environmentally viable product and processes, the Company incurs a higher cost of production than it would otherwise; due to additional specialised skills and knowledge, as well as the tendency for environmentally friendly equipment and technology being of a higher capital cost. Hence, a challenge faced by TAF remains the adoption of environmentally friendly practices, while still maintaining acceptable levels of operating costs and contributing to business growth and financial sustainability in the long term.

Environmental Management System

TAF’s environment management system is aligned to these focus areas and the Company continues our journey of more efficient and effective alignment of resources to safeguard the environment and employ sustainable business operations for long term returns to stakeholders.

As a Company engaged in the poultry business we rely on our natural resources for our business operations. We are conscious of our environmental foot print and try to embed green practices to our business operations to promote sustainable consumption of

natural resources.


Activities Implemented to Create Value to Stakeholders

During the year under review the Company set and achieved our environmental management goals which were also aligned to regulatory compliances. The goals to increase compliance, improve efficiency in using natural resources, and reduction of waste were also achieved. The integration of such goals as part of the Company’s normal business operations by incorporating them as business and individual Key Performance Indicators (KPIs) ensures that achievement is not separate and can be measured on a continuous basis.

TAF’s adherence to environment laws and regulations also ensures that Company policies are strictly compliant with relevant regulatory and other voluntary requirements. Some polices adopted by the Company to encourage employees to practice effective sustainable business practices include

nATuRAl CApITAl (COnTd.)

using an environmentally friendly disposal system, pollution prevention practices, and using environmentally friendly office

In House KPI’s

Managing Inputs

Compliance

Preserving Bio-Security

Regulatory Framework

Material

Optimise Material

Consumption

Water

Optimise Water Consumption

Energy and Fuel

Preserving Energy and Reduce Carbon

Footprint

Environmental Framework

Managing Output and

Impacts

Waste and Effluents

Effluents and Waste Management


equipment. Furthermore, the Company continues to educate staff on our environmental principles ensuring that employees conform to these principles during the course of their work, giving due emphasis to such activities as being of high priority.

The three main natural resources consumed by business operations are energy, materials, and water. TAF is committed to following sustainable production practices and processes to ensure that farm management operations adopt initiatives which will reduce water, energy and material consumption without affecting product quality and operational efficiency.

Energy Efficiency

The Company’s hatching, breeding and rearing operations are the most energy-intensive activities of the business. As a result, the Company has introduced several initiatives over the years to optimise production processes to become more energy efficient. Some of these initiatives include, extending the life of equipment through scheduled maintenance, purchasing and remodeling used equipment, and the use of energy saving bulbs in all building and office premises.

To enable the Company to monitor effectiveness of our initiatives, we have in place monitoring systems to scrutinise and control these energy intensive processes to ensure effectiveness.

Water Management

Poultry farming is a water intensive operation which is dependent on water to ensure the health of poultry stock. As a result, TAF places great emphasis on smart water use and zero water wastage in business operations. Towards achieving efficient water usage and continued reduction in water consumption the Company has in place processes which adopt water efficient farm operations and policies that encourage employees to conserve water.

Effluents and Waste Water

Waste water and effluents generated during production processes are non-toxic and filtered in accordance with the Central Environmental Authority (CEA). These effluents and waste water are managed within acceptable levels and comply with environment management regulations and laws of Sri Lanka.

TAF has implemented waste water treatment plants to the Breeder and Commercial Farms to ensure the quality of the

water recycled. A monitoring and controlling mechanism is also installed to ensure process effectiveness.

The Company generally releases the waste water and effluents into the Municipal Council provided drainage systems. The Company also prevents waste water from being released into the ocean to ensure no water pollution from business operations.

Waste Management

Solid waste generated by TAF during the normal course of business operations is segregated and disposed of in an environmentally friendly manner. This waste is non-toxic and does not contain any hazardous substances. Such waste is segregated according to recyclable and non-recyclable materials and disposed of using the municipal council waste disposal services. Some solid waste is disposed of using licensed waste disposal facilities in accordance with environmental and legislative requirements of the country.

Waste material from farm operations is analysed and assessed for options for possible re-use before disposal. Most of the non-hazardous material waste is re-sold as a valuable input for the agriculture industry to be used as compost. The materials used by the farms are environmentally friendly and therefore have no detrimental effects on the environment.

Hazardous waste from the Farms is collected separately and dispatched to licensed waste disposal organisations.

Packaging materials used by the Company has been converted to recyclable ‘fit-for-purpose’ packs that preserve the products and avoid unnecessary wastage.

Environment and Social Obligation

TAF complies with the relevant and required regulatory compliances on natural resource usage and environmentally friendly practices. The Company has had no issues with non-compliances in the last many years. Our belief in environmental protection exceeds that of only regulatory requirements and the Company’s practices include aspects that consider the impact of business operations from the perspective of stakeholders, thereby creating value from a Natural Capital perspective.


nATuRAl CApITAl (COnTd.)

Environment and Sustainability

Sustainability Aspect

Our Approach In Practice

Green Products

� Optimised the use of material consumption.

� Endeavour to use materials/ components/ parts which are reused and recovered.

� Design the product to minimise resource consumption during the production process.

� Design our production process to minimise waste generation and environmental impact on product usage and product disposal.

� Our product is generated by optimising material consumption year-on-year.

� We reuse most of the materials used in the production process.

� We have a pipeline of our poultry systems and plan production so that we can reduce our resource consumption.

� We sell our poultry manure (litter bags) for use as organic fertilizer so that it will not be disposed of as waste.

Green Process � Acquire clean technology and equipment.

� Install energy efficient equipment.

� Install pollution control technologies.

� Focus our processes to reduce waste by reusing waste and scrap internally.

� The EC houses ensure energy efficacy and planned production throughout the year helps to save energy.

Green Supply Chain Management

� Replace materials that can cause environmental problems with alternatives.

� Create a market for waste by making waste an input material for another option.

� Use green packaging.

� Educate customers to adopt green distribution and transportation systems.

� We check with our supplier to ensure that their products do not cause negative environmental impact.

� Usage of environmental friendly packing materials

� Arranging customer awareness programmes.

Compliance

The Company endeavours to follow best practices in complying with environmental conservation activities using latest processes, equipment and technological advances to eliminate the environmental impact of our business operations while supporting the effective consumption of material scare resources. The Company has in place compliance indicators, which are regularly monitored and measured to ensure conformity best practices in environmental conservation.


FUTURE OUTLOOk

of-the-art Breeder Farm facilities together with the added capacity for Commercial farming operations will enable the Company to meet its goals of planned capacity increases over the mid-to-long-term period, while strengthening the pipeline to explore potential new operating areas to ultimately drive sustainable, long-term growth.

Product quality will continue to be a key focus area in the coming years and the Company has plans to further improve the ‘Rodent Control Programme’ in place, as well as increase the skills, knowledge and technical expertise of employees towards meeting existing quality standards and implementing new quality control measures to improve the productivity of Breeder Farms.

Despite the better industry outlook for the next few years, the macroeconomic challenges of 2018 which impacted Sri Lankan economic performance will continue to impact TAF’s business operations in the coming year. The Company foresees continued impact from the depreciation of the Sri Lankan Rupee which will continue to be affected by both global and local economic factors such as the rising global fuel prices, the Government initiated structural reforms programmes, and the reduced forecasted GDP growth due to increases in loan repayments and the increasing deficit in balance of payment. The Company will also be directly impacted by some Government-led initiatives to rectify economic growth forecast which are expected in the form of imposition of new taxation and increases in import tariffs.

However, despite these challenges, expectations of improved local market conditions for table eggs will enable TAF to capitalise on the expected increase in demand and garner better prices for Layer DOCs in the coming year. Furthermore, the Company also expects sales for Broiler and Layer DOCs to increase due to the growth of the tourism industry. The expected growth in the global market will also propel the Company’s growth in the coming years. The Company envisages increased demand for Parent Stock DOCs from regional countries which will result in increasing TAF’s export market operations during 2019 and beyond.

As in the past, the Company and its management are confident that we will successfully overcome local and global market and economic challenges and continue to create value to all our stakeholders while driving business growth and profitability.

As a leading Company in the Sri Lankan poultry industry, with strong backing from our parent company Prima Singapore, Three Acre Farms PLC (TAF) is well positioned to lead the way in taking forward the industry to its next level. Having garnered over 56 years of experience in the industry, TAF is well

positioned with business processes and systems to tackle challenges and capitalise on opportunities to ensure creating and enhancing value to our stakeholders.

The Company will continue efforts in further strengthening customer and brand loyalty, and product responsibility by continuing to invest in enhancing our quality standards, bio-security measures, and adopting technologically enhanced farm and capacity management processes and systems. Our focus on stakeholder engagement across TAF will continue to lead the way in how we interact with and involve our stakeholders within our business operations. While we have committed to safeguard the environment within which we operate we hope to focus on furthering this commitment in the coming years by leverage on our brand loyalty in the market to incorporate ever-more environmentally friendly and acceptable practices into TAF’s business processes and activities.

Operating in the poultry industry in Sri Lanka which continues to be an Avian flu free country has unlocked new export market opportunities in the region. With recent increases seen in demand for Parent Stock DOCs, the Company has plans to exploit these opportunities in the coming year and increase our export market operations. However, the Company will continue to be vigilant of the spread of this disease and has plans to further strengthen the bio-security measures and ensure imported DOCs are healthy and illness-free. Local market demand for poultry meat which has resulted in an improved demand for TAF’s Broiler DOCs in the last couple of years, is also expected to further increase mainly due to the expectations of increased tourism in the country, population growth, and the changing lifestyles of the Sri Lankan people with increasing urbanisation and shifting dietary habits.

Towards this end, the Company has already invested in increasing production capacities in the year under review and has plans to construct new Breeder Farms with modern hatchery operations in the fully-owned Ittapana land area, further increase Commercial Farm capacity by investing in construction of Environmentally Controlled houses and overall invest in resources to help improve productivity and yield of our farms to meet expected future demands. The new state-

GovernanceReports


bOARD OF DIRECTORS

Mr. Wickrema Senaka Weerasoorianon-Executive Independent Chairman

Mr. Wickrema Senaka Weerasooria was appointed as a Non-Executive Independent Director with effect from 15 January 2015 and he was appointed as the Non-Executive Independent Chairman of the Board with effect from 25 February 2015.

Mr. Wickrema Senaka Weerasooria holds a Masters in Information Technology (University of Canberra, Australia), a Graduate Diploma in Commercial Law (Australian National University) (ANU) and a Bachelor of Science (ANU).

Currently, he is a Vice President of the FINCO Group of companies as the Chief Executive of Genesiis Software Pvt. Ltd. and FINCO Technologies Pvt. Ltd., and a Director of Wealth Trust Securities Ltd.

He has served as a Manager / Consultant at several Australian public sector agencies including the Department of Primary Industry, Department of Education and Department of Foreign Affairs and Trade.

Mr. Cheng Chih kwong, primusExecutive Director and Chief Executive Officer

Mr. Cheng Chih Kwong, Primus was the Chairman and Chief Executive Officer of the Prima Group and its subsidiary companies since 1998. He has stepped down as Chairman of the Board and will continue as an Executive Director and Chief Executive Officer of the Company with effect from 25 February 2015. He is a Certified Practicing Accountant (CPA) - Australia and also holds a Diploma in Business Studies.

Mr. Tan beng ChuanExecutive director and group general Manager

Mr. Tan Beng Chuan is the Group General Manager of Prima Group of Companies, Sri Lanka since 2004. He was appointed as a Director of the Company and its subsidiary companies in 2004. He also serves as a Director of Three Acre Farms PLC and its subsidiaries, Ceylon Agro-Industries Limited and Prima Ceylon Machinery (Private) Limited.

He holds an MBA in Management and Marketing from University of Warwick, UK and B.Sc. (Hon) in Chemical Engineering from University of Surrey UK.

Mr. Tan Beng Chuan was the past President Mentor of Singapore (Sri Lanka) Club; Executive Committee member of Sri Lanka - Canada Business Council, Executive Committee member of Sri Lanka – Singapore Business Council and a Committee member of Sri Lanka - China Business Council.

Mr. Cheng koh Chuen, bernardnon-Executive director

Mr. Cheng Koh Chuen, Bernard has been a Director of the Company with effect from 1 August 2012. He also serves as an Executive Director of Prima Limited.

He holds a Bachelor of Science in Business Administration and also a MBA from the University of Southern California.

Mr. Sunil Leeniyagodanon-Executive director

Mr. Sunil Leeniyagoda joined the Prima Group in October 2001 as the Group Treasurer and was appointed as a Director of Three Acre Farms PLC in July 2004. Mr. Sunil Leeniyagoda is a professional banker and counts more than 25 years’ experience in commercial banking out of which 14 years was in the area of Treasury Management. He started his career at Bank of Ceylon and later moved to ABN Amro Bank and at the time of joining Prima he was the Vice President, Treasury. He holds a Postgraduate Diploma in Bank Management and is also a Board member of Prima Ceylon Limited, Prima Land (Private) Limited, Prima Management Services (Private) Limited, Prima Ceylon Machinery (Private) Limited and Prima Logistics Services (Private) Limited.


BOARd OF dIRECTORS (COnTd.)

Mr. Sunil karunanayakenon-Executive Independent director

Mr. Sunil Karunanayake was a Director of the Company since 2009. He was appointed as Senior Director of the Board with effect from 25 February 2015 and was re-appointed as Non-Executive Independent Director with effect from 15 April 2015. He held office as Non-Executive Independent Director demised on 27 May 2018.

He held a fellowship of the Institute of Chartered Accountants of Sri Lanka and Chartered Institute of Management Accountants (UK) and a MBA from the Postgraduate Institute of Management of the University of Sri Jayewardenepura. He also obtained a Diploma in Commercial Arbitration from the Institute of Commercial Law and Practice.

Dr. prathap Ramanujamnon-Executive Independent director

Dr. Prathap Ramanujam was appointed as a Non-Executive Independent Director of the Company with effect from 7 August 2018.

After completing over 36 years of service in the Public Sector and as a Permanent Secretary to several important Ministries during his last fourteen years in the Public Sector. Dr. Prathap Ramanujam who was responsible to setup the Secretariat for Infrastructure Development and Investments which was instruments to initiate the first mini hydro power project in Sri Lanka back in 1993 joined the private sector by taking up the directorship of Pan Asian Power in 2010. He was appointed as the Chairman and the Chief Executive Officer in the same year. He brought in his diversified expertise from his distinguished career in Public Sector over a period of 36 years.

Dr. Ramanujam holds a First Class B.Sc. (Hons.) degree from the University of Peradeniya Sri Lanka, a M.Sc. degree in Economics from the University of Bristol, UK and a PhD in Economics from the Australian National University (ANU), Canberra, Australia.

He was appointed as the Chairman of Onally Holdings PLC (2008) and Waters Edge Limited (appointed by the Supreme Court of Sri Lanka in 2009). Currently he is the Chairman of Manelwala Hydropower (Private) Limited and Padiyapelella Hydropower Limited and serves in the Board of Ceylon Agro – Industries Limited and Pan Asian Investments (Private) Limited. He is currently the Deputy Chairman of Senkadagala Finance PLC. He was appointed as member of the Public Service Commission by constitutional council in August 2015.


CORpORATE GOVERNANCE REVIEW

Corporate governance plays an integral role in how Three Acre Farms PLC (TAF) balances the interests of sustainable business operations with stakeholder expectations. By adopting a corporate governance system which incorporates the rules, regulations and processes based on the guidelines as laid out by the Institute of Chartered Accountants of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, the Companies Act No. 7 of 2007 and the Listing Rules of the Colombo Stock Exchange, TAF is able to adopt ethical, transparent and effective corporate governance practices to carry out day-to-day business operations. By focusing on strengthening and developing on the fundamentals of these corporate governance principles, the Company has been successful in creating a sustainable business model.

The Company’s corporate governance policies ensure business operations are carried out with integrity, fairness, transparency, and in an ethical manner. The Company’s stance on adequate, accurate and timely disclosures further strengthens our business reputation and ensures the creation of long-term stakeholder relationships built on the premise of trust, reliability and respect.

The overall responsibility for corporate governance resides with the Board of Directors and execution of these practices is disseminated and encourage from the top-most level of leadership. Ensuring transparency, stewardship and accountability, the Board has in place a governance framework

which incorporates developments in the external macro environment together with regulatory requirements and assurance mechanisms. These are supported by the internal corporate governance framework of TAF which enables the Board of Directors to efficiently execute its policies and monitor effectiveness.

TAF endeavours to continuously improve our corporate governance practices and processes by aligning our governance framework with best-in-class international and industry-based corporate governance practices (Figure 1).

Code of ConductThe Code of Conduct of TAF preserves the standard for sustainability, accountability and transparency across all business operations. The Code incorporates the below vital aspects.

� Always act in the best interests of the Company, ensuring transparency in all matters

� Conduct business in an ethical manner and in keeping with international industry standards

� Continuous professional development along with the Company and individual compliance with all rules and regulations

TAF's Internal Corporate Governance St

ruct

ure

Regulatory Requirements

Macro Operating Environment

AssuranceMechanisms

ExternalAudit

InternalAudit

InternalControls

Code ofEthics

IndependentCertifications

ComplianceReviews


CORpORATE gOVERnAnCE REVIEw (COnTd.)

� Trust, professionalism and integrity in all partnerships and transactions undertaken by TAF

According to the Chairman of the Board, the Company has not been in violation of any of TAF’s Code of Conduct during the year under review.

Internal Governance Structure

TAF has in place an internal governance structure that considers both short term and long terms aspects of corporate governance. The Company’s internal governance is based on the committee structure, thereby entrusting the oversight of corporate governance practices at TAF to the Board of Directors. To further ensure independence of corporate governance practices at TAF, this structure stipulates that the CEO and individual functional managers are accountable and responsible for the day-to-day business

operations including the functioning of the business units of the Group. The responsibilities and accountably for each function and the business units are agreed upon in advance. This ensures a continuous flow of operations without any undue interruptions.

The Management Committee is a vital part of the Company’s governance structure and is headed by the CEO. The terms of this Committee empower the CEO to act on behalf of the Company in implementing corporate governance at TAF. The Management Committee consists of

� Board of Directors

� Audit Committee

� Group General Manager

Mandatory Compliance

• Companies Act No. 7 of 2007

• Sri Lanka Accounting Standards - ICASL

• Company’s Articles of Association

• Listing Rules of the Colombo Stock Exchange

• Securities and Exchange Commission Rules

• Central Depository System Rules

Voluntary Compliance

• The Code of Best Practice on Corporate Governance - ICASL & SEC

• Codes of Regulatory Authorities, Professional Institutions and Trade Associations

• International Integrated Reporting Framework Management Systems

Shareholders

Audit Committee

Head of Internal Audit

Corporate Management Teams

Exective Committees

• Remuneration Committee

• Nomination Committee

• Ralated Party Transaction Review Committee

Chairman and Board of Directors

Internal Governance Structure Compliance and Assurance

Figure 1 : governance framework


� General Manager

� Senior Management Committee

These positions and Committees are complemented by strong internal governance procedures and systems. These are set in motion by the Group business plan. Such mechanisms within the governance structure ensure proper implementation and execution of the Group’s corporate governance framework.

Governance CultureTAF endeavours to adopt an effective governance culture by encouraging employees and other stakeholders to commit to good governance practices. To encourage such company-wide adoption of good governance practices, TAF adopts the right processes and cascades the Company’s corporate governance policies to all relevant stakeholders to increase awareness and adoption at all levels. The Company’s values also encourage employees to preserve ethical and transparent business practices which are regulated by the Company’s Code of Conduct in achieving business goals. The sustainability of the governance principles is facilitated by aligning TAF’s performance driven culture with business value creation.

The board of Directors

board ResponsibilitiesThe Board of Directors of TAF effectively leads the Company to meet strategic business goals and objectives. The Board of Directors are responsible for ensuring the Group’s compliance with laws, regulations and other standards applicable to business operations. Such laws include Sri Lankan law on employment, Company operations, human rights and specific laws and regulations advocated by industry and Company regulators. TAF also ensures keeping updated on compliance requirements through regular reviews of laws and regulations. In order to maintain the overall responsibility to shareholders in achieving the Company’s goals, the Board of Directors also fulfills the following responsibilities;

1. Managing the Group efficiently and profitably on behalf of the shareholders

2. Ensuring the Group accomplishes its goals

3. Meeting regularly to establish and maintain the Company’s direction and position

4. Providing guidance and direction to ensure the Group is adequately resourced and effectively controlled

5. Reviewing the Group’s operating and financial performance

6. Ensuring compliance with laws, regulations and ethical standards

7. Ensuring all stakeholder interests are considered in corporate decisions

The Chairman of the boardThe Chairman of the Board is Mr. Wickrema Senaka Weerasooria whose role in preserving good corporate governance is crucial. He is responsible for the effective running of the Board while maintaining a balance between Executive and Non-Executive Directors. He is entrusted with taking responsibility for the Board’s composition and facilitating the effective contribution of Non-Executive Directors. The Chairman also provides guidance to the Board on future direction of the Company by the timely achievement of set goals.

board’s principal Roles and Functionsproviding Strategic DirectionThe Board of Directors is collectively responsible for the establishment of the Group’s general directions, corporate policies, overall strategic objectives and corporate plans which are communicated to the Management Committee. They also lay out a schedule of issues and directions which could only be approved by the Board as monitoring controls.

Name of Board of Director Designation Effective Date of Appointment

Mr. Wickrema Senaka Weerasooria Non-Executive Independent Chairman 25 February 2015

Mr. Cheng Chih Kwong, Primus Executive Director and Chief Executive Officer 25 February 2015

Mr. Tan Beng Chuan Executive Director and Group General Manager 6 February 2004

Mr. Cheng Koh Chuen, Bernard Non-Executive Director 1 August 2012

Mr. Sunil Leeniyagoda Non-Executive Director 14 July 2004

Dr. Prathap Ramanujam Non-Executive Independent Director 7 August 2018

Figure 2 : Board of Directors and thier effective date of appointments



Additionally, Board approval is required on all matters relevant to overall strategy, annual budget, business plans, management information, reported financial statements, dividend payments, investments and business acquisitions. The Board is also responsible for the continuous review and monitoring of the performance of the Group against the set objectives while directing the Management Committee on specific action points.

Communication with ShareholdersCommunication with shareholders is an important element of corporate governance at TAF. TAF communicates with shareholders several issues to ensure transparency and adequate dissemination of information. The Board is responsible for reporting statutory and other relevant information to shareholders regularly and in a timely and accurate manner. As part of the Company’s commitment to transparency, the Board has laid down very definite policies in relation to keeping accurate records of accounts together with the preparation of financial statements to represent a balanced view of the Group. The Board also has in place measures to report statutory and other relevant information, as well as make full disclosures of all major transactions to shareholders’ in a timely and accurate manner.

The Group welcomes shareholders independent advice on matters of investment and divestment. Quarterly and Annual results are prepared and presented in accordance with the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the Colombo Stock Exchange (CSE) and the Securities and Exchange Commission (SEC) regulations.

Overseeing Risk ManagementAnother important duty of the Board is to oversee risk management practices of the Company. The Board is responsible for ensuring risk factors of the Group are regularly evaluated and reviewed, and current control systems and policies are reviewed and updated to improve risk management and controls of TAF. The formulation of the risk management process is overseen by the Board and they ensure that an effective system is implemented to identify, evaluate and manage significant risks encountered by the Group to protect assets and processes. This risk management process is regularly reviewed by the Board based on the guidelines set by relevant regulatory bodies. The Management Committee is responsible for the detail, design and operation of the system of internal controls with regard to risk management. However, the Board retains overall responsibility to manage risks within the Group. TAF also has in place a well-established control framework

with clearly demarcated structures and accountabilities, well understood policies, procedures with budgeting, and review processes. Each business segment of the Group has a formal management structure with clear responsibilities operating within clearly defined policies which cover areas such as product safety, financial aspects, health and safety, the environment, human resources, business operations, purchasing, and engineering.

ComplianceThe Board is also responsible for ensuring that the Group always operates within the law, regulations and standards as laid down by the various regulatory bodies in the country. The Board is continually updated with information with regards to compliance; and directs the Management Committee on any actions that need to be taken.

Appointments to board CommitteesThe Board of Directors is responsible for the appointment of members to the various Board Committees and ensure that they act in accordance with the terms of reference of these Committees. The Board of Directors in turn appoints Directors to the Audit, Remuneration, Nomination and Related Party Transactions Review Committees together with Directors and Key Senior Management personnel to the Management Committee. Each Committee’s functions is clearly defined by its own terms of reference. An expanded overview of the operations and functions of these Board Committees are available on pages 73 to 78.

board CompositionThe Board of Directors at Three Acre Farms PLC comprises of six (6) members. The Company is committed to maintain a balanced Board structure with an appropriate mix of Executive, Non-Executive and Non-Executive Independent Directors which also enables the creation of value to all stakeholders. Industrial expertise and business acumen that is brought in by these members enable the Company to make rational and sound decisions for a sustainable and profitable future for the Company. The Board comprises of two (2) Executive Directors, two (2) Non-Executive Directors and two (2) Non-Executive Independent Directors. This composition complies with the listing rules of the Colombo Stock Exchange, which requires a minimum of two or one third of the Board be Independent Directors.

Due to the demise of Mr. Sunil Karunanayake, a Non-Executive Independent Director of the Board on 27 May 2018, the Board consisted of only five members until the appointment of Dr. Prathap Ramanujam to Board on 7 August 2018.


board EvaluationsThe Board periodically appraises its own and sub committees’ performance in order to ensure that their responsibilities are properly carried out in fairness to the Company and to stakeholders. During the year under review an assessment was made with regard to the Board composition and they reached the conclusion that the current knowledge and expertise of the current Board members matches the strategic demands of the Group. A brief profile of individual Board of Directors is on pages 59 to 60.

Appraisal of the Chief Executive OfficerAt the end of each fiscal year, the Remuneration Committee assesses the performance of the Chief Executive Officer on the basis of pre-agreed goals at the commencement of the fiscal year, set in consultation with the Board, covering the following broad aspects;

� Creating and adding shareholder value

� Developing human capital

� Building sustainable external relations

� Enhancing the stakeholder value

� Ensuring integrity and good governance in the Group

board SkillsBoard diversity is an emerging factor to be considered when formulating the balance maintained within the members of the Board which enables them to make collective decisions more effectively. At present the Board collectively offers a wide range of skills to the Company from the fields of finance, administration, management, law, economics, marketing, taxation, and human resources. All directors possess the skills, knowledge and expertise together with a high-level of integrity and judgment. In addition, the Board also displays the required financial acumen and knowledge to offer guidance on these matters to the Company.

TAF is ever mindful of the need to maintain an appropriate mix of skills and expertise within the Board, and hence, a regular review of the Board’s composition is undertaken to ensure the skills represented match the current and future skills requirements of the Group.

procedure to Obtain Independent professional AdviceThe Board of Directors obtain independent professional advice that may be required in discharging their responsibilities during the course of business decision making. This is provided at the Company’s expense and is generally coordinated through the Board Secretary.

Name of the Directors Capacity

No. of Shares

held

Board Other Board Committees

Position

No. of Meetings

Held

No. of Meetings Eligible to

Attend

No. of Meetings Attended

Audit Committee

Remuneration Committee

Nomination Committee

Related Party Transaction Review Committee

Mr. Wickrema Senaka Weerasooria

Non-Executive Independent Chairman

2000 Chairman 4 4 4 Member Chairman Chairman Chairman

Mr. Cheng Chih Kwong, Primus

Executive Director and Chief Executive Officer

19 Member 4 4 4 - - Member -

Mr. Tan Beng Chuan

Executive Director and Group General Manager

- Member 4 4 4 - - - Member

Mr. Cheng Koh Chuen, Bernard

Non-Executive Director - Member 4 4 4 - - - -

Mr. Sunil Leeniyagoda

Non-Executive Director - Member 4 4 4 Member Member - -

Mr. Sunil Karunanayake

Non-Executive Independent Director

- Member 4 2 2 Former Chairman

Former Member

Former Member

Former Member

Dr. Prathap Ramanujam

Non-Executive Independent Director

- Member 4 1 1 Chairman Member Member Member

Figure 3 : Composition of Board and Board committees and attendance at meetings for 2018



Continuous Training and DevelopmentThe Group is dedicated to empowering all employees by giving them the opportunities to enhance their individual skills, knowledge and expertise. This facility is extended to the Board of Directors as well. Such developments programmes available to Board members begin with a comprehensive induction programme that ensures new Board members gather the required knowledge to integrate well and perform their duties effectively and efficiently. This programme is conducted over a few months and includes presentations from key Senior Management members and also visits to the various operating businesses of the Group. If a Director seeks a deeper understanding on a particular subject, additional follow-up meetings are arranged to enable them to obtain the required knowledge.

Changes to the boardboard TenureDirectors are appointed and recommended for re-election until their prescribed company retirement age. During the year under review there are no such retirements by the Board of Directors.

RetirementAt all Annual General Meetings one third of the Directors retire by rotation on the basis prescribed in the Articles of the Association of the Company and are eligible for re-election. Directors who retire are those who have been longest in office since their appointment or re-election. In addition, any new Director who has been appointed to the Board during the year is also required to stand for re-election at the next Annual General Meeting.

Re-electionThe re-election of Directors ensures that shareholders have an opportunity to re-assess the composition of the Board. The names of the Directors submitted for re-election are provided to the shareholders in advance to enable them to make an informed decision concerning their election.

Names of retiring Directors eligible for re-election at the upcoming Annual General Meeting are given in the Notice of the Annual General Meeting of the Company on page 150.

Timely Supply of InformationAll members of the Board are continually updated and supplied with timely, accurate and comprehensive information to enable them to perform their duties successfully. Therefore, Board members are able to engage in a healthy debate and a process of optimised decision making towards the betterment of the Company. Directors are provided access to the following information.

� Board minutes and reports which are circulated before Board meetings.

� Clarification on any matter contained in the minutes.

� The advice of experts and professionals if required.

� Advice and services provided by the Company Secretary.

� Information wherever necessary to carry out duties and responsibilities more effectively and efficiently.

� Information updates from management on topical matters, formulation of new regulations, and best practices as relevant to the Group’s business.

board CommitteesThe Board has established four (4) Committees in order to monitor, review and enhance the accountability in select key areas of business operations. By doing so, the Board is able to further safeguard the good governance practices of the Group. These four Board Committees are:

1. Audit Committee

2. Remuneration Committee

3. Nomination Committee

4. Related Party Transactions Review Committee

The above Committees carry out their duties and responsibilities in accordance with the terms of reference as set out by the Board. The proceedings of their meetings are regularly communicated to the Board.


board MeetingsThe Board met four (4) times during the year under review to discuss and review the overall strategic developments of the Group aligned to the Company’s governance principles. The meetings were attended by all Board members who were able to discuss the strategic challenges facing the Company and decide on other relevant aspects to ensure the business growth and sustainability.

The Chairman is entrusted with the responsibility of giving leadership to the Board, while providing direction to the business, facilitating the effective contribution of all Board members, implementing strategies, and ensuring the Board operates effectively in keeping with the interests of the shareholders. Board minutes are kept ensuring concerns are recorded in case of Directors having reservations about the matters of the Company which are not unanimously resolved. However, the Board did not have any unresolved matters or concerns during the year under review.

SSP Corporate Services, are the Company secretaries of the Board and on behalf of the Chairman, are available to ensure the efficient conduct of Board meetings, while providing necessary information to all Directors prior to meetings,

where Key Performance Indicators (KPI’s) are reviewed. The Company secretaries also ensure that good governance requirements are discussed and implemented by the Board of Directors. The Group General Manager regularly updates the Board on current business matters and reports on the latest financial position of the Company at Board meetings.

Shareholder/Investor Relationship

Stakeholder Management is a key component in TAF’s corporate governance mechanism. The primary modes of communication between the Company and its shareholders are through the Annual Report, Quarterly Reports and the Annual General Meetings (AGM). The Company also has several mechanisms for engaging with other stakeholders of the Company and these details are available in the Stakeholder Engagement section on pages 22 to 26.

Release of Information to the public and CSEAll the material and price sensitive information is communicated to the CSE in a timely and accurate manner to minimise the information gap between shareholders/investors.

Committee Members Responsibilities Committee Report

Audit Committee

Three (3) members including one (1) Non-Executive Director and two (2) Non-Executive Independent Directors.

The Audit Committee is responsible to assist the Board in accomplishing its oversight responsibilities in the financial reporting process.

Page 73

Remuneration Committee

Three (3) members including one (1) Non-Executive Director and two (2) Non-Executive Independent Directors.

The Remuneration Committee is responsible to the Board to determine the remuneration policy for the Executive Directors and Senior Managers.

Page 75

Nomination Committee

Three (3) members including one (1) Executive Director/CEO and two (2) Non-Executive Independent Directors.

The Nomination Committee makes recommendations to the Board on all new Board appointments and annually assesses Board composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company.

Page 76

Related Party Transactions Review Committee

Three (3) members including one (1) Executive Director and two (2) Non-Executive Independent Directors.

The Related Party Transactions Review Committee is responsible for the review all the related party transactions other than those accepted by the Code of Best Practices on Related Party Transactions which has been issued by the Securities and Exchange Commission of Sri Lanka together with the Colombo Stock Exchange

Page 77

Figure 4 : Composition and responsibilities of board committees



Annual General Meetings (AGM)The effective relationship with shareholders is maintained by conducting AGMs where every shareholder is given a chance to vote and raise specific queries regarding Company operations.

Serious Loss of CapitalIn the unlikely event that the Company’s net assets fall below one half of the stated capital, the shareholders would be notified of an Extraordinary General Meeting (EGM) in terms of Section 220 of the Companies Act No. 7 of 2007.

Going ConcernThe Group always maintains sufficient financial resources together with a diversified business model and a range of allied businesses. The Board of Directors on the recommendations of the Audit Committee is satisfied that the Group has sufficient resources to continue in operation as a going concern for the foreseeable future. Thus, the Company will continue to adopt a going concern basis in the preparation of financial accounts.

Internal Control Mechanism

The effectiveness of the internal control system of TAF is ensured via frequent reviews and a proper monitoring mechanism. The Board of Directors including the Audit Committee are responsible for the Company’s system of internal controls and for reviewing its effectiveness. The system is designed to safeguard assets of the Company against unauthorised use or disposal together with a well-structured documentation procedure. The internal control mechanism is in place to ensure proper management of all financial, operational, risk management, and compliance controls of the Company.

The Internal Audit function of the Group is carried out by the Group Internal Audit Division to make sure the internal control function of the Company is functioning properly according to Company prescribed standards.

The Audit Committee reviews the process and effectiveness of internal controls mechanisms of the Company and reports to the Board so that the Board of Directors can take the final responsibility for the disclosures on internal controls to ensure the maintenance of a sound system within the Company.

Adoption of best practices

The governance practices of TAF are based on the Company’s core values and beliefs which are founded on ethical, transparent and sustainable business practices. In addition to being fully compliant with all regulatory requirements relating to good governance, the Company strongly believes the adoption of voluntary best practices are the backbone of the Group’s transparent and ethical business philosophy which affirms sustainable business growth and shareholder value creation and satisfaction.

Regulatory FrameworkThe corporate governance is practices of TAF are controlled and directed by a well-structured framework which consists of statues, regulations, codes, internal and external governance systems, and control and certification mechanisms.

Compliance and AdherenceCompliance to mandatory and voluntary regulatory governance requirements is affirmed via an effective monitoring mechanism adopted by the Group and the timely review of governance structures. The levels of adherence to specific regulations are monitored by the Board of Directors and Board sub Committees.


Disclosures

Disclosures required by the Companies Act No. 7 of 2007

Section Reference

Requirement Annual Report Reference

168 (1) (a) The nature of the business of the Group and the Company together with any change thereof during the accounting period

Page 86

168 (1) (b) Signed Financial Statements of the Group and the Company for the accounting period completed

Pages 94 to144

168 (1) (c) Auditors’ Report on Financial Statements of the Group and the Company Pages 91 to 93

168 (1) (d) Accounting policies and any changes therein Pages 99 to 113

168 (1) (e) Particulars of the entries made in the interest register during the accounting period Page 86

168 (1) (f) Remuneration and other benefits paid to Directors of the Company during the accounting period

Page 139

168 (1) (g) Corporate donations made by the Company during the accounting period Page 86

168 (1) (h) Information on the Directorate of the Company and its’ subsidiaries during and at the end of the accounting period

Pages 59 to 60

168 (1) (i) Amounts paid/payable to the External Auditor as audit fees and fees for other services rendered during the accounting period

Page 87

168 (1) (j) Auditors’ relationship or any interest with the Company and its Subsidiaries Page 87

168 (1) (k) Acknowledgement of the contents of this Report and Signatures on behalf of the Board Pages 89 to 90

Disclosures required by the Section 7.10 of Listing Rules of the Colombo Stock Exchange (CSE)

CSE Rule Number

Subject Corporate Governance Principle Compliance Status

Remarks

7.10.1(a) Non-Executive Directors

Two or one third of the total number of Directors shall be Non-Executive Directors, whichever is higher.

Compliant Corporate Governance on Page 61

7.10.2 (a) Independent Directors

Two or one third of Non-Executive Directors whichever is higher shall be independent.

Compliant Corporate Governance on Page 61

7.10.2 (b) Independent Directors

Each Non-Executive Director should submit a declaration of independence / non-independence in the prescribed format.

Compliant Non-Executive Directors have submitted declaration during 2018

7.10.3 (a) Disclosure relating to Directors

Names of Independent Directors should be disclosed in the Annual Report.

Compliant Board of Director Profiles on Page 59

7.10.3 (b) Disclosure relating to Directors

The basis for the Board to determine a Director is Independent, if criteria specified for Independent is not met.

Compliant Specified stipulations are met by Independent Directors



CSE Rule Number


Remarks

7.10.3 (c) Disclosure relating to Directors

A brief resume of each Director should be included in the Annual Report including the area of expertise.

Compliant Board of Directors Profiles on Page 59

7.10.3 (d) Disclosure relating to Directors

Forthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3(a), (b) and (c) to the Exchange.

Compliant Board of Directors Profiles on Page 59

7.10.4 (a-h)

Determination of Independence

Requirements for meeting criteria of ‘Independent’ Compliant The Board has determined the independence of each Non-Executive Director during 2018

7.10.5 Remuneration Committee

A Listed Company shall have a Remuneration Committee.

Compliant Remuneration Committee Report on Page 75

7.10.5 (a) Composition of Remuneration

Committee

The Committee shall consist of Non-Executive Directors, a majority of whom shall be independent.


7.10.5 (b) Functions of Remuneration Committee

The Remuneration Committee shall recommend the remuneration of the Chief Executive Officer and Executive Directors.

Compliant Remuneration Committee Report - Page 75

7.10.5 (c) Disclosure in the Annual Report relating to Remuneration Committee

a. Names of Directors comprising the Remuneration Committee.


b. Statement of Remuneration Policy. Compliant Remuneration Committee Report on Page 75

c. Aggregated remuneration paid to Executive and Non - Executive Directors.

Compliant Note 25.2 on Page 139

7.10.6 Audit Committee A Listed Company shall have an Audit Committee. Compliant Audit Committee Report on Page 73

7.10.6 (a) Composition of Audit Committee

The Committee shall comprise of Non-Executive Directors, the majority of whom shall be independent.

Compliant Audit Committee Report on Page 73


CSE Rule Number


Remarks

7.10.6 (b) Functions of Audit Committee

a. Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.


b. Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.


c. Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards.


d. Assessment of the independence and performance of the Entity’s external auditors.


e. To make recommendations to the board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors.


7.10.6 (c) Disclosure in the Annual Report relating to the Audit Committee

a. Names of Directors comprising the Audit Committee.


b. The Audit Committee shall make a determination of the independence of the auditors and disclose the basis for such determination.


c. The Annual Report shall contain a Report of the Audit Committee setting out of the manner of compliance with their functions.


Disclosures required by the Section 9.3.2 of Listing Rules of the Colombo Stock Exchange (CSE)

Rule No Disclosure Requirement Section Reference Page Annual Report Reference

9.3.2 (a) In the case of Non-recurrent Related Party Transactions, if aggregate value of the Non-recurrent Related Party Transactions exceeds 10 % of the equity or 5 % of the Total Assets whichever is lower, of the Listed Entity according to the latest Audited Financial Statements.

Related Party Transactions Note in the Financial Statements

Page 141

9.3.2 (b) In the case of Recurrent Related Party Transactions, if the aggregate value of the recurrent Related Party Transactions exceeds 10 % of the Net revenue/income as per the latest Audited Financial Statements

Related Party Transactions Note in the Financial Statements

Page 141



Rule No Disclosure Requirement Section Reference Page Annual Report Reference

9.3.2 (c) Annual Report shall contain a report compiled by the RPT Review

� Committee including the following:

� Names of the Directors who are in the Committee

� Statement with regard to related party transactions reviewed during the financial year

� Number of times the Committee has met during the financial year

� Policies and procedures adopted by the RPT Committee

Related Party Transaction Review Committee Report

Page 77

9.3.2 (d) A declaration by the Board of Directors as an affirmative statement of the compliance with the rules pertaining to Related Party Transactions or a negative statement in the event the Entity has not entered into any Related Party Transactions.

Related Party Transaction Review Committee Report

Page 77

Disclosures Specified by Section 7.6 of the Listing Rules of the Colombo Stock Exchange

� Disclosures specified by Section 7.6 of Listing Rules of the Colombo Stock Exchange are contained in this Annual Report.

� There is no evidence of the book value being substantially different from the market value of land and other fixed assets of the Company or its subsidiaries.


AUDIT COMMITTEE REpORT

The Audit Committee is a sub-committee of the Board which oversees a series of major responsibilities in accordance with the Terms of Reference as approved by the Board.

These include:

� Assisting the Board of Directors to perform its oversight of the tasks in financial reporting and compliance.

� Review with independent auditors the adequacy of internal controls and quality of financial reporting.

� Maintaining a healthy relationship with the Group’s external auditors.

� Supervising the review process of internal financial resources, controls and audit processes of the Company.

� Assisting the Board in ensuring that the financial and non-financial information provided to shareholders is a fair assessment of the Company’s position.

This report from the Committee is an overview of its functions and responsibilities discharged during the year under review.

Composition of the Committee

Audit Committee consists of three (3) members who are selected and appointed by the Board among the Directors of the Company and the Company’s Internal Auditor functions as the Secretary. In keeping with the guidelines set out by the Colombo Stock Exchange, these members comprises of two (2) Non-Executive Independent Directors.

New appointment to the CommitteeDr. Prathap Ramanujam was appointed to the Audit Committee w.e.f. November 2018 with the demise of Mr. Sunil Karunanayake (Non-Executive Independent Director).

Meetings

The Audit Committee conducted a total of four (4) meetings during the year under review in line with the regulatory requirement that it meets at least once a year. On invitation, such meetings were also attended by the Executive Director and the Group General Manager, the General Manager and the Assistant General Manager - Finance of the Company. During the year the Audit Committee had received reports from the management and the auditors and also conducted discussions with them in reviewing the results of the Company.

Name Capacity No. of meetings

held

No. of meetings eligible to

attend

No. of meetings attended

Mr. Sunil Karunanayake Former Chairman / Non-Executive Independent Director

4 2 2

Dr. Prathap Ramanujam Chairman / Non-Executive Independent Director 4 1 1

Mr. Wickrema Senaka Weerasooria Member / Non-Executive Independent Director 4 4 4

Mr. Sunil Leeniyagoda Member / Non-Executive Director 4 4 4

Mr. Majintha Illankone Secretary / Group Internal Auditor 4 4 4


AudIT COMMITTEE REpORT (COnTd.)

Functions of the Committee

The Audit Committee has been engaged in many activities over the past year including:

� Approving the External Auditors’ Terms of Engagement including their remuneration, while in discussion with the auditors and assessed their independence and objectivity and recommended their re-appointment for the coming year at the Annual General Meeting.

� Reviewed and approved the external audit plan presented by the External Auditors and monitored the progress of the External Audit. Further committee reviewed the Key audit matters, the management letter and management’s responses thereto.

The Committee had also reviewed the following areas pertaining to the Company’s audit process including:

� The financial statements published in the name of the Board, and the quality and accessibility of the related accounting policies, practices and financial reporting disclosures.

� The scope of the work of the Group’s finance department and reports from it.

� Effectiveness of the system for internal control, risk management, and compliance with financial services, legislation and regulations.

� Results of the external audit.

� Reports from the internal and external auditors on audit planning and their findings on the accounting and internal control systems.

Dr. Prathap RamanujamChairman, Audit Committee


REMUNERATION COMMITTEE REpORT

Three Acre Farm’s Remuneration Committee overlooks a range of duties and responsibilities of the Company recommending the remuneration policy for Executive Directors and Key Management Personnel.


Members of the Remuneration Committee are chosen among the Company’s Directors and appointed by the Board. While the Committee is responsible directly to the Board of Directors it consists of three (3) members including one (1) Executive Director and two (2) Non-Executive Independent Directors in compliance with the guidelines as set out by the Colombo Stock Exchange.

New appointment to the CommitteeDr. Prathap Ramanujam was appointed to the Remuneration Committee w.e.f. November 2018 with the demise of Mr. Sunil Karunanayake (Non-Executive Independent Director).

Meetings

Meetings of the Remuneration Committee were held when necessary and a total of three (3) meetings were conducted in year 2018. This was in line with the regulatory requirement laid out in the Code of Best Practice on Corporate Governance that the Remuneration Committee shall meet at least twice a year to discuss matters in relation to the remuneration policies. During such meetings, the committee has invited the Company’s Executive Director and Group General Manager, the General Manager with the aim of gathering more information on which the Committee could act.

Name Capacity No. of meetings

held

No. of meetings eligible to

attend


Mr. Wickrema Senaka Weerasooria Chairman / Non-Executive Independent Chairman

3 3 3

Mr. Sunil Leeniyagoda Member / Non-Executive Director 3 3 3

Mr. Sunil Karunanayake Former Member / Non-Executive Independent Director

3 1 -

Dr. Prathap Ramanujam Member / Non-Executive Independent Director 3 1 1

Mr. M.C.M. De Costa Secretary / AGM (Personnel, Security and General Affairs)

3 3 3


The Committee fulfills the requirements as laid out by the Listing Rules of the Colombo Stock Exchange. The term ‘remuneration’ in this context refers to cash and all non-cash benefits that are received in consideration of employment at TAF, excluding statutory entitlements such as the Employees Provident Fund and the Employees Trust Fund.

The inclusive remuneration policies utilised by the Group intend to:

� Provide alignment between remuneration and the Company’s business objectives in order that the Company could attract and retain Key Management Personnel of a high caliber.

� Motivate and reward Key Management Personnel to achieve challenging performance goals.

� Ensure that Executive rewards are in line with Shareholders value.

� Succession planning of Key Management Personnel.

� Recognise both individual and corporate achievements and thereby add value to the Company.

In year 2018 the Remuneration Committee had reviewed the incentive provisions for Key Management Personnel and was satisfied that the existing framework was satisfactory. The total sum that was paid as Directors Remunerations in the year under review is set out in Note 25 to the Financial Statements.

Mr. Wickrema Senaka WeerasooriaChairman, Remuneration Committee


NOMINATION COMMITTEE REpORT

The Nomination Committee is entrusted with keeping the Board composition under review while facilitating a formal and transparent procedure for all new appointments to the Board.


The Nomination Committee consists of three (3) members including two (2) Non-Executive Independent Directors along with the Non-Executive Independent Chairman of the Company. The Chairman of the Nomination Committee is an Independent Director as stipulated by the Code of Best Practice on Corporate Governance that has been issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.

New appointment to the CommitteeDr. Prathap Ramanujam was appointed to the Nomination Committee w.e.f. November 2018 with the demise of Mr. Sunil Karunanayake (Non-Executive Independent Director).

Meetings

The Committee met on two (2) occasions during the year 2018 in order to discharge their responsibilities in keeping with the combined knowledge and experience of the Board according to the strategic demands of the Company.

Name Capacity No.of meetings

held

No. of meetings eligible to attended


Mr. Wickrema Senaka Weerasooria Chairman/ Non-Executive Independent Chairman

2 2 2

Mr. Cheng Chih Kwong, Primus Member/ Executive Director and Chief Executive Officer

2 2 2

Mr. Sunil Karunanayake Former Member/ Non-Executive Independent Director

2 1 -

Dr. Prathap Ramanujam Member/ Non-Executive Independent Director 2 1 1

Mr. M.C.M. De Costa Secretary / AGM (Personnel, Security and General Affairs)

2 2 2


The Nomination Committee oversees a range of responsibilities. These include:

� Providing up- to-date advice and recommendations to the Board or to the Chairman concerning any new appointments to the Board.

� Evaluate the competencies, skills, knowledge and experience of the Board in any recommendation to the Board.

� Prepare a clear description of the role and capabilities required for a particular appointment.

� Review the structure, size and of the Board.

� Review the competencies of the Board including skills, knowledge, and experience and make recommendation to the Board with regard to any change

� Evaluate the performance of the members of the Board to ascertain whether they are adequately fulfilling their duties and responsibilities.

� recommend insurance cover to be taken for all directors indemnity

Activities in 2018During the year, the Committee recommended one Non-Executive Independent Director to be appointed to the board. The detail of the appointment is available in the Board of Directors on page 60.

Wickrema Senaka WeerasooriaChairman, Nomination Committee


RELATED pARTy TRANSACTIONS REVIEW COMMITTEE REpORT

The Related Party Transactions Review Committee was formed by the Board on 13 November 2015 in compliance with the Code of Best Practices on Related Party Transactions issued by the Securities and Exchange Commission of Sri Lanka (SEC) together with the Colombo Stock Exchange (CSE) to exercise supervision on behalf of the Board and ensure that all Related Party Transactions (RPT) (other than those exempted by the code) of the company are carried out and disclosed in a manner consistent with the code.


The Committee comprises of two (2) Non-Executive Independent Directors and an Executive Director in accordance with Listing Rule No. 9.2.2. of the Colombo Stock Exchange. The Company’s Internal Auditor functions as the Secretary to the Committee.

New appointment to the CommitteeDr. Prathap Ramanujam was appointed to the Related Party Transactions Review Committee w.e.f. November 2018 with the demise of Mr. Sunil Karunanayake (Non-Executive Independent Director).

Meetings

For the financial year ended 31 December 2018, the committee met four times during the year to comply with Listing Rule No. 9.2.4 of the Colombo Stock Exchange. The details of attendance of members at meetings held for the year under review are as follows;

Name Capacity No.of meetings

held

No. of meetings eligible to attended


Mr. Wickrema Senaka Weerasooria Chairman/ Non-Executive Independent Chairman

4 4 4

Mr. Sunil Karunanayake Former Member/ Non-Executive Independent Director

4 2 2

Dr. Prathap Ramanujam Member/ Non-Executive Independent Director 4 1 1

Mr. Tan Beng Chuan Member/ Executive Director 4 4 4

Mr. Majintha Illankone Secretary/ Group Internal Auditor 4 4 4

policies and procedures

The members of the Board of Directors of the Company have been identified as Key Management Personnel. In accordance with the Related Party Transactions policy, declarations are obtained from each Key Management Personnel of the Company for the purpose of identifying parties related to them.


The key function of the Committee is to ensure on behalf of the Board, that all RPTs of the Company and its listed subsidiaries are consistent with the Code of Best Practices on Related Party Transactions.

The scope of the Committee includes;

� adopting policies and procedures to review RPTs of the Company and reviewing and overseeing existing policies and procedures;

� reviewing in advance all proposed RPTs of the Company except those explicitly exempted in the Code under section 9.5;

� determining whether RPTs that are to be entered into by the Company require the approval of the Board or shareholders of the Company;


RElATEd pARTy TRAnSACTIOnS REVIEw COMMITTEE REpORT (COnTd.)

� ensuring that no Director of the Company shall participate in any discussion of a proposed related party transaction for which he or she is a related party, unless such Director is requested to do so by the Committee for the express purpose of providing information concerning the related party transaction to the Committee;

� If there is any potential conflict in any related party transaction, the Committee may recommend the creation of a special committee (including independent consultant if necessary) to review and approve the proposed related party transaction.

� Ensuring that immediate market disclosures and disclosures in the Annual Report as required by the Code are made in a timely and detailed manner.

Activities during the year � All related party transactions that had taken place

during the year 2018 were reviewed by the RPTRC and communicated to the Board where necessary.

� In addition, the Board of Directors were updated on the RPTs of the Group on a quarterly basis.

Declaration

A declaration by the Board of Directors as per the section 9.3.2 (d) of Listing Rules of the Colombo Stock Exchange is included on page 88 of this Annual Report.

Mr. Wickrema Senaka WeerasooriaChairman, Related Party Transaction Review Committee


ENTERpRISE RISk MANAGEMENT REVIEW

Three Acre Farms PLC (TAF) applies the principles of Enterprise Risk Management (ERM) adapted to its business needs. Taking elements from several ERM models, TAF has amalgamated these to suit its unique business requirements and its aim to create value to the range of Capitals as identified by the Integrates Reporting Framework. Applying these principles of ERP is fundamental to business operations geared to remain sustainable in the long-term. The Company’s Board of Directors, management and other employees identify and proactively manage risks to protect and create value for all our stakeholders. TAF’s ERM systems are developed and advanced by considering the aspects of avoidance, reduction and mitigation through adoption of alternative actions and risk transfers or sharing.

The Company has in place a four-step process of its ERM framework as illustrated below.

Through this process the Company is able to manage risk while simultaneously creating value for stakeholders. (Figure 1)

Risk Governance

To enable the Company to carry our effective ERM procedures, risk governance is overseen using the three lines of defence model.

First Line of Defence

Second Line of

Defence

Third Line of Defence

Board of Directors

Audit Committee

Corporate Management Team

Internal Audit Department

At the highest level of authority of the Company, the Board of Directors are given primary ownership and responsible for overseeing that the Company’s risks are identified and appropriately managed to meet TAF’s risk appetite. The second line of defence is the Audit Committee, who are responsible for overseeing the ERM procedures adopted by TAF by periodically reviewing the effectiveness of the risk management process, and the systems established to identify, assess, manage, monitor, reduce and mitigate risks.

The Corporate Management as the third line of defence takes the lead in identifying risks by examining processes, events, uncertainties, and other changes in the operating environment of the business which could expose the Company to unforeseen risks and circumstances which could reduce future earnings potential, impair asset values, negatively impact brand or Company reputation, or even create new form of future risks the Company must consider. In addition, the Corporate Management provides updates and recommendations to the Audit Committee on the best

EnterpriseRisk

ManagementFramework

STEP 2 : Risk prioritisationSTEP 3 : D

evelo

p ris

k ST

EP 4

: Im

plementation STEP 1 : Risk identification

and assessmentresponse

stra

tegy

of st

rategy process

Creating Value to Stakeholders and

propelling Business Growth

ERM Framework

Capital Inputs

Organisational and Governance Systems, Measures and Controls

Reporting and Monitoring Procedures

Figure 1 : Business value cration vs. Risk


EnTERpRISE RISk MAnAgEMEnT REVIEw (COnTd.)

methods to reduce or mitigate these risks. Monitoring and reporting of risk management measures is a responsibility that also rests with the Corporate Management of the Company. Prima Group’s Internal Audit Department also adds value to the third line of defence by assisting with the independent review and monitoring of risks on a day-to-day basis.

Enterprise Risk Management (ERM) process

The ERM process at TAF adopts an all-inclusive approach to the application of management policies, procedures and practices for the identification, analysis, acceptance, reduction, mitigation, monitoring and communication of all possible types of risks. The Company’s ERM framework is effectively incorporated into the corporate strategic planning process enabling the efficient achievement of business goals and objectives by the identification, evaluation and mitigation of relevant and related risks within different business activities. This ERM process is approached in a manner which considers

Risk Analysis and Assessing the prioritisation

Reduce Risk

Risk Integration and Aggregation

Transfer Risk

Quantification of Impact and

Magnitude

Share Risk

Risk Analysis and Assessing the

probability

Accept Risk

Establishing the context (Culture, Governance Structure, Internal Control pellicles and procedures)

Event Identification (Internal Environment and External Environment)

Risk Assessment

Risk Response

Control Activities

Info

rmat

ion,

Com

mun

icat

ion

and

Cons

ulta

tion

M

onitoring and Revive

all types of risks on a pre-determined and regular basis, thereby ensuring appropriate risk management activities within the Company’s dynamic operating environment.

The efficient implementation of risk planning, reporting, and review systems embedded into TAF’s ERM process also ensures timely recognition and effective handling of all types and levels of risks identified as operational threats to creating value to stakeholders and sustainable business growth.


Risk Assessment Matrix

The risk assessment matrix enables the Company to map risks according to the Company’s pre-determined risk appetite. TAF’s risk appetite is defined based on three aspects - the risk appetite of our parent company Ceylon Grain Elevators PLC, the risk appetite of our ultimate parent company, Prima Singapore, and risks that TAF faces from localised and industry perspectives.

Risks are measures based on the likelihood of occurrence and the potential impact of risks. These are measured on three levels – low, medium and high. Risks which are identified as high are extensively monitored as impact of these risks can negatively affect long term business operations. Moderate level risks are monitored to ensure that they are adequately managed so as not to become high level risks and whenever possible further reduce its impact on business operations. Whenever possible both high level and moderate level risks are shared or transferred using such methods as insurance cover or third part assurances. Low level risks are negligible risks which the Company is willing to accept as part of doing business.

The risk assessment matrix of TAF for the year under review is illustrated below ;

Extensive monitoring and action

Moderate monitoring and action

Reasonable monitoring and action

Risk Heat Map

Impa

ct

Probability

Low

Medium

High

Low

Low

Medium

Medium

High

High

6.3

6.4

4.1

1.2

1.3

6.16.2

3.1

1.1

2.3

1.4

1.54.4

3.3

3.2

2.1

4.3

2.2

4.2

5.1

�

�

�


EnTERpRISE RISk MAnAgEMEnT REVIEw (COnTd.)

TAF’s Identified Risks

Impacted Capital

Risk Ref Identified Risk Risk Mitigation Method 2018 2017

Financial Capital 1.1 Sourcing of Grand Parent Stock DOC at the right time

Having multiple supply sources both locally and internationally

� �

1.2 Frequent changes in regulations and policies

Periodic evaluation and upgrade of regulations and policies

� �

1.3 Interest rate fluctuations Maintaining an appropriate combination of investments

� �

1.4 Exchange rate fluctuations Timely monitoring of international transactions and effective treasury functions

� �

1.5 Pricing volatilities Continuous market surveillance � �

Human Capital 2.1 Recruiting and retaining employees

Development of competencies and skills pool

� �

Maintaining a succession plan

Adoption of HR best practices

Conducting employee satisfaction surveys

Continuous training and development

2.2 Losses from low productivity and low employee engagement

Open door policy to discuss any grievances � �

Livelihood development programmes

2.3 Sourcing of skilled labour Agreement with outsourced labour contractors

� �

Natural Capital 3.1 Natural catastrophes including disease outbreak adversely affecting Company’s operations

Building Environmentally Controlled houses

� �Protection from insurance cover

3.2 Negative Impact to environment from operations

Promoting the importance of being environmentally friendly, reducing carbon footprint, and implementing energy saving and other environmentally friendly initiatives

� �

3.3 Waste and disposal management

Adoption of a central drainage system, incineration mechanisms, and disposal of liquid waste through dilutive and cleansed process

� �


Impacted Capital

Risk Ref Identified Risk Risk Mitigation Method 2018 2017

Social and Relationship Capital

4.1 Loss of customers Conducting customer satisfaction surveys

� �Conducting awareness programmes for customers

Effective brand marketing initiatives

4.2 Loss of Suppliers Conducting supplier grading systems� �Periodic evaluation of principal’s

satisfaction levels

4.3 Procurement and supply chain management

Maintaining long term relationships� �

4.4 Regulatory risk Complying with all mandatory regulations and periodically reviewing and identified changes as necessary

� �

Manufactured Capital

5.1 Machine breakdown and system failures

Continuous check-ups and upgrades� �

Evaluation of man and machine hours

Intellectual Capital

6.1 Reputation risk Adhere to corporate governance principals

� �Adoption of ethical practices in supply chain and manufacturing processes

Undertaking CSR activities

6.2 Loss of data through system breaches

Controls over IT infrastructure and data

� �Regular data back-up

Availability of disaster recovery plan

6.3 Risk of technological obsolescence

Regular investment in new technology� �

6.4 Product quality risk Regular process monitoring and updates� �

Continuous quality checks

� High � Medium� Low

FinancialInformation


FINANCIAL CALENDAR

Financial Calendar

Financial year ended 31 December 2018

Results Announcements to the Colombo Stock Exchange

1st Quarter EndPublication of Interim Financial Statements

31 March 201810 May 2018

2nd Quarter EndPublication of Interim Financial Statements

30 June 20187 August 2018

3rd Quarter EndPublication of Interim Financial Statements

30 September 201812 November 2018

4th Quarter EndPublication of Interim Financial Statements

31 December 201830 January 2019

Publication of Annual Report for 2017Publication of Annual Report for 2018

6 April 201810 April 2019

Meetings

35th Annual General Meeting 9 May 2018

36th Annual General Meeting 8 May 2019


REpORT OF THE bOARD OF DIRECTORS ON THE STATE OF AFFAIRS OF THE COMpANy

The Board of Directors is pleased to present their Report and the Audited Financial Statements of the Company for the year ended 31 December 2018. The details set out herein provide pertinent information required by the Companies Act No. 7 of 2007, Listing rules issued by the Colombo Stock Exchange and are guided by recommended best accounting practices.

1. principal Activities

The principal activities of the Company are:

� the hatching and sale of day old chicks

� the operation of poultry breeder farms raising grandparent and parent stock and hatcheries; and

� commercial broiler farming

2. Review of performance for the year ended 31 December 2018 and Future Developments

A review of the Company’s performance during the year, with comments on financial results for the year ended 31 December 2018 and future developments is contained in the Chairman’s Message (pages 12 to 13), Chief Executive Officer’s Review (pages 14 to 15) and financial highlights (page 10). These reports, together with the Financial Statements, reflect the state of affairs of the Company.

3. Financial Statements

The Financial Statements of the Company are given in pages 94 to 144.

4. Independent Auditors’ Report

The Independent Auditors’ Report on the Financial Statements is given on pages 91 to 93.

5. Accounting policies

The accounting policies adopted in preparation of Financial Statements are given on pages 99 to 113. There were no material changes in the Accounting Policies adopted by the entity except for SLFRS 9 and SLFRS 15 related policies.

6. Interest Register

The Company maintains an Interest Register and the particulars of those Directors who were directly or indirectly interested in a contract of the Company are stated there.

7. Directors’ Interest

None of the Directors had a direct or indirect interest in any contracts or proposed contracts with the Company other than as disclosed in the Note 25 - Related Party Transactions, to the Financial Statements.

8. Directors Remuneration and Other Benefits

Directors’ remuneration in respect of the Company for the financial year ended 31 December 2018 is given in Note 25 - Related Party Transactions to the Financial Statements.

9. Corporate Donations

Donations made by the Company amounted to Rs. 611,000/- (2017 - Rs. 358,900/-). No donations were made for political purposes.

10. Directorate

The names of the Directors who held office as at 31 December 2018 are given below.

Mr. Wickrema Senaka Weerasooria

Non-Executive Independent Chairman

Mr. Cheng Chih Kwong, Primus

Executive Director and Chief Executive Officer

Mr. Tan Beng Chuan Executive Director and Group General Manager


Non-Executive Director

Mr. Sunil Leeniyagoda Non-Executive Director

Dr. Prathap Ramanujam Non-Executive Independent Director

Mr. Sunil Karunanayake, Non-Executive Independent Director passed away on 27 May 2018. The Board wishes to place on record the Company’s sincere appreciation to the late Mr. Sunil Karunanayake for the valuable contribution extended to the Company during his tenure on Board.

Dr. Prathap Ramanujam was appointed as a Non-Executive Independent Director of the Company on 7 August 2018.

In accordance with the provisions of Articles 87 of the Articles of Association of the Company, Mr. Cheng Koh Chuen, Bernard retires by rotation and being eligible, offers himself for re-election.


In accordance with the provisions of Article 95 of the Articles of Association of the Company, Dr. Prathap Ramanujam retires and being eligible, offers himself for re-election.

A resolution for the re-appointment of Mr. Tan Beng Chuan, who is 72 years of age, will be proposed at the Annual General Meeting in terms of Section 211 of the Companies Act No. 7 of 2007. Mr. Tan Beng Chuan’s re-appointment is recommended by the Directors.

A resolution for the re-appointment of Mr. Cheng Chih Kwong, Primus who is 70 years of age, will be proposed at the Annual General Meeting in term of section 211 of the Companies Act No. 7 of 2007. Mr. Cheng Chih Kwong, Primus’s re-appointment is recommended by the Directors.

A resolution for the appointment of Mr. Rajanayagam Nalliah Asirwatham who is 76 years of age, will be proposed at the Annual General Meeting in term of section 211 of the Companies Act No. 7 of 2007. Mr. Rajanayagam Nalliah Asirwatham’s appointment is recommended by the Directors.

11. Directors’ Shareholdings

As at As at

31/12/2018 31/12/2017

Mr. Wickrema Senaka Weerasooria 2,000 2,000

Mr. Cheng Chih Kwong, Primus 19 19

Mr. Tan Beng Chuan Nil Nil

Mr. Cheng Koh Chuen, Bernard Nil Nil

Mr. Sunil Leeniyagoda Nil Nil

Dr. Prathap Ramanujam Nil Nil

12. Auditors

The Financial Statements for the year ended 31 December 2018 have been audited by Messrs KPMG, Chartered Accountants, who express their willingness to continue in office. In accordance with the Companies Act No. 7 of 2007, a resolution relating to their re-appointment and authorising the Directors to determine their remuneration, will be proposed at the forthcoming Annual General meeting.

The Auditors Messrs KPMG, Chartered Accountants were paid Rs. 2,025,000/- (2017 - Rs. 1,841,400/-) as audit fees

by the Company. In addition, they were paid Rs. 61,000/- (2017 - Rs. 61,000/-) by the Company for audit related work.

As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company, other than those disclosed above. The Auditors also do not have any interest in the Company.

13. Group Turnover

Group Turnover amounted to Rs. 2,626 Million (2017 - Rs. 2,404 Million).

14. Dividends

The Directors recommend a First and Final Dividend of Rs. 4.50 per share for the year ended 31 December 2018.

15. Investment

Details of investments held by the Company are disclosed in Note 12 - Investment in subsidiary companies, to the Financial Statements.

16. property, plant and Equipment

An analysis of the property, plant and equipment of the Company, additions and disposals made during the year and depreciation charged during the year are set out in Note 10 - Property, plant and equipment, to the Financial Statements. The market values of assets are not significantly different to those disclosed.

17. Capital Commitments

Capital expenditure contracted for as at 31 December 2018 for which no provision has been made in the accounts are set out in Note 23 - Commitments, to the Financial Statements.

18. Stated Capital

The issued and fully paid up stated capital of the Company is Rs. 623,604,000/- divided into 23,545,000 ordinary shares. There was no change in the stated capital of the Company during the year.

19. Reserves

Total reserves as at 31 December 2018 amounted to Rs. 2,412 Million (2017 - Rs. 1,835 Million). The movement of


REpORT OF THE BOARd OF dIRECTORS On THE STATE OF AFFAIRS OF THE COMpAny (COnTd.)

retained earnings is shown in the Statement of Changes in Equity on page 96.

20. Events Subsequent to the Reporting period

No significant events have occurred since the reporting period date other than those disclosed in Note 26 - Events after the reporting period, to the Financial Statements.

21. Employment policies

The Company identifies Human Resources as one of the most important factors in contributing to the survival and growth of the Company in the current competitive business environment. While appreciating and valuing the service of our employees, a greater effort is made to hire the best talent from external sources, to bolster weak areas and continue to maintain the highest standards of the industry. The Human Resource Head Count is considered as a key indicator and recruitment is based on annual manpower planning and the Company provides equal opportunities. Greater emphasis is given to the areas of training, professional development and ethical business practices. All rewards and career opportunities are based on merit, and on performance.

22. Taxation

The tax position of the Company is given in Note 08 - Taxation, to the Financial Statements.

23. Share Information

Information relating to earnings, dividend, net assets, No. of shares traded and market price per share is given on page 146.

24. Disclosure as per CSE Rule No. 7.6 (xi)

2018 2017

Rs. Cts. Rs. Cts.

Market price per share as at 31 December

101.40 113.00

Highest share price 120.00 138.50

Lowest share price 92.60 110.50

Basic earnings per share 27.54 18.47

Dividend per share 4.50 3.00

Dividend payout ratio (%) 16.34 16.25

Net assets per share 128.93 104.42

25. Shareholdings

The number of registered shareholders of the Company as at 31 December 2018 was 2,584. The distribution and analysis of shareholdings are given on page 148.

26. Major Shareholders

The twenty largest shareholders of the Company as at 31 December 2018, together with an analysis are given on page 148.

27. Statutory payments

The Directors, to the best of their knowledge and belief, are satisfied that all statutory payments in relation to the Government and the employees have been made on time.

28. Environment, Health and Safety

The Company policy continues to ensure that all environmental, health and safety regulations are strictly adhered to, minimising any adverse effects to the environment. Recycling of waste is carried out where ever possible. Employees are provided with all personal protective equipment as the health and well-being of the employees which are our prime concerns. Firefighting and safety systems are in place to safeguard Company interest. Plans are in progress to introduce emission free machinery for in-house operations, so as to eliminate air pollution.

29. Corporate Governance / Internal Control

The Corporate Governance and Internal Control Policies are given on pages 61 to 72.

30. Contingent Liabilities

There were no material contingent liabilities outstanding as at 31 December 2018 other than disclosed in Note 22 - Contingent Liabilities.

31. Related party Transactions

The Company’s Transactions with Related Parties, given in the Note 25 to the Financial Statements, have complied with Colombo Stock Exchange listing rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Securities Exchange Commission (SEC) directive issued under section 13 (c) of the Securities Exchange Commission Act.


32. Annual General Meeting

The 57th Annual General Meeting of the Company will be held at the Sri Lanka Foundation Institute Auditorium, No. 100, Sri Lanka Padanama Mawatha, Independence Square, Colombo 7 on Wednesday, 8 May 2019 at 10.00 a.m.

By Order of the Board ofThree Acre Farms PLC

(Sgd.)Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

(Sgd.)Tan Beng ChuanExecutive Director and Group General Manager

(Sgd.)S S P Corporate Services (Private) LimitedSecretaries



STATEMENT OF THE DIRECTORS’ RESpONSIbILITy

The responsibility of the Directors in relation to the Financial Statements of the Company and the Group, is set out in the following statement. The responsibility of the auditors, in relation to the Financial Statements, is set out in their report appearing on pages 91 to 93.

The Companies Act No. 7 of 2007 requires the Directors to prepare Financial Statements for each financial year which give a true and fair view of the status of affairs of the Company and the Group and of the profit or loss for that year.

In preparing these Financial Statements, the Directors are required to:

� Select suitable accounting policies and then apply them consistently.

� Make judgements and estimates that are reasonable and prudent.

� State whatever applicable accounting standards have been followed, subject to any material departures and explained in the Financial Statements.

� Prepare the Financial Statements on a going concern basis, unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy of any time the financial position of the Company and the Group and to ensure that the Financial Statements comply with the Companies Act.

The Directors are also responsible for taking such steps as they deemed reasonable or required in order to safeguard the assets of the Company and the Group, and in this regard, to give proper consideration to the establishment of appropriate internal control systems, with a view to prevent and detect fraud and other irregularities.

The Directors are required to prepare the Financial Statements to provide the auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to express their audit opinion.

Compliance Statement

The Directors are of the view that they have discharged their responsibilities as set out in this statement. They also confirm that to the best of their knowledge, all statutory payments payable by the Company and its subsidiaries, as at the reporting date, have been paid or where relevant, provided for.

By Order of the Board ofThree Acre Farms PLC

(Sgd.)Wickrema Senaka WeerasooriaNon-Executive Independent Chairman

(Sgd.)Tan Beng ChuanExecutive Director and Group General Manager

Colombo, Sri Lanka.8 April 2019


INDEpENDENT AUDITORS’ REpORT

TO THE SHAREHOLDERS OF THREE ACRE FARMS pLC

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Three Acre Farms PLC (‘the Company’) and the Consolidated Financial Statements of the Company and its subsidiaries (‘the Group’), which comprise the statement of financial position as at 31 December 2018, and the Statement of Profit or Loss and Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the Financial Statements, including a summary of significant accounting policies and other explanatory information set out on pages 99 to 144.

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

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

key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Company Financial Statements and the Consolidated Financial Statements of the current period. These matters were addressed in the context of our audit of the Company Financial Statements and the Consolidated Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1) Valuation of biological AssetsRefer Note 3.5 Significant Accounting Policy and Note 13 to the Financial Statements.

Risk Description Our Response

The carrying value of bearer and consumable biological assets measured at fair value less cost to sell, is Rs. 556 Million and Rs. 18 Million respectively as at 31 December 2018, with a gain arising from changes in fair value less costs to sell recorded in the Consolidated Statement of Profit or Loss and Other Comprehensive Income amounting to Rs. 17 Million.

The Group’s consumable biological assets comprise of Hatchable eggs and commercial Day Old Chicks (DOCs).

The Group has identified grandparent, parent and livestock as bearer biological assets as they are self-regenerating.

Management performed an internal valuation of the biological assets of the Company as at reporting date.

The calculation of the fair value involves a significant judgments and assumptions particularly in respect of DOC yield, DOC selling price, discounting rate and mortality.

We focused on this area because the valuation of biological assets is dependent on certain key assumptions, which require the exercise of significant judgments and are subject to an inherent risk of error or potential management bias.

Our audit procedures included,

� Understanding, evaluating and testing the key internal controls over the valuation of biological assets.

� On sample basis, testing the capitalised amounts and reasonableness of the inputs used in valuation of biological assets.

� Evaluating the reasonableness of cash flows and related assumptions associated with deriving the fair value of breeder biological assets.

� Challenging the key assumptions used in the valuation, in particular the discount rate, DOC yield, DOC market price and mortality.

� Challenging the methodologies adopted in the valuation of biological assets with reference to the requirements of the accounting standards.

� Assessing the adequacy of the related disclosures in the financial statements and consistency with the accounting policies.


IndEpEndEnT AudITORS’ REpORT (COnTd.)

2) Carrying Value of Inventories

Refer Note 3.6 Significant Accounting Policy & Note 14 to the Financial Statements.

Risk Description Our Response

As shown in the Note 14, Inventory balance comprise of raw materials, packing materials, finished goods, general items, poultry items, drugs and vaccines, petroleum production and engineering items which forms a significant part of the Group’s assets, amounting to Rs. 111 Million as at 31 December 2018

Carrying value of inventories is identified as a Key Audit Matter because establishing a provision for slow-moving, obsolete and damaged inventory and valuation of inventories involve significant judgments and assumptions exercised by the management.

Our audit procedures included,

� Obtaining an understanding over the supply chain and testing selected key controls over recognition and measurement of inventory and inventory provisioning.

� On sample basis, testing the net realisable value by comparing the actual cost with relevant market data.

� For a sample of warehouses, attending the physical stock-take procedures or reconciling third party confirmations with the accounting records of the Group.

� Gaining an understanding of the movements in the inventory for the year and assess the adequacy of the provision for non-moving and slow moving inventory.

� Assessing whether the Group’s accounting policies had been consistently applied and the adequacy of the Group’s disclosures in respect of the judgment and estimation made in respect of inventory provisioning.

Other Information

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

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

Responsibilities of Management and Those Charged with Governance for the Financial StatementsManagement is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control

as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

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

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


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

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

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

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

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

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

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

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including

any significant deficiencies in internal control that we identify during our audit.

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

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

Report on Other Legal and Regulatory RequirementsAs required by section 163 (2) of the Companies Act No. 7 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2618.

CHARTERED ACCOUNTANTSColombo, Sri Lanka

8 April 2019


STATEMENT OF pROFIT OR LOSS AND OTHER COMpREHENSIVE INCOMEAll amounts in Sri Lankan Rupees thousands

Group Company

For the year ended 31 December Notes 2018 2017 2018 2017

Revenue 4 2,625,574 2,404,120 2,081,952 1,956,729

Cost of sales (1,910,941) (1,694,304) (1,454,549) (1,376,684)

Gross profit 714,633 709,816 627,403 580,045

Other operating income / (expenses) 5 21,095 3,752 12,733 (100,724)

Selling and distribution expenses (12,229) (15,699) (12,229) (15,551)

Administrative expenses (24,680) (22,129) (19,432) (16,850)

Operating profit 6 698,819 675,740 608,475 446,920

Finance income 7 197,244 104,549 158,630 86,958

Finance costs 7 (59) (31) (45) (22)

Profit before tax 896,004 780,258 767,060 533,856

Taxation 8 (147,195) (126,467) (118,729) (99,086)

Profit for the year 748,809 653,791 648,331 434,770

Other comprehensive income

Items that will not be reclassified to profit or loss in subsequent periods

Actuarial (loss) / gain arising from defined benefit obligation 19 (841) 2,579 (781) 2,520

Taxation on other comprehensive income 18 117 (360) 109 (353)

Total other comprehensive income (724) 2,219 (672) 2,167

Total comprehensive income for the year 748,085 656,010 647,659 436,937

Profit for the year attributable to:

Equity holders of the parent 748,809 653,791 648,331 434,770

Total comprehensive income attributable to:

Equity holders of the parent 748,085 656,010 647,659 436,937

Earnings per share - basic and diluted (Rs.) 9 31.80 27.77 27.54 18.47

The notes on pages 99 to 144 form an integral part of these Financial Statements.

Figures in bracket indicate deductions.


STATEMENT OF FINANCIAL pOSITIONAll amounts in Sri Lankan Rupees thousands

Group Company

As at 31 December Notes 2018 2017 2018 2017

ASSETSNon-current assetsProperty, plant and equipment 10 1,397,102 1,404,849 1,091,405 1,081,766Leasehold right over land 11 - 68,576 - 68,576Investment in subsidiary companies 12 - - - -Biological assets 13 555,918 501,110 424,859 380,571Total non-current assets 1,953,020 1,974,535 1,516,264 1,530,913

Current assetsBiological assets 13 17,898 27,649 17,340 19,994Inventories 14 111,204 73,708 102,322 67,183Trade and other receivables 15 114,296 53,398 93,578 49,129Amount due from related companies 21.1 207,282 - 328,863 52,929Current tax receivable 3,117 4,168 - -Cash and cash equivalents 16 1,955,862 1,423,668 1,528,852 1,169,584Total current assets 2,409,659 1,582,591 2,070,955 1,358,819

Total assets 4,362,679 3,557,126 3,587,219 2,889,732

EQUITYStated capital 17 623,604 623,604 623,604 623,604Retained earnings 3,014,231 2,336,781 2,412,045 1,835,021Total equity 3,637,835 2,960,385 3,035,649 2,458,625

LIABILITIESNon-current liabilitiesDeferred tax liabilities 18 208,993 210,114 150,613 151,972Employee benefits 19 20,846 16,901 19,444 15,607Total non-current liabilities 229,839 227,015 170,057 167,579

Current liabilitiesTrade and other payables 20 488,796 295,849 376,705 259,845Amount due to related companies 21.2 6,209 73,877 4,808 3,683Total current liabilities 495,005 369,726 381,513 263,528

Total liabilities 724,844 596,741 551,570 431,107

Total equity and liabilities 4,362,679 3,557,126 3,587,219 2,889,732

Net asset per share (Rs.) 29 154.51 125.73 128.93 104.42

The notes on pages 99 to 144 form an integral part of these Financial Statements.These Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.

(Sgd.)K.A.R.S. PereraGeneral Manager

These Financial Statements were approved by the Board of Directors on 8 April 2019.

(Sgd.) (Sgd.)Wickrema Senaka Weerasooria Tan Beng ChuanNon-Executive Independent Chairman Executive Director and Group General Manager


STATEMENT OF CHANGES IN EQUITyAll amounts in Sri Lankan Rupees thousands

For the year ended 31 December

GROUP Stated Retained Total

capital earnings equity

Balance as at 1 January 2017 623,604 1,774,951 2,398,555Dividend paid - (94,180) (94,180)Profit for the year - 653,791 653,791

Other comprehensive incomeActuarial gain arising from defined benefit obligation , net of tax - 2,219 2,219Balance as at 31 December 2017 623,604 2,336,781 2,960,385


Other comprehensive incomeActuarial loss arising from defined benefit obligation , net of tax - (724) (724)Balance as at 31 December 2018 623,604 3,014,231 3,637,835

COMPANY Stated Retained Total

capital earnings equity

Balance as at 1 January 2017 623,604 1,492,264 2,115,868Dividend paid - (94,180) (94,180)Profit for the Year - 434,770 434,770

Other comprehensive incomeActuarial gain arising from defined benefit obligation , net of tax - 2,167 2,167Balance as at 31 December 2017 623,604 1,835,021 2,458,625


Other comprehensive incomeActuarial loss arising from defined benefit obligation , net of tax - (672) (672)Balance as at 31 December 2018 623,604 2,412,045 3,035,649

The retained earnings represent reserves available for distribution.




STATEMENT OF CASH FLOWSAll amounts in Sri Lankan Rupees thousands

Group Company


Operating activities

Profit before Tax 896,004 780,258 767,060 533,856

Adjustments

Depreciation 10 102,343 107,197 89,414 94,407

Amortisation of leasehold right over land 700 700 700 700

Usage of biological assets 13 519,461 482,139 380,141 362,118

Profit on disposal of property, plant and equipment (499) (421) (499) (421)

Written off of property, plant and equipment 8,585 3,863 1,434 3,863

Change in fair value less cost to sell on biological assets 13 (16,814) (203) 11,169 7,642

Impairment provision on amount due from related companies

5- - - 108,000

Dividend income - - (12,955) (11,640)

Exchange gain 7 (7,544) (836) (7,547) (861)

Interest income 7 (189,700) (103,713) (151,083) (86,097)

Interest expense 7 59 31 45 22

Provision for slow moving and obsolete items 343 904 343 904

Written off of bad and doubtful debtors 80 - 80 -

Reversal of provision for doubtful debtors (80) - (80) -

Employee benefits 19 3,860 4,129 3,608 3,907

Changes in working capital

- Trade and other receivables (31,492) (37,511) (22,620) (33,222)

- Inventories (37,839) (6,134) (35,482) (5,569)

- Trade and other payables 162,334 3,937 101,768 5,022

- Amount due to related companies (67,668) (66,062) 1,125 (27,323)

- Amount due from related companies (207,282) - (275,934) (50,737)


STATEMEnT OF CASH FlOwS (COnTd.)All amounts in Sri Lankan Rupees thousands

Group Company


Cash generated from operations 1,134,851 1,168,278 850,687 904,571

Exchange gain 7,544 836 7,547 861

Interest received 137,706 101,362 110,837 84,356

Interest paid (59) (31) (45) (22)

Employee benefits paid 19 (756) (3,767) (552) (3,767)

Tax paid (93,947) (40,630) (86,470) (37,102)

Net cash generated from operating activities 1,185,339 1,226,048 882,004 948,897

Investing activities

Purchase of property, plant and equipment 10 (35,725) (20,701) (33,031) (17,038)

Purchase of leasehold right over land - (500) - (500)

Proceeds from disposal of property, plant and equipment 919 1,141 919 1,141

Proceeds from dividend income - - 12,955 10,476

Purchase of biological assets 13 (547,704) (518,913) (432,944) (370,508)

Net cash used in investing activities (582,510) (538,973) (452,101) (376,429)

Financing activities

Dividend paid (70,635) (94,180) (70,635) (94,180)

Net cash used in financing activities (70,635) (94,180) (70,635) (94,180)

Increase in cash and cash equivalents 532,194 592,895 359,268 478,288

Movement in cash and cash equivalents

Cash and cash equivalents as at 1 January 1,423,668 830,773 1,169,584 691,296

Increase in cash and cash equivalents 532,194 592,895 359,268 478,288

Cash and cash equivalents as at 31 December 16 1,955,862 1,423,668 1,528,852 1,169,584




NOTES TO THE FINANCIAL STATEMENTS

1. CORpORATE INFORMATION

1.1 Reporting Entity

Three Acre Farms PLC (the ‘Company’) is a ‘Quoted Public Company’ with limited liability, incorporated and domiciled in Sri Lanka. The address of the Company’s registered office is No.15, Rock House Lane, Colombo - 15, Sri Lanka. The Company was listed in the Colombo Stock Exchange on 20 March 1995 in the Food and Beverage Sector. The Company is in the agriculture industry.

Three Acre Farms PLC (TAF) was incorporated in 1963, primarily as a commercial layer farm. The Company’s name was derived from the original three acres of land on which the farm was situated. On 2 September 1992, TAF was acquired by Ceylon Grain Elevators PLC for the purpose of expanding their own production facility.

1.2 Consolidated Financial Statements

The Consolidated Financial Statements of the Company as at and for the year ended 31 December 2018 comprise the Company and its subsidiaries.

The Company has two fully owned subsidiaries; they are Ceylon Pioneer Poultry Breeders Limited (CPPBL) (incorporated on 24 September 1993), which terminated its operation in 2009 and is renting the farms to Three Acre Farms PLC, and Millennium Multibreeder Farms (Private) Limited (incorporated on 10 August 1999), which employs advanced technology farming in producing Broiler Day Old Chicks (DOCs).

The immediate parent Company, Ceylon Grain Elevators PLC, holds 57.21 percent (as at 31 December 2018) of the stated capital of the Company. Prima Limited Singapore is the ultimate Parent Company of the Company.

1.3 principal Activities and Nature of the Operation

The main business of the Group is selective breeding, hatching and sale of commercial DOCs, both broiler (for chicken meat) and layer (for the production of table eggs), grandparent farm operation and commercial broiler farming.

There were no significant changes in the nature of the principle business activities of the Group and the Company during the financial year under review. The activities of the Group are described in detailed in the Group structure on page 7.

1.4 Approval of Financial Statements by Directors

The Financial Statements were authorised for issue by the Board of Directors on 8 April 2019.

1.5 Responsibility for the Financial Statements

The Board of Directors acknowledges their responsibility for Financial Statements, as set out in the “Statement of Directors’ Responsibilities” in the Annual Report.

2. bASIS OF pREpARATION

2.1 Statement of Compliance

The Financial Statements of the Company and those consolidated with such comprise the Statement of Financial Position, Statement of Profit or Loss and Other Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows, together with the accounting policies and notes to the Financial Statements.

The Financial Statements have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the requirements of the Companies Act No. 7 of 2007 and provide appropriate disclosures as required by the listing rules of the Colombo stock exchange (CSE). These Financial Statements except for information on cash flows have been prepared following the accrual basis of accounting.

2.2 basis of Measurement

The Financial Statements have been prepared on the historical cost basis except the valuations of defined benefit obligation and valuation of biological assets which are disclosed in Note 19 - Employee benefits and Note 13 - Biological assets, to the Financial Statements.


nOTES TO THE FInAnCIAl STATEMEnTS (COnTd.)

2.3 Functional and presentation Currency

The Financial Statements are presented in Sri Lankan Rupees, which is the Company’s functional and presentation currency, rounded to the nearest thousand, unless otherwise stated.

2.4 Significant Accounting Estimates, Judgements and Assumptions

The preparation of Financial Statements in conformity with Sri Lanka Accounting Standards (SLFRS) requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Underlying estimates, judgements, assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised prospectively.

Information about assumptions and estimation uncertainties and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the Financial Statements is included in the following notes:

� Note 18 - Deferred tax liabilities

� Note 19 - Employee benefits

� Note 13 (b) (iii) – Valuation technique and significant unobservable units.

� Note 13 - Biological assets

Going Concern

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

2.5 Measurement of Fair Value

A number of the Group’s accounting policies and disclosures require the measurement of fair value, for both financial and nonfinancial assets and liabilities. The Group has an established control framework with respect to the measurement of fair value.

This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including level 3 fair value, and reports directly to the management. The valuation team regularly reviews significant unobservable inputs and valuation adjustments.

If third party information, such as broker quotes or pricing services, is used to measure fair value, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of SLFRS, including the level in the fair value hierarchy in which such valuations should be classified.

Significant valuation issues are reported to the Group’s Audit Committee. When measuring the fair value of an asset or a liability, the Company uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy, based on the inputs used in the valuation techniques as follows:

� Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

� Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

� Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety at the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.


The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair value is included in Note 13 - Biological assets.

2.6 Use of Materiality, Offsetting and Rounding

2.6.1 Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of a dissimilar nature or function are presented separately, unless they are immaterial. Notes to the Financial Statements are presented in a systematic manner which ensures the understandability and comparability of Financial Statements of the Group. Understandability of the Financial Statements is not compromised by observing material information or by aggregating material items that have different nature of functions.

2.6.2 Offsetting

Assets and liabilities and income and expenses in the Financial Statements are not setoff unless regained by Sri Lanka Accounting standards.

2.6.3 Rounding

The amounts in the Financial Statements have been rounded off to the nearest Rupees thousands, except where otherwise indicated.

3. SIGNIFICANT ACCOUNTING pOLICIES

The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements and accounting policies have been applied consistently by the entity except for the SLFRS 9 and SLFRS 15 related policies.

3.1 basis of Consolidation

3.1.1 business Combinations

Business combinations are accounted for using the acquisition method as at the acquisition date - i.e. when control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity, so as to obtain benefits from its

activities. In assessing control, the Group also takes into consideration potential voting rights that are currently exercisable.

The Group measures goodwill at the acquisition date as:

� The fair value of the consideration transferred; plus

� The recognised amount of any non-controlling interests in the acquire; plus

� If the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire; less

� The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships such amounts are generally recognised in profit or loss. Transactions costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.1.2 Subsidiaries

Subsidiaries are entities controlled by the Group. The Financial Statements of subsidiaries are included in the Financial Statements from the date that control commences, until the date that control ceases.

3.1.3 Loss of Control

On the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss.



3.1.4 Transactions Eliminated on Consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra group transactions are eliminated in preparing the Financial Statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

3.1.5 Statement of Cash Flows

The Statement of Cash Flows has been prepared by using the ‘’Indirect Method’’ of preparing cash flows in accordance with Sri Lanka Accounting Standards – LKAS 7 on Statement of Cash Flows.

3.2 Foreign currency

Transactions in foreign currencies are translated into the respective functional currencies of the Group at the exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined.

Non-monetary assets and liabilities dominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined.

Foreign currency differences arising on retranslation are recognised in profit or loss except the differences arising on retranslation of available for sale equity instruments, which are recognised in other comprehensive income.

3.3 Financial instruments

Financial assets - policy applicable from 1 January 2018

(a) Recognition and initial measurement

Trade receivables are initially recognised when they are originated. All other financial assets are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

(b) Classification and subsequent measurement

On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI- debt investment; FVOCI - equity investment; or FVTPL.

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

� it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

� it’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount of outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:


� it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

� its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets - business model assessment:

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

� the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realising cash flows through the sale of the assets;

� how the performance of the portfolio is evaluated and reported to the Group’s management;

� the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

� how managers of the business are compensated - e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

� the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for de recognition are not considered sales for this purpose, consistent with the Group’s continuing recognition of the assets. Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Financial assets -Assessment whether contractual cash flows are solely payments of principal and interest:

policy applicable from 1 January 2018

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

� contingent events that would change the amount or timing of cash flows;

� terms that may adjust the contractual coupon rate, including variable-rate features;

� prepayment and extension features; and

� terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse features).



A prepayment feature is consistent with the solely payments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial asset acquired at a discount or premium to its contractual par-amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant at initial recognition.

Financial assets - Subsequent measurement and gains and losses:

policy applicable from 1 January 2018

Financial assets at FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

Financial assets at amortised

These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Debt investments at FVOCI

These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

Financial assets - policy applicable prior to 1 January 2018

The Group classified its financial assets into one of the following categories:

� loans and receivables;

� held to maturity;

� available for sale; and

� at FVTPL, and within this category as:

- held for trading

- derivative hedging instruments; or

- designated as at FVTPL

Financial assets - Subsequent measurement and gains and losses:

policy applicable prior to 1 January 2018

Financial assets at FVTPL

Measured at fair value and changes therein, including any interest or dividend income, were recognised in profit or loss.

Held-to-maturity financial assets

Measured at amortised cost using the effective interest method.

Loans and receivables

Measured at amortised cost using the effective interest method.

Available-for-sale financial assets

Measured at fair value and changes therein, other than impairment losses, interest income and foreign currency differences on debt instruments, were recognised in OCI and accumulated in the fair value reserve. When these assets were derecognised, the gain or loss accumulated in equity was reclassified to profit or loss.

Financial liabilities - Classification, subsequent measurement and gains and losses

Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured


at fair value and net gains and losses, including any interest expense, are recognised in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

(c) Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group enters into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets are not derecognised.

Financial liabilities

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(d) Impairment

Impairment policy: applicable from 1 January 2018

Non-derivative financial assets

Financial instruments and contract assets

Loss allowances for trade receivables is always measured at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group’s historical experience and informed credit assessment and including forward-looking information.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Group considers a financial asset to be in default when:

� the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or

� the financial asset is more than 180 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.



Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

� significant financial difficulty of the borrower or issuer;

� a breach of contract such as a default or being more than 180 days past due;

� the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;

� it is probable that the borrower will enter bankruptcy or other financial reorganisation; or

� the disappearance of an active market tor a security because of financial difficulties.

presentation of allowance for ECL in the statement of financial position

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

Write-off

The gross carrying amount of a financial asset is written off when the Group has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. For individual customers, the Group has a policy of writing off the gross carrying amount when the financial asset is 180 days past due based on historical experience of recoveries of similar assets. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures to recovery of amounts due.

Impairment policy: applicable prior to 1 January 2018

Financial assets (including receivables)

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

The Group considers evidence of impairment for receivables at both a specific asset and collective level. All individually significant receivables are assessed for specific impairment. All individually significant receivables found not to be specifically impaired are then collectively assessed for any impairment that has


been incurred but not yet identified. Receivables that are not individually significant are collectively assessed for impairment by grouping together receivables with similar risk characteristics.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. Interest on the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

Impairment Policy: Non-financial assets

The carrying amounts of the Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets.

An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.

An impairment loss in respect of other assets, recognised in prior periods is assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

3.4 property, plant and Equipment

Property, plant and equipment are tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period.

3.4.1 Recognition and Measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the cost of dismantling and removing the items and restoring the site on which they are located.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.



3.4.2 Gains and Losses on Disposal

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within ‘Other Income / Other Expenses’ in profit or loss.

3.4.3 Subsequent Costs

The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably.

The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

3.4.4 Derecognition

The carrying amount of an item of property, plant and equipment are derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. When replacement costs are recognised in the carrying amount of an item of property, plant and equipment, the remaining carrying amount of the replaced part is derecognised. Major inspection costs are capitalised. At each such capitalisation, the remaining carrying amount of the previous cost of inspections is derecognised.

3.4.5 Depreciation

Depreciation is based on the cost or other amount substituted for cost, less its residual value. Significant components of individual assets are assessed, and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably

certain that the Group will obtain ownership by the end of the lease term. No depreciation is provided on assets under construction.

The estimated useful lives for the current and comparative years are as follows:

Freehold building 20,50 years

Plant and machinery 16 2/3 years

Hatchery equipment 10,8 years

Electrical equipment 10,2,4 years

Farm equipment 10,8,2 years

Furniture, fitting and office equipment 10 years

Computers 10,5,2 years

Motor vehicle 10,5,3 years

Land is not depreciated as it is deemed to have an indefinite life.

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if appropriate.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

3.4.6 Capital Work-in-progress

Capital expenses incurred during the year which are not completed as at the reporting date are shown as capital work-in-progress, while the capital assets which have been completed during the year and put to use are transferred to property, plant and equipment.

3.4.7 Leasehold Right Over Land

The initial cost of acquiring a leasehold property treated as an operating lease is recognised as a non-current asset and is amortised over the period of the lease in accordance with the pattern of benefits expected to be derived from the lease. The carrying amount of leasehold property is tested for impairment annually.


The estimated useful life of asset is as follows;

Land 99 years

3.5 biological Assets

A biological asset is a living animal. Biological assets consist of grandparent and parent livestock, used to breed Hatchable eggs and commercial DOCs. Grandparent and parent birds include the growing birds and the laying birds. Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Hatching eggs and commercial DOCs have been identified as consumable biological assets.

Bearer biological assets are those other than consumable biological assets. Bearer biological assets are not agricultural produce but, rather, are self-regenerating.

The Company has identified grandparent and parent livestock as bearer biological assets.

Biological assets are measured at fair value less cost to sell, within any changes therein recognised in profit or loss for the period in which it arises.

3.6 Inventories

Inventories are measured at the lower of cost and net realisable value.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The general basis on which cost is determined is as follows:

a) All inventory items except finished goods and work-in progress at purchased cost.

b) Manufactured goods and work in progress at factory cost, which include all direct expenditure and production overhead at normal level of activity.

3.7 Employee Benefits

3.7.1 Short-Term Employee Benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit sharing plans, if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

3.7.2 Defined Contribution Plan

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts.

Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which related services are rendered by employees.

Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.

(a) Employees’ Provident Fund

The Group and employees contribute 12% and 8%, respectively, on the salary of each employee to the Employees’ Provident Fund.

(b) Employees’ Trust Fund

The Group contributes 3% of the salary of each employee to the Employees’ Trust Fund (ETF). These obligations come within the scope of a defined contribution plan as per LKAS -19 on ‘’Employee Benefits’’. Obligations for contributions to defined contribution plans are recognised in profit or loss as the related service is provided.

3.7.3 Defined Benefit Plan - Gratuity

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that



employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its Present Value.

Any unrecognised past service costs and the fair value of any plan assets are deducted.

The calculation is performed annually by a qualified actuary using the Projected Unit Credit (PUC) method as recommended by LKAS 19 - Employee Benefits.

When the calculation results in a benefit to the Group, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss. The assumptions based on which the results of actuarial valuation was determined are included in Note 19 – Employee benefits, to the Financial Statements.

The Company recognises all actuarial gains and losses arising from defined benefit plans immediately in other comprehensive income and all expenses related to defined benefit plans in employee benefit expense in profit or loss.

The Company recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment or settlement comprises any resulting change in the fair value of plan assets, any change in the present value of the defined benefit obligation, any related actuarial gains and losses and past service cost that had not previously been recognised. However, according to the Payment of

Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.

3.8 provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

3.9 Revenue

Accounting policy applicable from 1 January 2018

Sales of Goods

Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.

Revenue is measured net of returns, trade discounts and volume rebates. The Group expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods.

Rendering of Services

The Group recognises revenue from rendering of services in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed based on surveys of work performed. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services.

Rental Income

The Group earns revenue from renting of its warehouse facilities. Rental income is recognised on a straight-line basis over the period of rental contracts. When the customer initially enters into a rental contract, the Group usually receives an advance or a deposit or both which is recognised as a liability. The


advance is recognised as revenue with the passage of time while deposit is refunded to the customer in accordance with the rental contract on termination.

Other income

Gains/losses on the disposal of investments held by the Group have been accounted for as other income in profit or loss. Gains / losses on the disposal of property, plant and equipment determined by reference to the carrying amount and related expenses, have been accounted for as other income in profit or loss.

Dividend income

Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established.

Accounting policy applicable prior to 1 January 2018

Sale of Goods

Revenue from the sale of goods in the course of ordinary activities are measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognised when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognised as a reduction of revenue as the sales are recognised. Revenue excludes value added taxes or other sales taxes.

Rearing Income

Rearing income received or receivable from Commercial Broiler farm operation is recognised as revenue in the profit or loss. Discounts, incentives and special allowances granted are recognised as an integral part of total rearing income.

Rental income

Rental income received or receivable in the course of ordinary activities is recognised as revenue in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.

Dividend income

Dividend income is recognised in profit or loss on the date that the Group’s right to receive payment is established.

Other income

Gains / losses on the disposal of investments held by the Group have been accounted for as other income in profit or loss.

Gains / losses on the disposal of property, plant and equipment determined by reference to the carrying amount and related expenses, have been accounted for as other income in profit or loss.

3.10 Expenses

Finance Cost

Finance costs comprise interest expense on borrowings, unwinding of discounts on provisions and losses on disposal of available-for sale financial assets, fair value losses on financial assets at fair value through profit or loss and impairment losses recognised on financial assets (other than trade receivables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either finance income or finance cost, depending on whether foreign currency movements are in a net gain or net loss position.



3.11 Taxation

Income tax expense comprises current and deferred tax. Income tax is recognised in profit or loss, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current Tax

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred Tax

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

The following temporary differences are not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit, nor differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. The principal temporary differences arise from depreciation on property, plant and equipment; tax losses carried forward, biological assets and provisions for defined benefit obligations. Deferred tax assets relating to the carrying forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by

the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

3.12 Earnings per Share

The Group presents earnings per share (EPS) data for its ordinary shares. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average

number of ordinary shares outstanding during the period.

3.13 Events After the Reporting period

All material post reporting period events have been considered and, where appropriate, adjustments or disclosures have been made in respective notes to the Financial Statements.

3.14 Comparative Figures

Where necessary, the comparative figures have been reclassified to conform to the current year’s presentation.

3.15 Commitments and Contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. The Company’s share of any contingencies and capital commitments of a subsidiary for which the Company is also liable, severally or otherwise, are also included with appropriate disclosures.

Contingencies are possible assets or obligations that arise from a past event and would be confirmed only on the occurrence or non-occurrence of uncertain future events, which are beyond the Company’s control. Contingent liabilities are disclosed in Note 22 – Contingent Liabilities, to the Financial Statements. Commitments are disclosed in Note 23 – Commitments, to the Financial Statements.


3.16 New Accounting Standards Issued but not Effective as at Reporting Date

SLFRS 16 - Leases

SLFRS 16 replaces LKAS 17 Leases and related interpretations (IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease) with effect from 1 January 2019.

SLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under LKAS 17. The standard includes two recognition exemptions for lessees- leases of ‘low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to re-measure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the re measurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under SLFRS 16 is substantially unchanged from the current requirements under LKAS 17. Lessors will continue to classify all leases using the same classification principle as in LKAS 17 and distinguish between two types of leases: operating and finance leases.

The Group has assessed the potential impact on its financial statements resulting from the application of these new standard and will present its first Annual Financial Statements as at 31 December 2019.


nOTES TO THE FInAnCIAl STATEMEnTS (COnTd.)All amounts in Sri Lankan Rupees thousands

For the year ended 31 December 2018

04 REVENUE

Group Company

2018 2017 2018 2017

Local sales 2,315,616 1,986,793 1,689,480 1,471,468Export sales 44,694 115,145 44,694 115,145Rearing income 662,301 656,491 662,301 656,491Nation Building Tax (11,514) (11,413) (11,514) (11,413)Value Added Tax (385,523) (342,896) (303,009) (274,962)Net sales 2,625,574 2,404,120 2,081,952 1,956,729

05 OTHER OpERATING INCOME / (EXpENSES)

Group Company

Notes 2018 2017 2018 2017

Profit on disposal of property, plant and equipment 499 421 499 421Impairment provision on amount due from related companies - - - (108,000)Written off of property, plant and equipment (8,585) (3,863) (1,434) (3,863)Change in fair value less cost to sell on biological assets

1316,814 203 (11,169) (7,642)

Dividend income - - 12,955 11,640Sundry income 12,367 6,991 11,882 6,720

21,095 3,752 12,733 (100,724)

06 OpERATING pROFIT

The following items have been charged in arriving at operating profit :

Group Company

Notes 2018 2017 2018 2017

Directors’ emoluments 25.2 1,100 1,200 1,100 1,200Auditors’ remuneration - Audit service 2,383 2,284 2,025 1,841 - Other service 120 121 61 61Depreciation on property, plant and equipment 10 102,343 107,197 89,414 94,407Amortisation of leasehold right over land 11 700 700 700 700Legal fees 397 489 397 489Usage of biological assets 13 519,461 482,139 380,141 362,118Provision for slow moving and obsolete items 14 343 904 343 904Written off of bad and doubtful debtors 80 - 80 -Reversal of provision for doubtful debtors 15 (80) - (80) -Staff expenses 6 (a) 379,014 312,739 308,654 255,953


(a) Staff expenses

Group Company

Notes 2018 2017 2018 2017

Salaries, wages and other fringe benefits 362,155 292,263 293,836 237,159

Social security costs 34 7 28 -

Defined contribution plans 12,965 16,340 11,182 14,887

Employee benefits 19 3,860 4,129 3,608 3,907

379,014 312,739 308,654 255,953

Number of employees as at the year-end:

- Full time 246 202 239 194

- Part time 527 502 432 408

773 704 671 602

Part time employees include outsourced workers hired from third parties.

07 NET FINANCE INCOME

Group Company

2018 2017 2018 2017

Finance income

Interest income 189,700 103,713 151,083 86,097

Exchange gain 7,544 836 7,547 861

197,244 104,549 158,630 86,958

Finance costs

Interest expenses (59) (31) (45) (22)

(59) (31) (45) (22)

Net finance income 197,185 104,518 158,585 86,936



For the year ended 31 December 2018

08 TAXATION

Group Company

Notes 2018 2017 2018 2017

Current tax expensesCurrent tax on profit of the year 147,337 94,530 119,855 85,192 Dividend tax 1,814 1,164 1,814 1,164 Over provision in respect of previous year (952) (27,222) (1,690) (27,222)

148,199 68,472 119,979 59,134

Deferred tax expensesDeferred tax (reversal) / charge 18 (1,004 ) 57,995 (1,250 ) 39,952 Total income tax expenses 147,195 126,467 118,729 99,086

The Company and its subsidiaries are liable to pay income tax in accordance with Inland Revenue Act No. 24 of 2017.

Reconciliation of the accounting profit to income tax expenses

The tax on the results of the Group's operation and the Company's profit before tax differs from the theoretical amount that would arise using the basic tax rate as follows:

Group Company

Notes 2018 2017 2018 2017

Profit before tax 896,004 780,258 767,060 533,856Add: Disallowable expenses 785,082 715,101 567,473 581,780Deduct: Allowable expenses (817,749) (701,607) (629,511) (524,516)Add: Interest income 189,697 103,713 151,082 86,097Deduct: Interest income on FCBU - (688) - (688)Deduct: Tax losses claimed (630) (28,311) - (8,521)Taxable income 1,052,404 868,466 856,104 668,008

Income tax using the domestic corporate tax rate- at 10% - 50,926 - 41,731- at 12% - 20,050 - 20,050- at 14% 147,337 - 119,855 -- at 28% - 23,554 - 23,411Current tax 147,337 94,530 119,855 85,192

Deferred tax (reversal ) / charge 18 (1,004) 57,995 (1,250) 39,952Dividend tax 1,814 1,164 1,814 1,164Over provision in respect of previous year (952) (27,222) (1,690) (27,222)

(142) 31,937 (1,126) 13,894147,195 126,467 118,729 99,086


Company Source of income Category Tax rate(%)

Tax Loss Carried Forward(Rs.)

2018 2017 2018 2017

Three Acre Farms PLC Day Old Chicks (DOCs) Poultry farming 10

Nil NilRearing Agriculture 14 12

Interest income Other Sources 28


Day Old Chicks (DOCs) Poultry farming 10

Nil NilHatchery Service Service fees 14 28


Ceylon Pionner Poultry Breeders Limited

Rent Service Fees28

28224,125,571 224,755,755


09 EARNINGS pER SHARE - bASIC AND DILUTED

Basic earnings per share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of shares outstanding during the year.

Group Company

2018 2017 2018 2017

Net profit attributable to ordinary shareholders 748,809 653,791 648,331 434,770

Weighted average number of ordinary shares (thousands) 23,545 23,545 23,545 23,545

Basic earnings per share (Rs.) 31.80 27.77 27.54 18.47

There were no potentially dilutive ordinary shares outstanding at any time during the year / previous year, hence diluted earnings per share is equal to the basic earnings per share.



As at 31 December 2018

10 pROpERTy, pLANT AND EQUIpMENT

(a). Group

As at Additions / Disposals As at

Cost 01.01.2018 WIP transfer /write off 31.12.2018

Land 295,275 71,641 - 366,916

Buildings 1,072,663 2,233 10,026 1,064,870

Motor vehicles 85,302 - 3,490 81,812

Plant and machinery, electrical and farm equipment 831,584 8,549 180 839,953

Furniture, fittings and office equipment 9,066 53 - 9,119

Capital work-in-progress 8,468 21,125 - 29,593

2,302,358 103,601 13,696 2,392,263

As at Charge for Disposals/ As at

Depreciation 01.01.2018 the year write off 31.12.2018

Buildings 171,616 26,459 1,517 196,558

Motor vehicles 66,242 11,183 3,164 74,261



897,509 102,343 4,691 995,161

As at As at

Carrying amount 01.01.2018 31.12.2018

Land 295,275 366,916

Buildings 901,047 868,312

Motor vehicles 19,060 7,551

Plant and machinery, electrical and farm equipment 180,271 124,072

Furniture, fittings and office equipment 728 658

Capital work-in-progress 8,468 29,593

1,404,849 1,397,102


(b). Company

As at Additions / Disposals As at

Cost 01.01.2018 WIP transfer /write off 31.12.2018

Land 237,060 71,641 - 308,701

Buildings 780,392 2,235 1,613 781,014

Motor vehicles 83,689 - 3,490 80,199



Capital work-in-progress 8,377 20,004 - 28,381

1,800,715 100,907 5,283 1,896,339

As at Charge for Disposals/ As at

Depreciation 01.01.2018 the year write off 31.12.2018

Buildings 130,699 20,698 255 151,142

Motor vehicles 65,488 10,860 3,164 73,184



718,949 89,414 3,429 804,934

As at As at

Carrying amount 01.01.2018 31.12.2018

Land 237,060 308,701

Buildings 649,693 629,872

Motor vehicles 18,201 7,015

Plant and machinery, electrical and farm equipment 167,801 116,837

Furniture, fittings and office equipment 634 599

Capital work-in-progress 8,377 28,381

1,081,766 1,091,405




10 pROpERTy, pLANT AND EQUIpMENT (Contd.)

(c) Freehold Land Carried at Cost (Rs.):

Name of the Company Location Land extent Cost

Three Acre Farms PLC Meegoda Farm, Meegoda 24 A - 0 R - 3.17 P 19,215,850Kosgama Farm, Aluthambalama, Kosgama 20 A - 3 R - 27.05 P 10,041,150Halwathura Farm, Halwathura 54 A - 0 R - 3.76 P 29,796,324Bulathsinhala Farm, Agaloya, Bulathsinhala 60 A - 3 R - 27.00 P 56,045,250Hijra Farm - A, Pagoda, Beruwala 41 A - 3 R - 13.42 P 41,034,200Hijra Farm - B, Beruwala 8 A - 3 R - 3.71 P 74,829,300Makuluwatta Farm, Waga 12 A - 2 R - 18.90 P 6,098,235Ittapana Farm, Mahagoda, Ittapana 31 A-1 R -28.1P 71,640,983

308,701,292

Ceylon Pioneer Poultry Breeders Limited.

Nillambe Farm, Office Junction, Galaha 33 A - 0 R - 28.82 P 39,541,310Aswatta Farm, Kosgama 5 A - 3 R - 18.19 P 7,522,838Wewelpanawa Farm, Wewelpanawa 27 A - 3 R - 20.47 P 11,151,175

58,215,323

Total 366,916,615

(d) Freehold building Carried at Cost (Rs.):

Name of the Company Location Number of Buildings Cost

Three Acre Farms PLC Meegoda Farm, Meegoda 75 174,495,552Kosgama Farm, Aluthambalama, Kosgama 52 57,741,461Halwathura Farm, Halwathura 60 74,409,186Bulathsinhala Farm, Agaloya, Bulathsinhala 95 196,112,750Hijra Farm - A, Pagoda, Beruwala 66 186,172,952Hijra Farm - B, Beruwala 40 22,633,749Makuluwatta Farm, Waga 36 69,447,700

781,013,350

Ceylon Pioneer Poultry Breeders Limited.

Nillambe Farm, Office Junction, Galaha 2 1,205,030Aswatta Farm, Kosgama 45 51,085,000

52,290,030

Millennium Multibreeder Farms (Private) Limited.

Wewelpanawa Farm, Wewelpanawa 45 231,565,950

231,565,950

Total 1,064,869,330


(e) Capital Work-in-progress

Capital Work-in-Progress includes the construction of capital assets which mainly consists of buildings and plant and machinery.

(f) Capitalised borrowing Costs

There were no capitalised borrowing costs related to the acquisition of property, plant and equipment during the year 2018 (2017 – Nil).

(g) Fully Depreciated property, plant and Equipment Still in use:

Group Company

2018 2017 2018 2017

Fully depreciated property, plant and equipment - still in use (Rs.) 545,480,305 294,873,212 408,654,074 198,841,976

(h) property, plant and Equipment pledged as Security for Liabilities

There were no items of property, plant and equipment pledged as securities for liabilities as at the reporting date.

(i) Title Restriction on property, plant and Equipment

There were no restrictions existed on the title of the property, plant and equipment of the Group as at the reporting date.

(j) Temporarily Idle property, plant and Equipment

There was no temporarily idle property, plant and equipment as at the reporting date.

11 LEASEHOLD RIGHT OVER LAND

Group Company

2018 2017 2018 2017

Balance as at 1 January 68,576 68,776 68,576 68,776

Additions during the year - 500 - 500

Amortisation for the year (700) (700) (700) (700)

Transfer to property, plant and equipment (67,876) - (67,876) -

Balance as at 31 December - 68,576 - 68,576

Leasehold right over land on Ittapana farm situated in Mahagoda, Ittapana for unexpired lease period of 99 years. In consideration of the amendment made to the Land (Restrictions on Alienation) Act, No. 38 of 2014 by the Land (Restrictions on Alienation) (amendment) Act No. 21of 2018, the Group has acquired the ownership of Ittapana land on 12 December 2018 on outright basis, which was earlier under 99 year lease basis.




12 INVESTMENT IN SUbSIDIARy COMpANIES

Group Company

2018 2017 2018 2017

Balance as at 1 January (Rs.) - - 15,000,020 15,000,020Provision for impairment of investment (Rs.) - - (15,000,000) (15,000,000)Balance as at 31 December (Rs.) - - 20 20

Details of the companies incorporated in Sri Lanka, in which the Company held an interest of 50 % or more are set out below:

proportion of value of ordinary shares held

2018 2017

Name of the Nos of Cost Nos of Cost

Company Business % holding Shares (Rs.) % holding Shares (Rs.)

Ceylon Pioneer Poultry Breeders Limited

Rent out of Farms 100% 1,500,000 15,000,000 100% 1,500,000 15,000,000


Poultry breeder farming and hatchery

100% 2 20 100% 2 20

1,500,002 15,000,020 1,500,002 15,000,020

All the above companies,the financial year of which end on 31 December are audited by KPMG.

13 bIOLOGICAL ASSETS

The movements of biological assets are given below:

Group Company

2018 2017 2018 2017

Fair value less cost to sell at the beginning of the year 528,759 491,782 400,565 399,817

Additions during the year 547,704 518,913 432,944 370,508

Usage of the year (519,461) (482,139) (380,141) (362,118)

Change in fair value less cost to sell 16,814 203 (11,169) (7,642)

Fair value less cost to sell at the end of the year 573,816 528,759 442,199 400,565

Non-current 555,918 501,110 424,859 380,571

Current 17,898 27,649 17,340 19,994

573,816 528,759 442,199 400,565


(a) biological assets

A biological assets is a living animal. Biological assets consist of Grandparent and Parent livestock, used to breed Hatchable Eggs, Commercial Day Old Chicks. Grandparent and Parent birds include the growing birds and the laying birds.

biological assets - Non-current

Bearer biological assets are those other than consumable biological assets and recognised as “Biological assets - Non-current”. Bearer biological assets are not agricultural produce but, rather, are self-generating. Grandparent and Parent livestocks have been identified as bearer biological assets.

biological assets - Current

Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Hatching Eggs and Commercial Day Old Chicks have been identified as consumable biological assets.

(b) Measurement of fair value

(i) Fair value hierarchy

The fair value measurement of biological assets have been categorised as level 3 fair values based on the inputs to the valuation technique used.

(ii) Level 3 fair values

The following table shows a breakdown of the total gains / (loss) recognised in respect of level 3 fair values.

Group Company

2018 2017 2018 2017

Gain / (loss) included in 'Other Income'

Biological assets - non-current 18,004 (983) (10,365) (8,444)

Biological assets - current (1,190) 1,186 (804) 802

16,814 203 (11,169) (7,642)




13 bIOLOGICAL ASSETS (Contd.)

(iii) Valuation technique and significant unobservable inputs

Following table shows the valuation technique used in measuring level 3 fair value as well as the significant unobservable inputs used.

Type Valuation technique Significant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurements

Biological assets Discounted cash flows The FV will;

Bearer biological assets comprises Broiler Grandparent, Broiler parent and Layer parent birds.

The valuation model considers the present value of the net cash flows expected to be generated by breeder farming. The expected net cash flows are discounted using a risk adjusted discount rate.

DOC yield - increase when DOC yield increased

- decrease when DOC yield decreased

DOC selling price - increase when selling price increased

- decreased when selling price decreased

Discounting rate - increase when discounting rate decreased

- decreased when discounting rate increased

Mortality - increase when mortality rate decreased

- decreased when mortality rate increased

Consumable Biological Assets

Consumable biological assets comprise of Hatchable Eggs and Commercial Day Old Chicks (DOCs). DOCs are fair valued at the market price and cost is approximated as fair value for Hatchable Eggs, given none or only little biological change was observed as at the year end.

(c) Risk management strategy related to the biological assets

(i) Regulatory and environmental risks

The Group is subject to laws and regulations in various countries in which it operates. The Group has established environmental policies and procedures aimed at compliance with local environmental and other laws.

(ii) Supply and demand risk

The Group is exposed to risks arising from fluctuations in the price and sales volume of DOC. When possible, the Group manages this risk by aligning its harvest volume to market supply and demand. Management performs regular industry trend analyses for projected harvest volumes and pricing.


(iii) Climate and other risks

The Group's biological assets are exposed to the risk of damage from climatic changes, diseases, and other natural forces. The Group has extensive processes in place aimed at monitoring and mitigating those risks, including regular health inspection, implementing disease control policies and procedures. The Group is also insured against natural disasters such as floods and hurricanes.

14 INVENTORIES

Group Company

2018 2017 2018 2017

Raw materials 18,411 10,644 15,157 9,891

Consumables 96,134 66,062 90,506 60,290

Less: provisions for slow moving and obsolete items (3,341) (2,998) (3,341) (2,998)

Total inventories at the lower of cost and net realisable value 111,204 73,708 102,322 67,183

15 TRADE AND OTHER RECEIVAbLES

Group Company

Notes 2018 2017 2018 2017

Trade receivables 31,434 21,841 26,720 21,585

Less: provision for doubtful debtors (3,088) (3,168) (3,088) (3,168)

28,346 18,673 23,632 18,417

Prepayments 1,436 1,331 1,226 1,151

Other receivables 15.1 84,514 33,394 68,720 29,561

114,296 53,398 93,578 49,129

The moment in provision for doubtful debts is disclosed in Note 24.1 - financial instruments

15.1 Other receivables

Group Company

2018 2017 2018 2017

Deposit and advance 9,717 9,717 9,517 9,517

Interest receivables 51,993 2,351 40,245 1,741

Other receivables 22,804 21,326 18,958 18,303

84,514 33,394 68,720 29,561




16 CASH AND CASH EQUIVALENTS

Group Company

2018 2017 2018 2017

Cash at bank 43,250 127,353 38,968 123,770

Cash in hand 612 522 562 472

Short term bank deposits 1,910,820 923,493 1,489,322 673,042

Investments in short term securities 1,180 372,300 - 372,300

1,955,862 1,423,668 1,528,852 1,169,584

The Group’s weighted average interest rate on short term bank deposits was on AWDR.

17 STATED CApITAL

Company

2018 2017

Ordinary shares - issued and fully paid (Nos.) 23,545,000 23,545,000

Issued and fully paid 623,604 623,604

None of the shares held by neither the Company on its own nor its subsidiaries.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share individual present at meeting of the shareholders or one vote per share in the case of a poll.

18 DEFERRED TAX LIAbILITIES

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

Group Company

2018 2017 2018 2017


(Release) / charge - recognised in profit or loss (1,004) 57,995 (1,250) 39,952

(Release) / charge - recognised in other comprehensive income (117) 360 (109) 353

As at 31 December 208,993 210,114 150,613 151,972

The Management has measured the deferred tax assets and liabilities by applying the tax rates which have been enacted by the Inland Revenue Act No. 24 of 2017 as at the end of the reporting period in accordance with LKAS-12 paragraph 46.


The deferred tax liability is arrived by applying the income tax rate applicable for the source of income of the Company and its subsidiaries as follows;

2018 2017

Three Acre Farms PLC 14% 14%Millennium Multibreeder Farms (Private) Limited 14% 14%Ceylon Pioneer Poultry Breeders Limited 28% 28%

The movement in deferred tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction is as follows:

Group 2018 2017

Temporary Tax effect on Temporary Tax effect on

difference temporary difference temporary

difference difference

Property, plant and equipment 917,101 134,551 967,336 142,745Biological assets - Non-current 555,917 77,828 501,110 70,155Defined benefit obligation (20,846) (2,918) (16,901) (2,366)Provision for slow moving and obsolete items (3,341) (468) (2,998) (420)

1,448,831 208,993 1,448,547 210,114

Company 2018 2017

Temporary Tax effect on Temporary Tax effect on

difference temporary difference temporary

difference difference

Property, plant and equipment 673,730 94,323 723,548 101,297Biological assets - Non-current 424,859 59,480 380,571 53,280Defined benefit obligation (19,444) (2,722) (15,607) (2,185)Provision for slow moving and obsolete items (3,341) (468) (2,998) (420)

1,075,804 150,613 1,085,514 151,972

Group

Unrecognised deferred tax asset

Deferred tax asset has not been recognised by Ceylon Pioneer Poultry Breeders Limited in respect of the following item, since it is not probable that future taxable profit will be available against which the Company can utilise the benefit in the foreseeable future.

2018 2017

Tax losses carried forward 224,126 224,756Tax effect thereon at 28% 62,755 62,932




19 EMpLOyEE bENEFITS

Defined benefit obligation

Group Company

2018 2017 2018 2017

Defined benefit obligation as at 1 January 16,901 19,118 15,607 17,987Provisions made during the year 4,701 1,550 4,389 1,387Benefits paid by the plan (756) (3,767) (552) (3,767)Defined benefit obligation as at 31 December 20,846 16,901 19,444 15,607

Movement in the present value of the defined benefit obligationDefined benefit obligation as at 1 January 16,901 19,118 15,607 17,987Benefits paid by the plan (756) (3,767) (552) (3,767)Current service costs 1,916 2,025 1,813 1,928Interest on obligation 1,944 2,104 1,795 1,979Actuarial loss / (gain) during the year 841 (2,579) 781 (2,520)Defined benefit obligation as at 31 December 20,846 16,901 19,444 15,607

Group Company

2018 2017 2018 2017

The amounts recognised in the Statement of Financial PositionPresent value of unfunded obligation 20,846 16,901 19,444 15,607Total present value of obligation 20,846 16,901 19,444 15,607

Expense recognised in the Statement of Profit or LossCurrent service costs 1,916 2,025 1,813 1,928Interest on obligation 1,944 2,104 1,795 1,979

3,860 4,129 3,608 3,907

Expense recognised in the statement of other comprehensive incomeActuarial loss / (gain) during the year 841 (2,579) 781 (2,520)

841 (2,579) 781 (2,520)

The actuarial valuation was carried out by professionally qualified actuary Mr. Piyal S Goonetilleke of Piyal S Goonetilleke and Associates for retiring gratuity for employees as at 31 December 2018.

The liability was not externally funded.


Actuarial assumptions

Principal actuarial assumptions at the reporting date (expressed as weighted averages):

2018 2017

Discount rate 11.0% 11.5%

Future salary increases 10.0% 10.0%

Assumptions regarding future mortality are based on published statistics and mortality tables.

The average life expectancy of an individual retiring at age 55.

Staff turnover sliding scale by the age of employee retiring from 10% - 1%

The provision for retiring gratuity for the year is based on the actuarial valuation made on 31 December 2018.

Sensitivity analysis

Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation by the amounts shown below.

Group

2018 2017

Movement by 1% Increase Decrease Increase Decrease

Discount Rate (1,302) 1,464 (1,216) 1,084

Future salary scale 1,414 (1,282) 1,073 (1,182)

Company

2018 2017

Movement by 1% Increase Decrease Increase Decrease

Discount Rate (1,175) 1,320 (1,096) 979

Future salary scale 1,273 (1,155) 967 (1,063)




20 TRADE AND OTHER pAyAbLES

Group Company

Notes 2018 2017 2018 2017

Trade payables 33,373 68,315 29,506 58,925

Accrued expenses 192,344 51,805 116,523 40,588

Other payables 20.1 263,079 175,729 230,676 160,332

488,796 295,849 376,705 259,845

20.1 Other payables

Group Company

2018 2017 2018 2017

Deposit and advances 25,193 25,954 25,193 25,954

Government taxes 152,326 91,060 125,596 80,218

Staff related expenses 83,220 52,994 77,716 48,979

Other payables 2,340 5,721 2,171 5,181

263,079 175,729 230,676 160,332

21 AMOUNT DUE FROM / TO RELATED COMpANIES

21.1 Amount due from Related Companies

Group Company

2018 2017 2018 2017

Ceylon Pioneer Poultry Breeders Limited - - 210,243 108,429

Millennium Multibreeder Farms (Private) Limited - - 78,967 23,599

Ceylon Grain Elevators PLC 207,282 - 147,653 28,901

207,282 - 436,863 160,929

Less: provision for receivables - - (108,000) (108,000)

207,282 - 328,863 52,929

Provision have been made for receivables from Ceylon Pioneer Poultry Breeders Limited amounting to Rs. 108,000,000/- respectively. The movement in provision for receivables disclosed in Note 24.1 - financial instruments


21.2 Amount due to Related Companies

Group Company2018 2017 2018 2017

Ceylon Grain Elevators PLC - 69,562 - -Ceylon Livestock and Agrobusiness Services (Private) Limited 6,209 3,505 4,808 2,873Ceylon Agro-Industries Limited - 84 - 84Prima Management services (Private) Limited - 726 - 726

6,209 73,877 4,808 3,683

Amount due to related companies is unsecured, interest free and has no fixed repayment terms. These need to be settled on demand.

22 CONTINGENT LIAbILITIES

There were no other material contingent liabilities outstanding as at the reporting date that require adjustments in the Financial Statements other than disclosed below.

A 3175 - Inter Company Employees Union Vs. CGE and subsidiaries (“the Goup”)Court of Appeal case No. CA (Writ) 134/18

Employees of the Group went on strike on 20 March 2006 and those who went on strike were terminated. The dispute was referred to the Commissioner of Labour and the reference was gazetted by the Minister dated 26 May 2006 referring the case for hearing at the Industrial Court.

At the Industrial Court the Group took up a preliminary objection that Composite reference is bad in law as they are separate legal entities and cannot be referred in one dispute. The Industrial Court gave its verdict rejecting the preliminary objection and thereafter the Company made an appeal against the interim order in the Court of Appeal (C/A796/2007). Court of Appeal delivered its judgement on 18 May 2010 rejecting the appeal filed by the Group. Accordingly the case was taken up for hearing before the Industrial Court.

After a lengthy trial at the industrial Court, the Award was gazetted on 16 January 2018 directing the Group to reinstate the employees with back-wages. The Company has filed a writ application under case No. CA (Writ) 134/18 in the Court of Appeal to quash the said award.

Case is coming for arguments on 2 August 2019.

23 COMMITMENTS

Capital commitments

There were no material capital commitments outstanding as at the reporting date.

Financial commitments

There were no financial commitments outstanding as at the reporting date except for the following.

Three Acre Farms PLC (TAF) is the Parent Company of Ceylon Pioneer Poultry Breeders Limited (CPPBL) and confirms their commitment, in present circumstances to continue financial support in the business operations and to meet financial obligations. As the Parent Company of CPPBL ,TAF has no intention or inclination of withdrawing their support or reducing the scale of operations of CPPBL in the forthcoming 12 months.




24 FINANCIAL INSTRUMENTS

The Group has exposure to the following risks arising from financial instruments:

� Credit risk

� Liquidity risk

� Market risk.

i Currency risk.

ii Interest rate risk.

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management framework

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Board of Directors of Three Acre Farms PLC, oversees how management monitors compliance with the Group’s risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

Financial Instruments - Statement of Financial position

Group Company

Note 2018 2017 2018 2017

Financial assets

Amortised cost / loans and receivables

Trade and other receivables 15 112,860 52,067 92,352 47,978

Amount due from related companies 21.1 207,282 - 328,863 52,929

320,142 52,067 421,215 100,907

Cash and cash equivalents 16 1,955,862 1,423,668 1,528,852 1,169,584

Total 2,276,004 1,475,735 1,950,067 1,270,491


Other financial liabilities

Amount due to related companies 21.2 6,209 73,877 4,808 3,683

Trade and other payables 20 144,126 152,984 134,586 139,039

Total 150,335 226,861 139,394 142,722


Financial Instruments - Statement of Profit or Loss

2018 2017

Gain / Losses / Gain / Losses /

income expenses income expenses

Group

Interest bearing financial instruments 189,700 59 103,713 31

Company

Interest bearing financial instruments 151,083 45 86,097 22

24.1 Credit risk

Credit risk is the risk of financial loss to the Group, if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers, placements with banking institutions and in government securities.

(a) Exposure to Credit Risk

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Group Company

Note 2018 2017 2018 2017

Amount due from related companies 21.1 207,282 - 328,863 52,929

Trade and other receivables 15 112,860 52,067 92,352 47,978

Cash and cash equivalents 16 1,955,862 1,423,668 1,528,852 1,169,584

2,276,004 1,475,735 1,950,067 1,270,491

(b) Impairment losses

(i) The aging of trade and other receivables at the reporting date was:

Group 2018 2017

Gross Impairment Gross Impairment

Not past due 112,860 - 52,067 -

Over 365 3,088 3,088 3,168 3,168

115,948 3,088 55,235 3,168




Company 2018 2017


Not past due 92,352 - 47,978 -

Over 365 3,088 3,088 3,168 3,168

95,440 3,088 51,146 3,168

The movement in the allowance for impairment in respect of trade receivables during the year was as follows;

Group Company

2018 2017 2018 2017


Reversal of impairment provision (80) - (80) -

Balance as at 31 December 3,088 3,168 3,088 3,168

Impairment of trade receivables for year 2018 has calculated based on ‘expected credit loss’ (ECL) Model, whereas impairment of trade receivables for the year 2017 was based on historic default rates.

(ii) The aging of amount due from related companies at the reporting date was:

Group 2018 2017


Not past due 207,282 - - -

Over 365 - - - -

207,282 - - -

Company 2018 2017


Not past due 328,863 - 52,929 -

Over 365 108,000 108,000 108,000 108,000

436,863 108,000 160,929 108,000

24 FINANCIAL INSTRUMENTS (Contd.)


The movement in the allowance for Impairment in respect of amounts due from related companies during the year was as follows;

Group Company

Note 2018 2017 2018 2017

Balance as at 1 January - - 108,000 -

Impairment provision - - - 108,000

Balance as at 31 December - - 108,000 108,000

Based on historic default rates, the Group believe that, apart from the above, no impairment allowance is necessary in respect of trade receivables and amount due from related companies.

24.2 Liquidity Risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligation associated with its financial liabilities that are settled by delivering cash or another financial asset.

To measure and mitigate liquidity risk, Group will closely monitor its net operating cash flow, maintained a level of cash and cash equivalent and secured committed funding facilities from financial institutions.

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

As at December 2018

Group Carrying Contractual Less than 6 - 12 1 - 2 2 - 5 More than

amount cash flows 6 months months years Years 5 years

Non-derivative financial liabilities

Trade and other payables 144,126 (144,126) (144,126) - - - -

Amount due to related companies 6,209 (6,209) (6,209) - - - -

150,335 (150,335) (150,335) - - - -

Company Carrying Contractual 6 months 6 - 12 1 - 2 2 - 5 More than

amount cash flows or less months years Years 5 years




139,394 (139,394) (139,394) - - - -




As at December 2017

Group Carrying Contractual Less than 6 - 12 1 - 2 2 - 5 More than

amount cash flows 6 months months years Years 5 years




226,861 (226,861) (226,861) - - - -

Company Carrying Contractual 6 months 6 - 12 1 - 2 2 - 5 More than

amount cash flows or less months years Years 5 years




142,722 (142,722) (142,722) - - - -

24.3 Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates affecting to the Group’s income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Market risk comprise of the following types of risk:

� Currency Risk

� Interest Rate Risk



Currency risk

The risk that the fair value or future cash flows of a financial instrument fluctuation due to changes in foreign exchange rates. The Group is exposed to currency risk on sales, purchase and investments that are denominated in a currency other than functional currency which is Sri Lankan Rupees (LKR).

Exposure to Currency Risk

The Group’s exposure to foreign currency risk was as follows based on notional amounts:

Group 2018 2017

USD EUR USD EUR

Trade Payables 51,318 - 198,471 (769)

Cash and cash equivalents 176,276 - 789,498 -

Total Exposure 227,594 - 987,969 (769)

Company 2018 2017

USD EUR USD EUR

Trade Payables 51,318 - 198,471 -

Cash and cash equivalents 176,276 - 789,498 -

Total Exposure 227,594 - 987,969 -

The principal exchange rates used by the Group for conversion of foreign currency balances and transactions for the year ended 31 December are as follows;

Average Rate Reporting date spot Rate

2018 2017 2018 2017

USD 164.04 153.19 182.75 153.42

EUR 193.03 172.88 208.99 182.49




Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Group is exposed to the risk of changes in market interest rates relates primarily to the Group’s Investments with variable interest rates .The Group does not have any variable rate long term borrowing as at the reporting date, which results material interest rate.

At the reporting date the interest rate profile of the Group’s interest bearing financial instruments was:

Carrying amount Group Company

2018 2017 2018 2017

Fixed Rate Instruments

Financial assets - - -

Financial liabilities - - -

- - -

Variable Rate Instruments

Financial assets 1,912,000 1,295,793 1,489,322 1,045,342

Financial liabilities - - - -

1,912,000 1,295,793 1,489,322 804,500

24.4 Capital management

The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and sustain future development of the business. Capital consist of ordinary shares and retained earnings. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.

25 RELATED pARTy TRANSACTIONS

25.1 parent and ultimate controlling party

The immediate Parent Company of the Group is Ceylon Grain Elevators PLC and the ultimate controlling party is Prima Limited, Singapore.



25.2 key management personnel

Key management personnel include all the members of the Board of Directors of the Company having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. Directors of the Company and their immediate relatives do not have significant shareholding as at 31 December 2018.

Compensation paid to / on behalf of key management personnel of the Company is as follows:

Group Company

2018 2017 2018 2017

Short term employee benefits 1,100 1,200 1,100 1,200

Post-employment benefits - - - -

1,100 1,200 1,100 1,200

Name of the related party Name of the Director Nature of transaction

Ceylon Pioneer Poultry Breeders Limited (CPPBL) Subsidiary Company

Mr. Cheng Chih Kwong, Primus CPPBL rents out the farms to the CompanyMr. Tan Beng Chuan

Millennium Multibreeder Farms(Private) Limited (MMF)Subsidiary Company

Mr. Cheng Chih Kwong, Primus MMF provides hatchery services to the Company. The Company sells Parent stock DOCs to MMF.Mr. Tan Beng Chuan

Ceylon Grain Elevators PLC (CGE) Parent Company

Mr. Wickrema Senaka Weerasooria CGE sells feed to the Company and also Company sells Broiler DOCs and Cull birds to CGE.Mr. Cheng Chih Kwong, Primus

Mr. Tan Beng Chuan



Ceylon Livestock and Agrobusiness Services (Private) Limited (CLAS) Group Company

Mr. Cheng Chih Kwong, Primus CLAS supplies veterinary drugs, medicines and poultry equipment to the Company.Mr. Tan Beng Chuan

Hapiways Management Services Pte Limited (HMS) Group Company

Mr. Cheng Chih Kwong, Primus HMS supplies materials and spare parts to the Company.

Ceylon Agro-Industries Limited Group Company

Mr. Wickrema Senaka Weerasooria CAI supplies Value Added Products (VAP)items to the Company.Mr. Cheng Chih Kwong, Primus

Mr. Tan Beng Chuan



Prima Management Services (Private) Limited (PMS) Group Company

Mr. Cheng Chih Kwong, Primus PMS provides ICT Solutions and Services to the Company.




25.3 Related party Transactions - Recurrent

The Group has a related party relationship with its subsidiaries, associates and related group companies as disclosed in note number 25.2 - Key Management Personnel.

Companies within the Group engage in trading transactions. The following transactions were carried out with related parties during the year ended 31 December 2018.

(a) Transaction with Subsidiaries

Company MMF CPPBL 2018 2017

Sale of goods 45,468 - 45,468 34,802Purchase of goods (221) - (221) (45)Purchase of service (8,218) (2,940) (11,158) (11,566)Recovery of expenses - 3,628 3,628 1,177Settlement of third party dues 14,341 - 14,341 9,397Funds received (268) - (268) (8,940)

(b) Transaction with Immediate parent

Group 2018 2017

Sale of goods 715,380 667,614Purchase of goods (900,511) (897,840)Sale of service 564,400 559,449Purchase of service (15,179) (15,710)Recovery of expenses (23,570) (23,541)Settlement of third party dues (180,496) (160,973)Funds (received) / paid 67,446 (99,052)

(c) Transaction with Immediate parent

Company 2018 2017

Sale of goods 448,978 467,817Purchase of goods (656,994) (656,590)Sale of service 564,400 559,449Purchase of service (12,141) (12,210)Recovery of expenses (17,825) (17,661)Settlement of third party dues (172,845) (150,536)Funds received (86,395) (188,417)

25 RELATED pARTy TRANSACTIONS (Contd.)


(d) Transaction with other Related parties

Group CLAS HMS CAI PMS 2018 2017

Purchase of goods (2,352) (9,306) (558) - (12,216) (9,603)

Funds paid - 9,306 739 726 10,771 6,267

(e) Transaction with other Related parties

Company CLAS HMS CAI PMS 2018 2017

Purchase of goods (1,683) (9,306) (558) - (11,547) (9,158)

Funds paid - 9,306 739 726 10,771 6,267

25.4 Related party Transactions - Non-recurrent

The Group entered into the non-recurrent related party transactions for the year 2018 as follows:

(a) Non-recurrent related party

Related party Ceylon Pioneer Poultry Breeders Limited

Nature of the transaction Financial Support for Settlement of long outstanding due to CGE

Terms of transaction On normal commercial terms

Total Value Rs. 101,124,000

As a % of Equity 3.4%

As a % of Total Assets 2.8%

(b) There were no any non-recurrent Related Party Transactions entered during the year, other than the transactions specified above as per the CSE Listing Rule 9.3.2.

25.5 Terms and conditions of transactions with related parties

All related party transactions are carried out in the normal course of business and transacted at normal business terms. The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions and comparable with those that would have been charged from un-related companies. All related party outstanding balances at the year-end are unsecured and are to be settled in cash. The Group does not have any material commitments to related parties.




26 EVENTS AFTER THE REpORTING pERIOD

There are no events which require adjustments to, or disclosure in the Financial Statements except for the following:

The Directors propose for payment a First and Final dividend of Rs. 4.50 per share for the year ended 31 December 2018 on 8 April 2019. Under the Inland Revenue Act No. 24 of 2017, a withholding tax of 14% will be imposed on dividends declared.

27 COMpARATIVE INFORMATION

27.1 Changes in Significant Accounting Policies

The Group has initially applied SLFRS 15 (3.9) and SLFRS 9 (3.3) from 1 January 2018. A number of other standards are also effective from 1 January 2018 but they do not have a material effect on the Group’s financial statements.

Due to the transition methods chosen by the Group in applying these standards, comparative information throughout these Financial Statements has not been restated to reflect the requirements of the new standards.

27.1.1 SLFRS 15 - Revenue from Contracts with Customers

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaced LKAS 18 Revenue, LKAS 11 Construction Contracts and related interpretations. Under SLFRS 15, revenue is recognised when a customer obtains control of the goods or services. Determining the timing of the transfer of control - at a point in time or over time - requires judgment.

The Group has adopted SLFRS 15 using the cumulative effect method (without practical expedients), with the effect of initially applying this standard recognised at the date of initial application (i.e.1 January 2018). Accordingly the information presented for 2017 has not been restated- i.e. it is presented, as previously reported, under LKAS 18, LKAS 11 and related interpretations. Additionally, the disclosure requirements in SLFRS 15 have not generally been applied to comparative information.

There was no impact on the comparative figures presented in the Statement of Financial Position, Statement of Changes in Equity and Statement in Cash Flows. Further the changes in accounting policy has no impact on the reported amount of accumulated profits as at 1 January 2018.

27.1.2 SLFRS 9 - Financial Instruments

SLFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replace LKAS 39 Financial Instruments: Recognition and Measurement.


27.1.2.1 Classification and measurement of Financial Assets and Financial Liabilities

SLFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, FVOCI and FVTPL. The classification of financial assets under SLFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. SLFRS 9 eliminates the previous LKAS 39 categories of held to maturity loans and receivables and available for sale. SLFRS 9 largely retains the existing requirements in LKAS 39 for the classification and measurement of financial liabilities.

Changes in accounting policies resulting from the adoption of SLFRS 9 have been applied retrospectively, except as described below.

The Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Therefore, comparative periods have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of SLFRS 9 are recognised in retained earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of SLFRS 9, but rather those of LKAS 39. However, the impact of adopting this standard has not been recognised as a revision of opening reserves as it is considered immaterial.

The effect of adopting SLFRS 9 on the carrying amounts of financial assets at 1 January 2018 relates solely to the new impairment requirements.

The following table and the accompanying notes below explain the original measurement categories under LKAS 39 and the new measurement categories under SLFRS 9 for each class of the Group’s financial assets and financial liabilities as at 1 January 2018.

Carrying amount

under

Carrying amount

under

Note LKAS 39 SLFRS 9 LKAS 39 SLFRS 9

Rs. 000 Rs. 000

Financial assets

Trade and other receivables

15 Loans and receivables Amortised Cost 52,067 52,067

Amount due from related company

21.1 Loans and receivables Amortised Cost - -

Cash and cash equivalents

16 Loans and receivables Amortised Cost 1,423,668 1,423,668


Trade and other payables 20 Other Financial Liabilities Other Financial Liabilities

152,984 152,984

Amount due to related parties

21.2 Other Financial Liabilities Other Financial Liabilities

73,877 73,877




27.1.2.2 Impairment of financial assets

SLFRS 9 replaces the ‘incurred loss’ model in LKAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under SLFRS 9, credit losses are recognised earlier than under LKAS 39.

For assets in the scope of the SLFRS 9 impairment model, impairment losses are generally expected to increase and become more volatile. A simplified “lifetime expected loss model” has been used for balances arising as a result of revenue recognition, as permitted by the standard, and the Group recognises impairment for only assets that are outstanding for a prolonged period of time and is based on the management discretion.

28 DIRECTORS’ RESpONSIbILITy

The Board of Directors are responsible for the preparation and fair presentation of the Financial Statements.

29 NET ASSETS pER SHARE

Group Company

2018 2017 2018 2017

Net assets attributable to ordinary shareholders 3,637,835 2,960,385 3,035,649 2,458,625

Weighted average number of ordinary shares in issue (thousands) 23,545 23,545 23,545 23,545

Net assets per share (Rs.) 154.51 125.73 128.93 104.42

InvestorHighlights and Information


FIVE yEAR FINANCIAL SUMMARyAll amounts in Sri Lankan Rupees thousands

For the year ended 31 December

Group 2018 2017 2016 2015 2014

OPERATING RESULTS FOR THE PERIOD

Revenue 2,625,574 2,404,120 2,545,323 2,089,204 1,676,764

Operating profit 698,819 675,740 930,838 617,711 193,597

Net finance income / (expenses) 197,185 104,518 1,650 (14,576) (19,266)

Profit before tax 896,004 780,258 932,488 603,135 174,331

Taxation (147,195) (126,467) (119,665) (52,483) (9,015)

Profit attributable to the Group 748,809 653,791 812,823 550,652 165,316

FINANCIAL POSITION AS AT 31 DECEMBER

Stated capital 623,604 623,604 623,604 623,604 623,604

Retained earnings 3,014,231 2,336,781 1,774,951 1,010,392 472,128

Non - current liabilities 229,839 227,015 170,877 136,132 111,857

3,867,674 3,187,400 2,569,432 1,770,128 1,207,589

Property, plant and equipment 1,397,102 1,404,849 1,495,929 1,570,973 1,633,651

Leasehold right over land - 68,576 68,776 - -

Investment in subsidiary companies - - - - -

Biological assets - Non-current 555,918 501,110 473,534 439,170 430,629

Current assets 2,409,659 1,582,591 942,076 130,127 203,074

Current liabilities (495,005) (369,726) (410,883) (370,142) (1,059,765)

3,867,674 3,187,400 2,569,432 1,770,128 1,207,589

Company 2018 2017 2016 2015 2014

RATIOS AND OTHER INFORMATION

Earnings per share (Rs.) 27.54 18.47 30.88 19.77 6.79

Dividend per share - propose (Rs.) 4.50 3.00 4.00 2.10 0.52

Dividend pay-out ratio - propose (%) 16.34 16.25 12.95 10.62 7.66

Market price per share (Rs.) 101.40 113.00 135.10 120.70 51.00

Price earnings ratio (No. of times) 3.68 6.12 4.38 6.11 7.51

Net assets per share (Rs.) 128.93 104.42 89.86 61.04 41.80

Current ratio (times) 5.43 5.16 3.33 0.83 0.33

Shares traded volume 1,053,068 2,049,180 9,807,171 12,609,850 5,773,721

US $ Exchange rate - (average) 164.04 153.19 147.16 137.01 130.78

US $ Exchange rate - (year-end spot) 182.75 153.42 150.10 144.06 132.00


STATEMENT OF VALUE ADDEDAll amounts in Sri Lankan Rupees thousands

2018 2017 2016 2015 2014

Value customers

Gross revenue 3,022,611 2,758,429 2,867,486 2,325,936 1,874,762

less: Purchase of goods and services (1,441,155) (1,366,233) (1,180,352) (1,113,410) (1,149,761)

1,581,456 1,392,196 1,687,134 1,212,526 725,001

Add: Other operating income / (expenses) 4,281 3,549 8,890 1,323 1,595

Add: Finance income 189,700 103,713 1,636 195 166

Total value added by the Group 1,775,437 1,499,458 1,697,660 1,214,044 726,762

Distributed as follows:

2018 % 2017 % 2016 % 2015 % 2014 %

To employees

As staff expenses 379,014 21.35 312,739 20.86 368,492 21.70 280,660 23.12 242,400 33.35

To the Government

As current taxes 148,199 8.35 68,472 4.57 86,429 5.09 30,428 2.51 3,161 0.43

As revenue taxes 397,037 22.36 354,309 23.63 321,863 18.96 236,732 19.50 197,998 27.24

To providers of capital

As Interests 59 - 31 - 107 0.01 14,777 1.22 19,199 2.64

To shareholders

As Dividends 105,953 5.97 70,635 4.71 94,180 5.55 49,445 4.07 12,242 1.68

Retained to growth

As Depreciation 103,043 5.80 107,897 7.20 107,946 6.36 100,795 8.30 98,688 13.60

As Reserves 642,133 36.17 585,375 39.03 718,643 42.33 501,207 41.28 153,074 21.06

1,775,437 100.00 1,499,458 100.00 1,697,660 100.00 1,214,044 100.00 726,762 100.00


SHAREHOLDER INFORMATION

Analysis of Shareholders According to the Number of Shares as at 31 December 2018

Resident Non Resident TotalShareholdings Number of Number Percentage Number of Number Percentage Number of Number Percentage

Shareholders of Shares (%) Shareholders of Shares (%) Shareholders of Shares (%)

01-1,000 2,215 389,278 1.65 22 5,213 0.02 2,237 394,491 1.671,001-10,000 253 748,335 3.18 10 31,324 0.13 263 779,659 3.31

10,001-100,000 64 1,898,126 8.06 5 193,466 0.82 69 2,091,592 8.88100,001-1,000,000 8 1,722,040 7.32 5 1,554,611 6.6 13 3,276,651 13.92

Over 1,000,000 1 13,469,980 57.22 1 3,532,627 15.00 2 17,002,607 72.222,541 18,227,759 77.43 43 5,317,241 22.57 2,584 23,545,000 100.00

Categories of shareholders Number of shareholders

Number of shares

Individual 2,439 2,052,732Institutional 145 21,492,268

2,584 23,545,000

List of 20 Major Shareholders Based on their Shareholdings as at 31 December 2018

Name 31 December 2018 31 December 2017Number of

SharesPercentage Number of

SharesPercentage

Ceylon Grain Elevators PLC 13,469,980 57.21 13,469,980 57.21Prima Limited, Singapore 3,532,627 15.00 3,532,627 15.00HSBC Intl Nom Ltd - UBS AG Zurich 617,360 2.62 617,360 2.62Seylan Bank PLC / Mr. R.A. Rishard 385,310 1.64 393,139 1.67Seylan Bank PLC / S.R. Fernando 351,792 1.49 354,982 1.51Eka Limited 313,262 1.33 313,262 1.33Supra Limited,Hong Kong 258,989 1.10 258,989 1.10Budleaf Pty Limited 240,000 1.02 - -Assetline Leasing Company Ltd / M.N. Singa Laxana 180,150 0.77 172,230 0.73People’s Leasing and Finance PLC / M.N. Singa Laxana 167,100 0.71 135,900 0.58Citizens Development Business Finance PLC 161,666 0.69 104,000 0.44Seylan Bank PLC / C.N. Rajahmoney 161,570 0.69 161,570 0.69People’s Leasing and Finance PLC / HI Line Trading (Pvt) Ltd 160,768 0.69 160,768 0.68People’s Merchant Finance PLC / M.M. Fuad 153,684 0.65 193,079 0.82Elgin Investments Limited 125,000 0.53 125,000 0.53Mrs. D.M. Fernando 100,000 0.42 100,000 0.43Mr. R.A. Rishard 90,428 0.38 99,041 0.42Commercial Bank of Ceylon PLC / U.C. Bandaranayake 90,000 0.38 90,000 0.38Mellon Bank N.A. - Commonwealth of Massachusetts 82,446 0.35 82,446 0.35Mr.R.E.Rambukwella 80,296 0.34 - -ADL Equities Limited / M.A.M. Arafath Akram - - 171,627 0.73Dr. M.A.M.A. Akram 92,819 0.39Total 20,722,428 88.01 20,628,819 87.61

2018 2017

The percentage of shares held by the public 27.78% 27.78%The Number of shareholders representing the public holding 2,580 2,638

Float Adjusted Market Capitalisation

The float adjusted market capitalisation as at 31 December 2018 was Rs. 663 Million under Option 5 of Section 7.13.1 (a) of the Listing Rules of the Colombo Stock Exchange and the Company has complied with the minimum public holding requirement applicable under the said option.


GLOSSARy OF FINANCIAL TERMINOLOGy

Accrual basisRecording Revenues and Expenses in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period.

Capital EmployedShareholders’ Funds plus Debt.

Contingent LiabilitiesA condition or situation existing at the end of the reporting period due to past events, where the financial effect is not recognised because:

1. The obligation is crystallised by the occurrence or non occurrence of one or more future events or,

2. A probable outflow of economic resources is not expected or,

3. It is unable to be measured with sufficient reliability.

Current RatioCurrent Assets over Current Liabilities.

Debt / Equity Ratio (Gearing)Debt as a percentage of Shareholders’ Funds.

Dividend CoverEarnings per share over dividend per share.

Dividend payout RatioTotal Dividend as a percentage of Company profits.

Dividend yieldDividend per share as a percentage of market price of share at the end of the period.

EbIT MarginEarnings Before Interest and Taxes to Revenue

EbITDAProfit after Operating expenses, plus Depreciation and Amortisation

Earnings per Share (EpS)Profit after tax attributable to Ordinary Shareholders over weighted average number of shares in issue during the period.

Enterprise ValueMarket capitalisation plus debt minus total cash and cash equivalents.

Earnings yieldEarnings per Share as a percentage of Market Price per Share at the end of the period.

Effective Rate of TaxationIncome Tax including Deferred tax over Profit Before Tax.

Interest CoverProfit Before Interest and Tax over Finance Expenses.

Market CapitalisationNumber of Shares in issue at the end the of period multiplied by the share price at end of the period.

Net AssetsTotal Assets minus Current Liabilities minus Long Term Liabilities.

Net Asset per ShareNet Assets divided by number of Ordinary Shares in issue at the end of the period.

Net DebtDebt minus Cash and Short Term Deposits.

Net Turnover per EmployeeNet Turnover over average number of employees.

price Earnings RatioMarket Price of Share over Earnings per Share.

Quick RatioCash plus Short Term Investments plus Receivables over Current Liabilities.

Return on AssetsProfit After Tax over Average Total Assets.

Return on Capital EmployedEarnings before interest and tax as a percentage of average of shareholders’ funds plus total debt.

Return on EquityConsolidated Profit after Tax as a Percentage of Average Shareholders’ Funds.

Shareholders’ FundStated Capital, Capital Reserves and Revenue Reserves.

Shareholders’ Equity RatioTotal Equity divided by Total Assets.

Total AssetsNon-Current Assets plus Current Assets.

Total DebtLong Term Loans plus Short Term Loans and Overdraft.

Total Debt / Total AssetsTotal Debt divided by Total Assets.

Total Value AddedThe difference between Revenue (including Other Income) and Expenses, Cost of Materials and services purchased from External Sources.


NOTICE IS HEREBY GIVEN that the 57th Annual General Meeting of the Company will be held on Wednesday, 8 May 2019 at the Sri Lanka Foundation Institute Auditorium, No.100, Sri Lanka Padanama Mawatha, Independence Square, Colombo 7 at 10.00 a.m. and the business to be brought before the Meeting will be:

1. To receive and consider the Report of the Board of Directors on the State of Affairs of the Company and the Financial Statements for the year ended 31 December 2018, with the Report of the Auditors’ thereon.

2. To declare a First and Final Dividend of Rs. 4.50 per share for the year ended 31 December 2018.

3. To re-elect Mr. Cheng Koh Chuen, Bernard, a Director who retires by rotation at the Annual General Meeting in terms of Article 87 of the Articles of Association of the Company.

4. To re-elect Dr. Prathap Ramanujam, a Director who retires at the Annual General Meeting in terms of Article 95 of the Articles of Association of the Company.

5. To consider and if thought fit to pass the following Ordinary Resolution pertaining to the re-appointment of Mr. Tan Beng Chuan, as a Director who is over 70 years of age, in compliance with Section 211 of the Companies Act No. 7 of 2007 and whose re-appointment has been recommended by the Board of Directors.

Ordinary Resolution “That the age limit of 70 years referred to in Section 210

of the Companies Act No. 7 of 2007 shall not apply to Mr. Tan Beng Chuan, a Director, who is 72 years of age (having reached 70 years of age on 14 October 2016) and accordingly that Mr. Tan Beng Chuan be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 7 of 2007”.

6. To consider and if thought fit to pass the following Ordinary Resolution pertaining to the re-appointment of Mr. Cheng Chih Kwong, Primus, as a Director, who is over 70 years of age, in compliance with Section 211 of the Companies Act No. 7 of 2007 and whose re-appointment has been recommended by the Board of Directors.

Ordinary Resolution“That the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. Cheng Chih Kwong, Primus, a Director, who is 70 years of age (having reached 70 years of age on 30 November 2018) and accordingly that Mr. Cheng Chih Kwong, Primus be and is hereby re-appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 7 of 2007”.

7. To consider and if thought fit to pass the following ordinary Resolution pertaining to the appointment of Mr. Rajanayagam Nalliah Asirwatham as a Director who is over 70 years of age, in compliance with Section 211 of the Companies Act No. 7 of 2007 and whose appointment has been recommended by the Board of Directors.

Ordinary Resolution

“That the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to Mr. Rajanayagam Nalliah Asirwatham, a Director, who is 76 years of age (having reached 70 years of age on 26 August 2012) and accordingly that Mr. Rajanayagam Nalliah Asirwatham be and is hereby appointed as a Director of the Company in terms of Section 211 of the Companies Act No. 7 of 2007”.

8. To re-appoint Messrs KPMG, Chartered Accountants as Auditors and to authorise the Directors to determine their remuneration.

9. To authorise the Directors to determine contributions to charities and other purposes.

BY ORDER OF THE BOARD

(Sgd.)S S P CORPORATE SERVICES (PRIVATE) LIMITEDSECRETARIES


Note:

(a) A member entitled to attend and vote at the above mentioned meeting is entitled to appoint a Proxy to attend and vote instead of him/her. Such Proxy needs not be a member of the Company.

(b) A Form of Proxy is annexed to this notice.

(c) The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 15, Rock House Lane, Colombo 15 not later than 48 hours before the time appointed for the holding of the meeting.

(d) Shareholders/proxy holders are requested to bring with them their National Identity Card or any other form of clear/valid identification and present same at the time of registration.

NOTICE OF MEETING


I/We, …………………………………………............................................………………….................………….. (NIC No ………….........................................…………….. )

of being a member/s of Three Acre Farms PLC, hereby appoint …………………………………………............................................…………………............

NIC No ………….........................................…………….. ) of or failing him

Mr. Wickrema Senaka Weerasooria of Colombo or failing himMr. Cheng Chih Kwong, Primus of Singapore or failing himMr. Tan Beng Chuan of Colombo or failing himMr. Cheng Koh Chuen, Bernard of Singapore or failing himMr. Sunil Leeniyagoda of Colombo or failing himDR. Prathap Ramanujam of Colombo

as my/our Proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on Wednesday, 8 May 2019 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting and to VOTE as indicated below:

For Against

1. To receive and consider the Report of the Board of Directors on the State of Affairs of the Company and Financial Statements for the year ended 31 December 2018, with the Report of the Auditors’ thereon.

2. To declare a First and Final Dividend of Rs. 4.50 per share for the year ended 31 December 2018.

3. To re-elect Mr. Cheng Koh Chuen, Bernard, a Director who retires by rotation at the Annual General Meeting in terms of Article 87 of the Articles of Association.

4. To re-elect Dr. Prathap Ramanujam, a Director who retires at the Annual General Meeting in terms of Article 95 of the Articles of Association.

5. To re-appoint Mr. Tan Beng Chuan, who is over 70 years of age as a Director of the Company by passing the Ordinary Resolution set out in the Notice of Meeting.

6. To re-appoint Mr. Cheng Chih Kwong, Primus, who is over 70 years of age as a Director of the Company by passing the Ordinary Resolution set out in the Notice of Meeting.

7. To appoint Mr. Rajanayagam Nalliah Asirwatham who is over 70 years of age as a Director of the Company by passing the Ordinary Resolution set out in the Notice of Meeting.

8. To re-appoint Messrs KPMG, Chartered Accountants as Auditors and to authorise the Directors to determine their remuneration.

9. To authorise the Directors to determine Contributions to charities and other purposes.

As witness my/our hand/this …….................................................. day of …….................................................. Two Thousand and Nineteen.

Signature: ……..................................................

note : Please delete the inappropriate words.1. Instructions for completion of proxy are noted on the next page2. A proxy needs not be a member of the Company3. Please mark ‘X’ in appropriate cages, to indicate your instructions as to voting

FORM OF pROXy

FORM OF pROxy

INSTRUCTIONS TO COMpLETION OF FORM OF pROXy

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your instructions as to voting, by signing in the space provided and filling in the date of signature.

2. Please indicate with a ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given the Proxy in his/her discretion may vote as he/she thinks fit.

3. The completed Form of Proxy should be deposited at the Registered Office of the Company at No. 15, Rock House Lane, Colombo 15, at least 48 hours before the time appointed for holding of the Meeting.

4. If the form of proxy is signed by an attorney, the relative power of attorney should accompany the completed form of proxy for registration, if such power of attorney has not already been registered with the Company.

note:

If the shareholder is a Company or body corporate, Section 138of the Companies Act No. 7 of 2007 applies to Corporate Shareholders of Three Acre Farms PLC. Section 138 provides for representation of Companies at meetings of other Companies. A Corporation, whether a Company within the meaning of this act or not, may-where it is a member of another Corporation, being a Company within the meaning of this Act, by resolution of its Directors or other governing body authorise such person as it thinks fit to act as its representative at any meeting of the Company. A person authorised as aforesaid shall be entitled to exercise the same power on behalf of the Corporation which it represent as that Corporation could exercise if it were an individual shareholder.

Documents

Breakthrough to - Prima Acre Farms PLC AR 2018.pdf · Pages 19 to 21 of this report covers the material aspects relevant to the Company. 5 Thr C Annual Report 2018 Compliance The