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Ministry of State Resources and Enterprise Development

MISSION

“To

Fulfill the National Requirement

of Phosphate Fertilizer by being Self-Sufficient in

Phosphorus

Through

an Environment friendly and State of the art process”

1

CONTENTS Mission 01

Contents 02

Board of Directors 03

Corporate Information 04

Financial Highlights 05

Chairman’s Statement 06-07

Corporate Management 08

Report of the Directors 09-12

Audit & Management Committee Report 13

Report of the Auditors 14 Income Statement 15 Balance Sheet 16-17 Statement of Changes in Equity 18 Cash flow Statement 19-20 Significant Accounting Policies 21-24 Notes to the Financial Statements 25-30

Review of Operations 31-34

Notice of Meeting 35

Form of Proxy 36

2

BOARD OF DIRECTORS

Admiral Daya Sandagiri Chairman & Managing Director

Mr. R.R.M.N.Rajapaksha Mrs. B.M.D.M.Balasooriya Executive Director Director

Mr. P.Dinuka J. Jayawardana Mr. Amarapala Gamage Director Director

Mr. D.M Wijepala Mr. D.D.Amarathunga Director Ministry Observer

3

CORPORATE INFORMATION Company Name

Lanka Phosphate Ltd

Domicile and Legal Form Lanka Phosphate Ltd was incorporated on July 10, 1992 as a Limited Liability Company under the Companies Act No. 17 of 1982 in terms of the conversion of Public Corporations or Government Owned Business undertakings in to Public Companies Act No. 23 of 1987 to take over the Eppawala Phosphate project of the State Mining and Mineral Development Corporation. However, subsequently the Company has re-register under the Companies Act No. 07 of 2007 Principal Activities and Nature of Operations The principal activities of the company are excavating, processing and selling of Rock Phosphate, which is used as a fertilizer for perennial agricultural crops.

Ultimate Parent Company

The company’s issued shares are fully owned by the

Secretary to the Treasury on behalf of the

Government of Sri Lanka

Line Ministry

Ministry of State Resources & Enterprise

Development

No 561/3, Elvitigala Mawatha

Colombo 05

Registered Office

73 1/1, New Kelani Bridge Rd Colombo 14

Tel: 94112459906/7

Fax:94112459908

Registration No

PB 308

Board of Directors

Admiral Daya Sandagiri (Chairman & MD)

Mr. R.R.M.N.Rajapaksha (Executive Director)

Mrs. B.M.D.M. Balasooriya

Mr. P.Dinuka J. Jayawardana

Mr. Amarapala Gamage

Mr. D.M.Wijepala

Mr. D.D.Amarathunga (Ministry Observer)

Company Secretary

Financial Services and Commercial Agencies (Pvt)

Ltd, Attorney – at – Law

28, Rosmead Place, Colombo 07

Auditors

SJMS Associates

Chartered Accountants

No 02, Castle Lane

Colombo 04

Tax Consultants

Amerasekara & Co.

Chartered Accountants

12, Rotunda Gardens

Colombo 03

Bankers

Bank of Ceylon

Peoples Bank

Hatton National Bank PLC

4

FINANCIAL HIGHLIGHTS SUMMARY OF RESULTS FOR THE YEAR (Rs. ‘000)

2011/12 2010/11 2009/10 Revenue 491,280 393,068 351,301 Net Profit before Income Tax 201,418 126,000 106,474 Income Tax Expenses 58,655 43,033 43,154 Net Profit after Taxation 142,763 82,968 63,320 SUMMARY AT THE YEAR END (Rs. ‘000)

2011/12 2010/11 2009/10

Share holder’s Funds 534,705 411,942 338,974 Working Capital 462,171 395,228 325,583 Total Assets 617,632 498,864 435,357 Staff Cost 161,143 145,638 141,082 No of Employees (No) 294 307 294 PER SHARE (Rs.)

2011/12 2010/11 2009/10 Earnings 19.69 11.44 8.73 Net Assets 73.74 56.81 46.47 RATIOS

2011/12 2010/11 2009/10 Current Ratio (Times) 12.67 12.28 7.8 Return on Shareholders Funds (%) 26.7 20.1 18.7

5

Lanka Phosphate Ltd (LPL) was incorporated on 10th July, 1992 in terms of the conversion of public corporations or government owned business undertaking into Public Companies Act, No 23 of 1987 to take over the Eppawala Phosphate Project of the State Mining & Mineral Development Corporation. It is fully owned by the Secretary to the Treasury on behalf of the Government of Sri Lanka. LPL becomes a fully independent organization with the separation from Bogala Graphite Ltd in November 1998. Company has exclusive exploration rights over 450 hectares of land at Eppawala in Anuradhapura district on which a large Rock Phosphate deposit is located. The ore is currently estimated at 60 million tones containing 33-40% of P2O5 and is considered to be one of the richest and unique phosphate deposit in the world. Currently LPL produces two types of rock phosphate fertilizers namely Eppawala Rock Phosphate (ERP) and High-Grade Eppawala Rock Phosphate

(HERP) which are used as fertilizer for perennial crops in Sri Lanka. However, there is a big potential to expand our activities to give the maximum benefit to the nation from this valuable deposit. At present we are producing about 55,000 mt Eppawala Rock Phosphate annually and marketing the same for plantation crop sector. Our fertilizers are used for perennial crops such as Tea, Rubber, Coconut, export cash crops and fruit crops. Tea plantations dominate 60 percent of the use of Eppawala Rock phosphate, whereas rubber and coconut sectors share 30 percent of the use. The export cash crops and the fruit crops mainly share the balance. Because of the use of our own Phosphate fertilizer there is a saving of substantial foreign exchange over Rs. 500 million annually. The financial year 2011/2012 ended achieving a gross turnover of Rs.491.3 Million. I wish to place on record that Lanka Phosphate Ltd achieved a sales level of 47,112.55 mt of Eppawala Rock Phosphate (ERP) and 8972.35 mt of High-Grade Eppawala Rock Phosphate (HERP) respectively. It is with concern to note that an increase of company profit before taxation to Rs. 201.4 Million as compared to the previous year of Rs.126.0 Million. There is more to be done in the years ahead both in planning and organizing to enhance the Company profitability to a further higher level. During the period under review the LPL was able to purchase and install new Grinding Mill which has the capacity of producing 10mt. of

6

ERP/HERP per hour. The introduction of the new Mill will enhance the total production capacity to meet the ever growing demand owing to His Excellency the Presidents’ fertilizer subsidy for the Agriculture sector. Workshops have been conducted together with Coconut Research Institute and Lak Pohora Ltd to enhance the knowledge on the use of fertilizer on annual & perennial crops. We have great challenges ahead of us. Company Board is committed to work out solutions to develop the existing as well as new business opportunities for the optimal utilization of Eppawala Phosphate Deposit. We have recognized the importance and national need of a more soluble type of phosphate fertilizer in the form of Triple Super Phosphate (TSP) or Single Super Phosphate (SSP) fertilizer for short-term crops to cater to the total requirement of the country. New venture of the Company for the manufacture of TSP/SSP fertilizer with the setting-up of a local plant will be a boon to Sri Lanka Agriculture field thus, preventing the large annual out flow of foreign exchange on the import of Triple Supper Phosphate (TSP). I have no doubt that LPL as a responsible State organization we will

support to enrich soil fertility of the Motherland while enhancing Agricultural productivity to dedicate the national economy. I wish the company to achieve its bench marks while providing much needed service to the people of the country. I consider the development of human resources, information technology and infrastructure of the company are necessary for better productivity, competitiveness, profitability and stability. We have given priority to staff training programs to develop the necessary skills at all levels to be conversant with the new developments in their respective fields. In conclusion, I greatly appreciate the guidance, encouragement and support extend by the Minister of State Resources & Enterprises Development Hon. Dayasritha Tissera, Deputy Minister Hon. Sarath kumara Gunarathna, Secretary to the Ministry Dr. Willie Gamage and the staff in this regard.

Chairman & Managing Director Lanka Phosphate Ltd

7

CORPORATE MANAGEMENT

Capt. (Rtd) Eng Upul Kumarasena H.R.U.D. Bandara General Manager Deputy General Manager

U.S.P.G. Sooriyarachchi D.G.U. Chamara G.A.Chandradasa D.A.M. Munasinghe Maintenance Manager Finance Manager Production Manager Admin. & HR Manager

Capt. K.G.R.P.Kiriella S.D. Rupasinghe M.M.D.Thilakerathna S.A. Abeysiri

Security Officer Accountant Internal Auditor Supplies Officer

W.R.Illangasinghe D.R.K.Thilakerathn S.M.A.R.K.Manchanayake R.A.A.P. Ranasinghe Transport Officer Finance Officer Admin & HR Officer Marketing Officer

8

REPORT OF THE DIRECTORS

The Directors of Lanka Phosphate Limited, (the Company) present herewith the Audited Accounts

for the year ended 31st March 2012 and the Annual Report for the year ended 31st March 2012.

1.0 Company Name

Lanka Phosphate Ltd (Reg. no PB 308)

2.0 Domicile and Legal Form

Lanka Phosphate Ltd was incorporated on

July 10, 1992 as a Limited Liability

Company under the Companies Act No. 17 of

1982 in terms of the conversion of Public

Corporations or Government Owned

Business undertakings in to Public

Companies Act No. 23 of 1987 to take over

the Eppawala Phosphate project of the State

Mining and Mineral Development

Corporation. However, subsequently the

Company has re-register under the

Companies Act No. 07 of 2007

3.0 Principal Activities and Nature of

Operations

The principal activities of the company are

excavating, processing and selling of Rock

Phosphate, which is used as a fertilizer for

perennial agricultural crops.

4.0 Financial Statement

Directors are satisfied that the financial

statement attached hereto gives a true and fair

view of the state of affairs of the Company as

at the Balance Sheet date.

The Directors consider that in preparing these

Financial Statements, suitable accounting

policies have been followed, which are

applied consistently and supported by

reasonable and prudent judgment and

estimates. They are of the opinion that there

been no significant change in the accounting

policies which warrant disclosure in this

report. The Directors have taken such steps as

are responsibly open to them to Safeguard the

assets of the Company and to prevent and

detect fraud or other irregularities.

5.0 Financial Statements and

Accounting Policies

The Directors consider that in preparing these

Financial Statements, suitable Accounting

Policies have been selected which are applied

consistently while reasonable and prudent

judgments and estimates have been made so

that the form and substance of transaction are

properly reflected. There was no change in

accounting policies made during the

accounting period.

6.0 Property, Plant & Equipment,

their Valuation and Depreciation

Capital Expenditure during the year on

property plant and equipment by the

company amounted Rs. 62,186,308.65

Details of the status and movements of

Property plant and Equipment, their

9

Valuation and Deprecation are given in Note

9.0 of Note to the Financial Statements.

7.0 Taxation

The company was taxable at 28% on the

taxable income for the year under review.

8.0 Dividends

Rs. 30.0 million interim dividend was

declared for the year under review.

9.0 Stated Capital

The Stated Capital of the Company altogether

Rs. 72,510,000.00 consisting of 7,251,000

ordinary shares. There was no change in the

Stated Capital for the year under review.

10.0 Shareholding

Interms of Section 2(3) of the Conversion of

Public Corporations or Government Owned

Business Undertakings into Public

Companies Act No. 23 of 1987 the sole

shareholder is the Company is Secretary to

the Treasury (in his official capacity) for on

behalf of the state.

As at 31st March 2012, the shareholding

details of the company are as follows;

Secretary to the Treasury (in his official

capacity) 7,251,000 ordinary shares

Lanka Phosphate Limited is a Shareholder of

GSMB Technical Services (Private) Limited

and holding 100,000 of ordinary shares (Rs.

10/- each).

The Percentage of said shareholding is

16.66%.

11.0 Changes in Shareholdings

There have been no changes to the

Shareholding of the Company as at

31.03.2012.

12.0 Donations

The Company has contributed Rs.

2,712,914.00 for charitable purposes & CSR

during the year under review.

13.0 Employees

The total cost of personnel during the year

was Rs. 161,143,086.20

The number of persons employed by the

Company at the end of the year was 294.

14.0 Directors

The following Directors held office during

the year under review.

Admiral Daya Sandagiri - Chairman & MD

Mr. R.R.M.N Rajapaksha – Executive

Director

Mrs. B.M.D.N Balasooriya - Director

Mr. A. Gamage - Director

Mr. P.D.J Jayawardana - Director

Mr. D.M.Wijepala – Director

15.0 Resignation and Appointment of

Directors

Mr. K.W.Bandula (10.05.2011), Mr.

A.G.D.D Gunasekara (07.06.2011), Mr.

10

M.M.C.P Mohottegedara (09.01.2012) were

resigned during the year of 2011/12.

16.0 Director’s remuneration

Rs. 596,500.00 was paid as Directors

Remuneration & Expenses in the year under

review.

17.0 Statutory Payments

The Directors, to their best of their

knowledge and the belief are satisfied that all

statutory payments due to the Government

and to Employment Provident Fund and

Employees Trust Fund have been paid

accurately and on time.

18.0 Compliance

The company has not engaged in activities

that contravene the laws or regulations that

are applicable in Sri Lanka or elsewhere.

19.0 Going Concern

The Directors are satisfied that the company

has adequate resources to continue their

operations in the foreseeable future and

accordingly all finance statements of the

company is prepared on the going concern

basis.

20.0 Corporate Governance

The Board of Directors ensures good

corporate Governance. It is the duty of the

Board of Directors to ensure that the

performance is in line with the company

objectives as a public enterprise as well as the

objectives and expectations of the

stakeholders.

21.0 Risk Management

The Company consciously fulfills its

statutory and legal requirement to ensure that

its exposure to legal risk is eliminated or

minimized.

22.0 Auditors

Messrs SJMS Associates, Chartered

Accountant are the present Auditors of the

Company.

As the present Auditors of Lanka Phosphate

Limited, M/s. SJMS Associates, Chartered

Accountants have completed their 1st year of

service and retire at the Annual General

Meeting Scheduled to be held on 24th

September 2012.

Therefore the Directors of Lanka Phosphate

Limited have decided to recommend to the

Shareholders of the Company to re-appoint

the retiring Auditors M/s. SJMS Associates

subject to the procedure imposed by the

Companies Act No. 07 of 2007 at the Annual

General Meeting scheduled to be held on 24th

September 2012 at 5.30pm at Head Office,

Lanka Phosphate Ltd, No 73 1/1, New Kelani

Bridge Rd, Colombo 14.

A resolution proposing that the Directors be

authorized to determine the remuneration of

new Auditors will be tabled at the Annual

General Meeting.

Total audit fees paid by the company to

Messrs SJMS Associates Amount to Rs.

11

371,280.00 for the year under review. Fees

paid for tax consultation services to Messer.

Ameresekara & Company for the year is Rs.

171,432.00.

As far as the Directors are aware, the

Auditors did not have any relationship with

the Company or its subsidiaries that would

have an impact on their independence.

FOR AND BEHALF OF THE BOARD OF

DIRECTORS

Chairman

Executive Director

Company Secretaries

12

AUDIT & MANAGEMENT COMMITTEE REPORT COMPOSITION The Audit & Management Committee is appointed by the Board of Directors and it is responsible to the Board. The Chairman of the Committee was the Director who represents the Secretary to the Treasury on behalf of the Government of Sri Lanka and also the General Manager, Deputy General Manager, Finance Manager, Admin & Human Resource Manager and Internal Auditor represent the committee as members who represent the Management of the company. MEETINGS The Audit & Management Committee was able to meet four occasions during the year to discuss the issues and evaluate the existing controls in order to make recommendations to the Board of Directors of the company. ACTIVITIES & RESPONSIBILITIES Financial Reporting The committee reviewed and discussed the financial reporting system adopted by the company in the preparation of its quarterly and annual financial statements with the Management & the External Auditors to ensure reliability of the processes and the consistency of the accounting policies adopted and its compliance with the Sri Lanka Accounting Standards and the provision of the Companies Act No 07 of 2007. Internal Audit An Internal Audit Division is established in the company with the aiming of strengthening & enhancing the overall controls and performances of the company. COMPLIANCE WITH LAWS AND REGULATIONS The Committee reviewed the monthly/quarterly compliance reports submitted by the relevant officers to ensure that the company has complied with all statutory requirements. CONCLUSION The Audit & Management Committee is satisfied that the Company’s accounting policies, operational controls and risk management processes provided reasonable assurance that the affairs of the Company are managed in accordance with Company policies and that the Company assets are properly accounted for and adequately safeguarded.

Chairman Audit & Management Committee

13

REPORT OF THE AUDITORS INDEPENDENTS AUDITOR’S REPORT TO THE SHAREHOLDERS OF LANKA PHOSPHATE LTD Report on the Financial Statements We have audited the accompanying financial statements of Lanka Phosphate Ltd., which comprise the Balance Sheet as at 31st March 2012, and the Income Statement, the Statement of Changes in Equity and Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory notes . Management’s Responsibility for the Financial Statements. Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. The responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are responsible in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. we conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended March 31, 2012 and the financial statements give a true and fair view of the Company’s state of affairs as at March 31, 2012 and of its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. Report on Other Legal and Regulatory Requirements In our opinion these financial statements also comply with the requirements of section 151 (2) of the Companies Act No 07 of 2007.

08th August 2012

14

LANKA PHOSPHATE LIMITED INCOME STATEMENT

FOR THE YEAR ENDED 31ST MARCH 2012

2011/2012 2010/2011 Note Rs. Rs.

Revenue 3 491,279,533.00 393,067,483.46

Cost of sales (192,287,311.72) (171,421,962.84) Gross profit 298,992,221.28 221,645,920.62

Other income 4 49,908,731.15 29,785,480.64 348,900,952.43 251,431,401.26

Distribution costs (7,114,844.48) (4,665,326.97) Administrative expenses (140,359,075.63) (119,592,834.83) Profit from operation 5 201,427,032.31 127,173,239.46

Finance costs 6 (8,932.68) (1,172,459.20) Profit before taxation 201,418,099.63 126,000,780.26

Tax expense 7 (58,655,361.93) (43,032,618.63)

Net profit for the year 142,762,737.70 82,968,161.63

Earnings per share 8 19.69 11.44

The accounting policies and notes from 1 to 23 to the financial statements form an integral part of these financial statements.

15

LANKA PHOSPHATE LIMITED BALANCE SHEET AS AT 31ST MARCH 2012

31.03.2012 31.03.2011

Note Rs. Rs. Assets Non-Current Assets Property, plant and equipment 9 100,064,624.84 46,043,415.27 Investment in equity 10 1,000,000.00 1,000,000.00 Investment in treasury bonds 956,167.97 887,207.89 Long term loan 11 1,522,037.53 3,931,257.53 Goodwill 12 4,953,880.00 6,192,052.00 Deferred taxation 7,353,957.49 10,542,400.49

115,850,667.83 68,596,333.18 Current Assets Inventories 13 69,042,402.25 40,653,986.05 Trade receivables 33,175,324.86 31,198,224.86 Deposits, prepayments and other receivables 14 66,279,410.43 65,318,940.72 Long term loan receivable within one year 11 2,628,240.00 2,628,240.00 Short term deposits 285,000,000.30 240,190,026.67 Cash and cash equivalent 15 45,656,280.99 50,278,309.54

501,781,658.83 430,267,727.84 Total Assets 617,632,326.65 498,864,061.02

Equity and Liabilities Capital and Reserves Stated capital 16 72,510,000.00 72,510,000.00 Retained profit 462,194,841.23 339,432,103.53 Total Equity 534,704,841.23 411,942,103.53

Non-Current Liabilities Retirement benefit obligations 17 43,316,874.15 51,882,087.32 Current Liabilities Trade payable 2,702,575.66 3,928,609.00 Commissioner general of inland revenue 24,838,297.94 13,783,745.58 Other payables and accrued expenses 18 12,069,737.67 11,218,847.71 Bank overdrafts - 6,108,667.88

39,610,611.27 35,039,870.17 Total Equity and Liabilities 617,632,326.65 498,864,061.02

16

I certify that the financial statements also comply with the requirements of the Companies Act No 07 of 2007.

Finance Manager

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

Approved and signed for and on behalf of the Board

Director Director Date: 08th August 2012


17

LANKA PHOSPHATE LIMITED

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31ST MARCH 2012

Stated Capital Retained Profit Total Equity

Rs. Rs. Rs. Balance as at 01.04.2010 72,510,000.00 266,463,941.90 338,973,941.90

Net profit for the year - 82,968,161.63 82,968,161.63

Dividend paid - (10,000,000.00)

(10,000,000.00)

Balance as at 31.03.2011 72,510,000.00 339,432,103.53 411,942,103.53

Net profit for the year - 142,762,737.70 142,762,737.70

Dividend paid - (20,000,000.00)

(20,000,000.00)

Balance as at 31.03.2012 72,510,000.00 462,194,841.23 534,704,841.23


18

LANKA PHOSPHATE LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2011

31.03.2012 31.03.2011

Note Rs. Rs. Cash Flow from Operating Activities Profit before taxation 201,418,099.63 126,000,780.26

Adjustments for ; Depreciation 8,165,099.08 5,994,451.28 Retiring Benefit Obligations 8,507,722.47 7,884,149.85 Amortization of goodwill 1,238,172.00 1,238,172.00 Recognized actuarial loss (14,195,732.84) 3,509,604.06 Interest income (35,095,526.81) (31,812,781.89) Dividend income (450,000.00) (450,000.00) Operating profit before working capital changes 169,587,833.54 112,364,375.56

Working Capital Changes (Increase)/decrease inventories (28,388,416.20) 14,800,401.95 (Increase)/decrease in trade receivables (1,977,100.00) 2,719,661.14 (Increase)/decrease in deposits, prepayments and other receivables 857,209.42

(10,792,825.53)

Increase/(decrease) in trade payables (1,226,033.34) 1,040,156.00 Increase/(decrease) in other payables and accrued expenses 850,889.57 2,870,204.97 Cash generated from operations 139,704,382.99 123,001,974.09

Income tax/ESC/WHT paid (44,412,366.57)

(66,658,201.23) Payment of retirement benefit obligation (2,877,202.50) (8,826,212.00) Net cash flow from operating activities 92,414,813.92 47,517,560.86

Cash Flow from Investing Activities

Purchase of property, plant and equipment (25,903,905.63)

(9,357,106.95) Additions in capital work-in-progress (36,282,403.02) (2,089,431.98) Additions in investment - (862,080.00) Additions in short term deposits (44,809,973.63) (40,013,196.64) Interest received 33,208,887.69 36,405,955.37 Dividend received 450,000.00 450,000.00 Loan capital recovered 2,409,220.00 2,628,240.00

19

Net cash flow from investing activities (70,928,174.59)

(12,837,620.20)

Cash Flow from Financing Activities

Dividend paid (20,000,000.00)

(10,000,000.00)

Net cash used in financing activities (20,000,000.00)

(10,000,000.00)

Net changes in cash and cash equivalents 1,486,639.33 24,679,940.66

Cash and cash equivalents at beginning of the year 19.1 44,169,641.66 19,489,701.00

Cash and cash equivalents at the end of the year 19.2 45,169,641.66 44,169,641.66


20

LANKA PHOSPHATE LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2012 1 CORPORATE INFORMATION 1.1 Domicile and Legal Form

Lanka Phosphate Ltd was incorporated on July 10, 1992 as a Limited Liability Company under the Companies Act No. 17 of 1982 in terms of the conversion of Public Corporations or Government Owned Business undertakings in to Public Companies Act No. 23 of 1987 to take over the Eppawala Phosphate project of the State Mining and Mineral Development Corporation. However, subsequently the Company has re-register under the Companies Act No. 07 of 2007

The registered office of the company is located at No. 73 1/1 New Kelani Bridge Road, Colombo-14 and Rock Phosphate (Apatite) deposit is located at Eppawala.

1.2 Principal Activities and Nature of Operations

The principal activities of the company are excavating, processing and selling of Rock Phosphate, which is used as a fertilizer for perennial agricultural crops.

1.3 Parent and Ultimate Parent Company The company’s issued shares are fully owned by the Secretary to the Treasury on behalf of the Government of Sri Lanka.

1.4 Number of Employees The number of employees at the end of the year was 294 (2011-307)

2. SUMMARY OF SIGNIFICANT FINDINGS

2.1 ACCOUNTING CONVENTION

The Financial Statements of the Company are prepared in accordance with Generally Accepted Accounting Principles and the applicable Sri Lanka Accounting Standards lay down by the Institute of Chartered Accountants of Sri Lanka. The Accounting Policies have been applied by the company consistent with that of the previous year, and previous year figures and phrases have been rearranged where necessary to confirm to the current year’s presentation.

These Financial Statements presented in Sri Lanka Rupees have been prepared on the historical cost basis.

2.2 ASSETS AND BASES OF THEIR VALUATION 2.2.1 Property Plant, and Equipment

Items of Property, Plant and Equipment are stated at cost or valuation less accumulated depreciation, which is provided on a Straight-Line Basis.

Cost The cost of Property, Plant and Equipment is the cost of acquisition or construction together with any expenses incurred in bringing the assets to its working condition for its intended use.

21

Expenditure incurred for the purpose of acquiring, extending or improving assets of a permanent nature by means of which to carry on the business or to increase the earning capacity of the business has been treated as capital expenditure.

Depreciation The principal annual rates used for Depreciation are as follows;

Building 04% Plant and Machinery 10% Laboratory Equipment 10% Electrical Equipment 10% Miscellaneous Assets 10% Motor Vehicle 20% Office Equipment 20% Furniture and Fittings 20%

Computer Hardware and Software 20% 2.2.2 Operating Lease

The Operating lease is for a period of 30 Years. The rentals paid are charged to Income Statement.

2.2.3 Inventories

Stocks of Phosphate are valued on a weighted average basis, based on the cost of production. It has been the practice to apportion 40% of the costs of the Mine to “crushed” production (Unprocessed) and to apportion the balance 60% to “ground” production (Processed) when valuing the Phosphate stocks.

General stocks are stated at the lower of cost and net realizable value. In general, cost is determined on a weighted average basis. Net realizable value is the price at which stock can be sold in the ordinary course of business after allowing for the cost of realization. Provision is made where necessary for obsolete, slow- moving and defective stocks.

2.2.4 Short Term Investments Short-term investments are stated at lower of cost and market value. 2.2.5 Trade and Other Receivables

Trade and Other Receivables are stated at the value estimated to be realized after providing for bad and doubtful debts.

2.2.6 Cash and Cash Equivalents

Cash and Cash Equivalents comprise cash balances, stamp float and demand deposits.

2.3 LIABILITIES AND PROVISIONS 2.3.1 Provision for Taxation Income Tax

Income Tax on the profit or loss for the Year comprises current and deferred tax. Income Tax is recognized in the Income Statement.

22

Current tax is the profit tax payable on the taxable income for the year, using tax rates enacted at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.

Deferred Tax

Deferred Tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amount of assets and liabilities for financial reporting purpose and the amounts used for Taxation purposes.

2.3.2 Retiring Gratuity The liability recognized in the balance sheet is the present value of the defined benefit obligation at the balance sheet date using the projected unit credit method. However, according to the payment of Gratuity Act, No. 12 of 1983, the liability arises only on the completion of 5 years of continued service. The gratuity liability is not externally funded.

2.3.3 Payables and Provisions

Trade and Other Payables are stated at their cost.

A Provision is recognized in the Balance sheet when the Company has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefit will be required to settle the obligation.

2.4 INCOME STATEMENT 2.4.1 Turnover

The company’s turnover comprises of sale of Eppawela Rock Phosphate (ERP) and, High grade Eppawala Rock Phosphate (HERP)

2.4.2 Revenue and Expenses Revenue from the sale of Phosphate is recognized in the Income Statement when the significant risks rewards of ownership have been transferred to the buyer.

Gain and Losses of revenue nature on the disposal of property, plant and equipment have been accounted for in the Income Statement. All expenditures incurred in running of the business and maintaining the capital assets in a state of efficiency has been charged to revenue in arriving the profit for the year.

2.4.3 Net Financing Income

Net Financing Income comprises of interest income from Fixed Deposits, Treasury Bills, Treasury Bonds, Loan given to Bogala Graphite Lanka Limited and Staff Loans. Interest income is recognized in the Income Statement as it accrues, taking in to account the effective yield on the asset.

2.4.4 Borrowing Cost

Borrowing Cost are recognized as an expense in the period in which they are incurred, expect to the extent that they are directly attributable to the acquisition construction or production of a qualifying asset, in which case they are capitalized as part of the cost of that asset.

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2.5 CASH FLOW

The Cash Flow Statement has been prepared using the “Indirect Method”. Interest paid are classified as operating cash flow, interest and dividend received are classified as investing cash flows while dividends paid are classified as Financing cash flows for the purpose of presenting of cash flow statement.

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9. Property, Plant and Equipment

Buildings

Plant & Machinery

Motor Vehicles

Office Equipment

Electrical Equipment

Furniture & Fittings

Laboratory Equipment

Computer Hardware &

Software Miscellaneous WIP Total Cost Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance at the beginning of the year 32,838,447.65

32,411,419.00

33,853,221.00

1,996,007.00

2,230,155.00

3,488,510.70 407,463.00 8,408,100.40 8,649,111.81 6,589,652.08

130,872,087.64

Additions

1,869,744.58 13,000.00 18,800,000.00 44,800.00

1,278,213.50

476,968.05 -

2,907,999.50 513,180.00

36,282,403.02 62,186,308.65

Balance at the end of the year 34,708,192.23

32,424,419.00

52,653,221.00

2,040,807.00

3,508,368.50

3,965,478.75 407,463.00

11,316,099.90 9,162,291.81

42,872,055.10

193,058,396.29

Accumulated Depreciation Balance at the beginning of the

year-Restated 16,106,671.02

24,182,742.18

25,621,138.13

1,568,383.68

1,550,316.87

3,007,862.11 389,983.10 6,910,807.21 5,490,768.07 -

84,828,672.37

Charge for the year

1,313,537.40

1,798,485.28

3,240,416.97

118,121.34

151,972.46

204,603.00 4,370.04 745,153.46 588,438.70 - 8,165,099.08


25,981,227.46

28,861,554.91

1,686,505.65

1,702,289.33

3,212,465.11 394,353.14 7,655,960.67 6,079,206.77 -

92,993,771.45

Written Down Value


6,443,191.54

23,791,666.09

354,301.35

1,806,079.17

753,013.64 13,109.86 3,660,139.23 3,083,085.04

42,872,055.10

100,064,624.84

Balance at the beginning of the year (Restated)

16,731,777

8,228,677

8,232,083

427,623

679,838

480,649 17,480 1,497,293 3,158,344 6,589,652 46,043,415

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2011/2012 2010/2011 Rs. Rs.

3. Revenue

ERP -Eppawala Rock Phosphate 393,480,918.00

340,940,268.46 HERP - High Grade Eppawala Rock Phosphate 97,798,615.00 52,127,615.00

491,279,533.00 393,067,883.46 4. Other Income

Interest income 35,095,526.81

31,812,781.89 Dividend income 450,000.00 450,000.00 Miscellaneous income 167,471.50 1,032,302.81 Actuarial gain 14,195,732.84 (3,509,604.06)

49,908,731.15 33,295,084.70

5. Profit from operation is stated after charging the following:

Staff costs 161,143,086.20 145,638,083.78 Directors fees 356,500.00 84,000.00 Directors expenses 240,000.00 218,333.00 Depreciation 8,165,099.08 5,994,451.28 Audit fee 336,739.20 337,348.40

6. Finance Costs Debit tax 8,932.68 1,172,459.20

8,932.68 1,172,459.20 7. Income Tax

Income tax on profit for the year (Note-10.1) 55,466,918.93

46,450,229.12 Transferred from deferred tax 3,188,443.00 (3,417,610.49)

58,655,361.93 43,032,618.63 7.1 Reconciliation of Income Tax

Profit before taxation 201,418,099.63 126,000,780.26 Non business income (46,862,092.05) (32,262,781.89) Aggregate disallowable items 41,915,846.64 38,079,823.02 Aggregate allowable expenses (35,042,875.11) (32,289,773.40) Interest income/profit on disposal of fixed assets 32,720,449.21 32,047,771.00 Taxable profit 194,149,428.33 131,575,818.99

Income tax at 28% 54,361,839.93 46,051,536.65 Social responsibility levy 1.5% - 690,773.05 Notional tax credit (504,090.00) (234,988.78) Over provision in the prior year 1,609,169.00 (57,091.80)

55,466,918.93 46,450,229.12

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8.0 Earnings per share The calculation of the basic earnings per share is based on the profit attributable to ordinary shareholders of the company and the weighted average number of ordinary shares outstanding during the year as follows:

2011/2012 2010/2011 Rs. Rs. Profit attributable to ordinary shareholders 142,762,737.70 82,968,161.63 Weighted average number of ordinary shares outstanding during the year

7,251,000 7,251,000

Basic earnings per share 19.69 11.44

31.03.2012 31.03.2011

Rs. Rs. 10. Investment in GSMB Technical Services (Pvt) Ltd

100,000 Ordinary shares, Rs.10 each 17% 1,000,000.00 1,000,000

11. Long Term Loan -Bogala Graphite Lanka Limited


10,074,851.00 Installments received during the year (2,409,220.00) (2,628,240.00)

5,037,391.00 7,446,611.00 Installments received in advance (887,113.47) (887,113.47)

4,150,277.53 6,559,497.53 Amount receivable within one year (2,628,240.00) (2,628,240.00) Balance at the end of the year 1,522,037.53 3,931,257.53

12. Goodwill The excess of issued share capital of the Company over the net identifiable assets of the business converted to a company at the date of conversion is the balance sheet as goodwill, arising on conversion. The goodwill so recognized, is amortized over a period of 20 years on a straight line basis, commencing from the year ended 31.03.1997.


7,430,224.00

Amortization for the year (1,238,172.00) (1,238,172.00) Balance at the end of the year 4,953,880.00 6,192,052.00

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13. Inventories

Trade stocks 16,151,045.03

5,576,908.39 General stocks 53,479,194.74 35,664,915.18

69,630,239.77 41,241,823.57 Provision for obsolete general stocks (587,837.52) (587,837.52)

69,042,402.25 40,653,986.05

14. Deposits, Prepayments and Other Receivables

Staff loans and advances 48,911,215.05

51,958,276.64 Deposit and prepayments 5,554,484.42 3,364,632.25 Interest receivables 11,813,710.96 9,996,031.83

66,279,410.43 65,318,940.72 15. Cash and Cash Equivalent

Repo -Bank of Ceylon 26,000,000.00

44,600,000.00 Stamp float 15,272.00 23,702.00 Cash at bank 19,556,008.99 5,569,607.54 Cash in hand 85,000.00 85,000.00

45,656,280.99 50,278,309.54

16. Stated Capital Issued and fully paid 7,251,000 Ordinary shares 72,510,000.00 72,510,000.00

17. Retirement Benefit Obligations Balance at the beginning of the year 51,882,087.02

49,314,545.41

Charged for the year 2,800,692.90 3,199,268.04 Interest cost 5,707,029.57 4,684,881.81

60,389,809.49 57,198,695.26 Gratuity payments during the year (2,877,202.50) (8,826,212.00) Effect in changes of assumptions (14,195,732.84) 3,509,604.06 Balance at the end of the year 43,316,874.15 51,882,087.32

The following assumptions have been taken in the computation of gratuity as per SLAS No.16.

Expected annual average salary increment 10% 10% Discount Rate 11% 9.50%

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18. Other Payables and Accrued Expenses WHT payables

201,133.00

Accrued expenses 9,804,154.90 10,162,670.87 Other Payables 2,265,582.77 855,043.84 12,069,737.67 11,218,847.71 19. Note to the Cash Flow Statement 19.1 Cash & Cash Equivalent at the beginning of the year Stamp float 15,272.00 23,702.00 Cash at bank 19,556,008.99 5,569,607.54 Bank overdraft - (6,108,667.88) Cash in hand 85,000.00 85,000.00 19,656,280.99 (430,358.34) 19.2 Cash & Cash Equivalent at the End of the year Repo – Bank of Ceylon 26,000,000.00 44,600,000.00

Stamp float 15,272.00 24,062.00 Cash at bank 19,556,008.99 21,220,643.00 Bank overdraft - (1,840,004.00) Cash in hand 85,000.00 85,000.00 45,656,280.99 19,489,701.00 20. Contingent liabilities/Contingent Assets

The company has no material contingent liabilities/assets except the outcome on following pending cases as at the balance sheet date. i. Case No.’s LPL/COU/03-1 & LPL/COU/03-02 have been filed by third parties

claiming damages Rs. 2.5 mn for the accident met. ii. Two labour cases are pending against the company; outcome of those not known

21. Commitments

Financial commitments There were no material financial commitments outstanding at the balance sheet date. Capital commitment Capital expenditure contracted for, at the balance sheet date but not recognized in the financial statements is as follows;

31.03.2012 31.03.2011 Rs. Rs.

Unpaid capital expenditure for new mill

construction in progress 18,201,526.00 -

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22. Event after the balance sheet date

No circumstances have arisen since the balance sheet date which requires adjustments to or disclosure in the financial statements.

23. Related Party Transactions 23.1 Transaction with Key Management Personnel

Related party includes key management personnel defined as those persons having authority & responsibility for planning, directing & controlling the activities of the company. Key management personnel include the directors of the Company. Compensation to key management personnel for the year was as follows.

2011/2012 2010/2011 Rs. Rs.

Short term benefits 596,500.00 302,333.00 23.2 Transaction with other related parties

During the financial year, no parties and transaction were identified as related parties defined under the Sri lanka Accounting Standards No 30.

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REVIEW OF OPERATIONS A brief review of operations and operational results for the year 2011/12 and the future plans of the company are presented as follows. 01. PROFITABILITY

Profit before taxation for the year 2011/12 is Rs. 201.41 millions. It is an over 59.8% increase when compare to the previous year of Rs. 126.00 million. The profit after tax too for the year has gone up by 59.80 million which is a significant growth of over 72%.

02. NET ASSETS

The company is being able to maintain a healthy Net Assets position continuously. The value of net assets at the end of the last year of Rs.412 million had been increased up to Rs. 535 million by the end of current year.

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03. REVENUE

Company achieved gross revenue of Rs. 491.3 million which includes the sale of 47112.55 mt of ERP and 8972.35 mt of HERP for the year. It is over 8% achievement against the targets for the year.

04. CAPITAL EXPENDITURE The capital expenditures incurred during the last five years are as follows;

Acquisition & Capital Work-In-Progress 2007/08- Rs. 12,651,515/= 2008/09- Rs. 1,078,048/= 2009/10- Rs. 1,720,805/= 2010/11- Rs. 11,446,539/= 2011/12- Rs. 62,186,309/= The Company has planned to increase the capital expenditure in the coming years also by way of enhancing the existing storage facilities, production capacities , replacement of old vehicles etc.

05. PAYMENTS TO GENERAL TRESURY & GOVERNMENT INSTITUTIONS

Being a state company & having 100% ownership of shares, the total dividend declared by

LPL is entitled to the General Treasury of Sri lanka. The dividend declared and paid for the

year is Rs. 40.0 million. In addition to income tax, the company is liable to pay other taxes

and levies such as royality, mineral taxes, ESC etc. The Royality is calculated at 4% on

32

sales value of the production to and paid to Geological Survey & Mining Bureau on

quarterly basis. The royality payment for the current year is Rs. 23.30 millions.

Summary of such payments for last eight years are as follows.

FUTURE PLANS FOR LANKA PHOSPHATE LTD Having achieved one of the major objectives prescribed in “Mahinda Chinthana – Vision for the future”, that is meeting the entire local requirement of rock phosphate, Lanka Phosphate Limited has now stepped into the major path of increasing the value addition. Triple Super Phosphate (TSP) being the fertilizer currently favored in the agriculture and plantation sectors for its superior solubility, LPL always encourage reliable investors to submit their proposals considering the market potential on TSP fertilizer. One such investor, M/S Fortune Fertilizer has already submitted a proposal to put up a TSP/ DAP Production plant and evaluation of the proposal will be done by a committee of high level government officials for which, LPL is expected to commit on supply of powdered ERP. Subject to receipt of approval for above project, LPL is looking forward to expand its production, storage and the infrastructure development. New TGM 160 Grinding Mill. New grinding Mill of Capacity 10 Metric tons per hour has been procured and installed in the new mill building. Total contract price was Rs. 56 million. With this, the production capacity of LPL has been doubled and soon, the company will be able to meet the national requirement of Rock Phosphate. Agency Results Frame work Based on guidelines given in “Mahinda Chinthana Vision for the future”, Agency Results Framework (ARF) was formulated and submitted to the Ministry of State Resources & Enterprise Development for scrutiny. The expansion and development of infrastructure are

33

keyed with anticipated value addition project where, LPL is positively heading towards. Accordingly, the target years will be finalized.

AGENCY RESULTS FRAMEWORK MAIN

THRUST AREAS

STRATEGIES KEY POINT INDICATORS

PRESENT STATUS

TARGET YEAR

2011/12 2012/13 2013/14 2014/15 2015/16 Meet National Requirement of Rock Phosphate

Increase Production

New Grinding Mill (10TPH) (56Mn)

New Mill Installed (90%)

100% Increase Crusher output

New crusher Old crusher capacity insufficient

Improve Transportation

New Tipper 2XTippers One every old

Rehabilitate internal Roads

Gravel Roads

Store yard construction

10000MT capacity Limited storage

(5000MT)

Expand raw material storage 30000MT

Limited Capacity (15000MT)

Provide Loading Equipt. (New Forklift+ pallet Trucks)

2Xfork Lifts one very old

Value addition through SSP/TSP DAP Fertilizer development

Identify Resourceful and reliable investor.

Carry out due diligence MOU signed

100% Enter into contract

100% Produce fertilizer for local market

Investors Production strategy

25% 50% 100% Explore feasibility to export

Develop Infrastructure to be in par with new developments

Through investor funding

Gear up to meet the demand

Insufficient

100% HR Management and Employment opportunity

Recruitment Recruitment Insufficient 100%

Training & Development 100%

Develop the traditional Industry sector

R & D Increase Publicity Limited Develop in house infrastructure

Non

General Manager Lanka Phosphate Ltd

34

NOTICE OF THE MEETING

NOTICE IS HEREBY GIVEN to the shareholders of Lanka Phosphate Limited that the Annual General Meeting of the Shareholders of Lanka Phosphate Limited would be held on 24th September 2012 at 5.30pm at the Head Office of Lanka Phosphate Limited at No. 73 1/1, New Kelani Bridge Road, Colombo 14 for the following purposes:

1. Tabling of written consent by the Secretary to the Treasury (as the registered owner of all the shares in the Company) to have an Annual General Meeting at ‘Short Notice’ in terms of the Articles of Association of the Company.

2. To confirm the Minutes of the Annual General Meeting held on 23rd September 2011.

3. To receive, consider and adopt the Audited Statement of Accounts for the year ended 31.03.2012 and the Balance Sheet as at 31.03.2012 and the Report of the Auditors thereon all of which are sent herewith.

4. To receive, consider and adopt the Annual Report sent herewith. 5. To distribute a dividend of Rs. 10 million as final dividend for the year

2011/2012 to the Treasury as the sole Shareholder of the Company. 6. To re-elect Directors, Mr. P.D J.Jayawardena and Admiral Daya Sandagiri who

retire (at the Annual General Meeting) in terms of the Article 93 of the Articles of Association of the Company.

7. To re-appoint the retiring Auditors ‘SJMS Associates’ Chartered Accountants for the year 2012/2013 and to authorize the Directors to determine their remuneration for the year.

8. To consider and take action as many be through fit on any motion of which due notice has been given.

By Order of the Board,

FINANCIAL SERVICES AND COMMERCIAL AGENCIES (PRIVATE) LIMITED Company Secretaries to Lanka Phosphate Limited

Notes: A shareholder who is entitled to attend and vote at a General Meeting is entitled to appoint a proxy to attend and vote instead of him/her and the proxy need not be a member of the company. A form of proxy is attached for this purpose.

35

FORM OF PROXY

Lanka Phosphate Ltd

P R O X Y I/We ……………………………………………………………………………………

Of ……………………………………………………………………………………….

Being a member of the above named Company hereby appoint …….................. ………………………………………….of …………………………………………………………......or

Failing him …………………………………………………………………………………………….....

Of ………………………………………………………………………………………………………….

As my/our proxy to vote for me/us an on my/our behalf at the Annual General Meeting of the

company to be held on 24th September 2012 and at any adjournment thereof and at every poll which

may be taken in consequence thereof.

Signed this ………………………………...day of …………………………..two thousand and twelve

Signature ……………………………..

NOTE

A Proxy may vote as he thinks fit on any resolution brought before the Meeting

A Proxy need not to be a Member of the Company

Instructions as to completion are noted on the reverse hereof

36

Documents

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