Tochwood 78

OUR VISION
To help stop the destruction of our rainforests

Our natural forests are under relentless pressure. Touchwoods role in providing managed and sustainable alternatives contributes to saving old growth forests from destruction. Our vision is a world where forest products are obtained from sustainable managed Agro-forestry leaving our natural forests just as nature intended them to be. Join with Touchwood and help preserve our natural forests and forest products for our children so they may also see and share our vision.
OUR MISSION
Our mission is to grow trees that are commercially viable and environmentally sustainable, to make our clients wealthy and healthy, creating an environment for our employees that promotes job satisfaction, safe in the knowledge that we are saving the rainforests whilst acquiring wealth. Touchwood is proud to be a true triple bottom line company, profiting, protecting the environment and being socially responsible.
VALUES
We are proud of Touchwood and our achievements. We recognise that our clients pay for our actions. We ensure win win situations where all transactions are negotiated with the result that all parties to the transaction are satisfied. All stakeholders are given equal importance. The culture of every employee and organisation is respected. Diversity and objectivity of employment is maintained. Integrity and honesty are valued even at the risk of a loss in profits. We compete as a team.
TOUCHWOOD INVESTMENTS PLC
ANNUAL REPORT 2010/11
What We Do
Touchwood is the pioneer of the agro-forestry investment industry in Sri Lanka. We are a company that specialises in the cultivation of high value exotic tropical timbers as an alternative and sustainable source of forest products (Mahogany, Vanilla, Sandalwood, Teak and other cash crops). Over a decade of inspired action and foresight, Touchwood Investments has grown in stature and global presence, and has proudly shown the promise of a good harvest to all those who have placed their trust in the credibility, integrity and capability of the Company. The long terms prospects of the Company are indeed promising. The Hancock Natural Resource Group, a unit of John Hancock Financial Services, Boston, USA has predicted that the main appeal of the sector is its long-term profitability. Over the last 30 years, annualised returns on timber have averaged 15.2 per cent compared with 13.2 per cent for the Standard & Poors 500 stock index. The speculation therefore is that agro-forestry is a strong investment tool with a greater return on investment. Analysts have described agroforestry as a sector that remains resilient in the face of economic meltdowns, because of its sheer lack of correlation to the global commodity, stocks and bond markets.
As Sri Lankas premier Agro-Forestry Company, Touchwood for the second successive year emerged as one of Sri Lankas most valuable brands by being ranked within Sri Lankas Top 100 Brand Index.
Engaging as we do in this business, we draw on the innovation and expertise of global resource personnel to fuel our growth momentum. We collaborate with stellar institutions across the world to further our agroforestry management practices and plans, and adopt the latest techniques and technologies throughout our plantations while constantly engaging in research and development to better our offering. Those who invest with us are empowered with the choice to invest responsibly; it is an investment option that goes beyond financial gain to ecological and environmental gain. The communities where Touchwood operates appreciate the benefits of our commitment and we continue to invest in and develop the skills of Touchwood people who work tirelessly to ensure that stakeholder expectations are met. As Sri Lankas premier Agro-Forestry Company, Touchwood for the third successive year emerged as one of Sri Lankas most valuable brands by being ranked within Sri Lankas Top 100 Brand Index. Compiled annually by Brand Finance (Lanka), a subsidiary of a global entity, Brand Finance PLC, the Brand rankings for the Year 2010 were disclosed and presented in the April 2011 issue of Sri Lankas pioneering Business Magazine, the Lanka Monthly Digest (LMD). In essence, we are in the business of creating a brighter future for our investors, our future generations and for mother Earth.
What We Believe
The triple bottom line is intrinsic to our business model and is the core upon which our values system is built. We empower PEOPLE We protect our PLANET We ensure PROFIT to our stakeholders. We believe that all things in this world have an effect on another and our business is no exception. Our agro-forestry activities have positive effects on the environment and the water cycles of the island and in a larger sense, contribute to the wellbeing of the global environment as a whole. The profit we deliver to our stakeholders is one that we can truly be proud of, as it signifies a partnership to develop our nation, our people and our childrens future.
National Quality Circle Award
Development of
Milestones
2010
Increase in
of Tree Buffer Stock
500 acres
Rs. 1.4 bn
Awarded the certificate of compliance
Revenue Over
60%
Establishment of
Brand Value
downstream processing facilities
by the Chartered Institute of Accountants
Planted 150,000 trees

in one day
Establishment of dedicated
R&D Laboratory
Rs. 5.9 bn
Assets Over
Our strong track record of performance on results delivery supports our strategy for the future
Contents
Financial Highlights Five Year Financial Summary The Touchwood Plantations Chairmans Statement Deputy Chairmans Statement Chief Executive Officers Statement Board of Directors Management Team Management Discussion and Analysis Sustainability Reporting The GRI Index Environmental Bottom Line Economic Bottom Line Social Bottom Line Triple Bottom Line Performance Corporate Governance Risk Management Report of the Directors Audit Committee Report Directors Responsibility Statement for Financial Reporting Chief Executive Officers & Head of Finances Responsibility Statement Independent Auditors Report Income Statement Balance Sheet Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Investor Information Notice of Meeting Form of Proxy 70 71 72 73 74 75 76 103 105 107 69 5 5 6 10 12 16 20 24 28 38 40 42 48 51 54 57 61 63 68
Financial Highlights
For the year ended 31st March Revenue Profit before Taxation Profit after Taxation Net Financing Cost As at 31st March Shareholders Fund Total Assets Earnings per Share (Rs.) Net Asset Value per Share (Rs.) 2,938,284 5,901,823 5.28 41.23 2,046,755 4,065,692 6.83 229.75 2011 Rs.000 1,466,429 399,728 357,001 11,165 2010 Rs.000 857,482 341,026 290,605 20,640
Five Year Financial Summary

For the year ended 31st March 2011 Rs.000 Operating Results Revenue Financial Cost Depreciation Profit before Interest Profit before Tax Assets Employed Property Plant & Equipment Biological Assets Current Assets Less Liabilities Shareholders Fund Stated Capital Retained Earnings Non Current Liabilities 1,466,429 11,165 11,916 410,894 399,728 633,979 4,525,952 481,778 2010 (Restated) Rs.000 857,482 20,640 7,030 361,666 341,026 558,364 3,316,556 (3,415) 2009 Rs.000 727,010 9,538 4,354 264,443 254,905 289,055 2,692,811 28,417 2008 Rs.000 593,844 6,154 3,729 290,742 284,587 377,384 2,190,999 1,785 2007 Rs.000 461,965 7,214 3,455 61,596 54,382 370,288 1,735,480 21,047
623,616 (199,144) 2,890,362 Rs.
89,088 (194,813) 1,958,526 Rs. 104.75 229.75 -
89,088 (25,645) 1,452,250 Rs. 50.50 182.36 -
89,088 (11,724) 1,171,518 Rs. 90.25 153.87 -
89,088 26,075 1,011,942 Rs. 56.00 122.03 0.50
Market Value per Share Net Asset per Share Net Dividend per Share
23.50 41.23 -
The Touchwood Plantations

Plantation Name Location Altitude Climate Average annual temperature : 22 - 30 C Ihalakanda Ratnapura 100 m - 125 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C Munihinkanda Ratnapura 75 m -100 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C Kalugalahena Ratnapura 75 m -100 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C Foot Print Ratnapura 75 m -100 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C Gomaragala Ratnapura 75 m -100 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C St. Anthony's Ratnapura 100 m -125 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 22 - 30 C Liyangama Ratnapura 50 m - 75 m Annual rainfall : 4000 mm - 5000 mm Average annual temperature : 25 - 30 C Hartley Mathugama 0 m - 50 m Annual rainfall : 3000 mm - 4000 mm Average annual temperature: 25 - 30 C Pelawatta Mathugama 50 m - 75 m Annual rainfall : 3000 mm - 4000 mm Average annual temperature : 25 - 30 C Leelajan Mathugama 0 m - 50 m Annual rainfall : 3000 mm - 4000 mm Average annual temperature : 25 - 30 C Kukuleganga Mathugama 50 m - 75 m Annual rainfall : 3000 mm - 4000 mm Average annual temperature : 22 - 33 C Panthiya Mathugama 0 m - 50 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C Seelani Matale 300 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C North Matale Matale 300 m - 350 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C Rusigama Matale 300 m - 350 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C Kent Matale 300 m - 350 m Annual rainfall : 2200 mm - 2900 mm Mahogany, Vanilla & Teak 29 Mahogany 23 Mahogany, Vanilla & Teak Mahogany, Vanilla & Teak 75 Mahogany 117 Mahogany 40 Mahogany 46 Mahogany 33 Mahogany 45 Mahogany & Vanilla 70 Mahogany 43 Mahogany 67 Mahogany 84 Mahogany 37 Mahogany 47 Mahogany 68 Species Planted Land Extent Acres
67
Plantation Name
Location
Altitude
Climate Average annual temperature : 22 - 33 C
Species Planted
Land Extent Acres 108
Ambanganga
Matale
300 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C
Mahogany & Vanilla
Salagama
Matale
Mahogany & Vanilla
41
Pallethenna
Matale
Vanilla
51
Lower Ley Grow
Badulla
Sandalwood
26
Panketiya
Badulla
Sandalwood & Teak
48
Palugedara
Badulla
1000 m Annual rainfall : 2000mm - 2500mm Average annual temperature : 18 - 34 C
Sandalwood
95
Kandaketiya
Badulla
Sandalwood
47
Soranatota
Badulla
Sandalwood
69
Meegahakiula
Badulla
Sandalwood
25
Makulugolyaa
Badulla
Sandalwood
32
Aggalaulpatha
Badulla
Sandalwood
36
Kivulegedara
Badulla
Sandalwood
51
Farm Grow
Badulla
150 m Annual rainfall : 1900 mm - 2400 mm Average annual temperature : 27C
Sandalwood
374
Burnside
Kandy
Sandalwood
47
Carson Carson
Polonnaruwa
110 m Annual rainfall : 1200 mm - 1800 mm
Coconut
600
The above land was taken over by the company, under the Mahaweli Act of 1983. This act provides the ownership to the investor for the period of 33 years.
If a tree dies, plant another in its place.
MANAGEMENT REPORTS
10
Chairmans Statement
A vision for sustainable development
As the financial year 2010/2011 comes to an end, I am more than pleased with the performance of Touchwood PLC. Over a decade ago, as I sowed the seeds for this enterprise and envisioned its impact on the environment and society, my realisation of the depth of its role as a stimulant for sustainable development was minute. Now more than a decade on, I realize on a daily basis, that the power of our business model to do good, to positively impact and shape a better future, is one that is regenerative and a model of extreme promise. In light of this the present successes and the future capabilities and the astute financial performance of Touchwood, I take great pleasure in presenting the audited financial statements for the period 2010/2011. Whilst the commercial prospects for Touchwood are sound, it is the panorama of sustainable outcomes that excite me. I am touched that as a corporate we are able to make far reaching and ingrained impacts on the environment, assisting towards the reversal of battering that the mother earth receives on a daily basis. Our approach towards triple bottom line business keeps evolving and the intensity of our efforts and outcomes enhances with the broadening and growth of the business. In essence, whilst other commercial enterprises deepen the impact of their ecological footprints through business expansion we reverse ours through sustainable preservation. Planet, People and Profit therefore are elements that are intrinsically interlinked, each one benefiting and correlated to the other in determining future value.
We believe that as Sri Lanka places itself on the road to accelerated national development that the nations commercial enterprises must push the agenda for sustainable development by doing business in pursuant of the triple bottom line.
Through stewardship of sustainable practice, we have ensured that our plantations are proponents of environmental best practice. The communities within which we operate exist in mutual benefit. Through Touchwoods operations in rural communities, we have revived the hopes, lives and aspirations of people who in times past have had little as future prospects. By instilling in them value for the environment, by developing their sense of ecologically sound agricultural practice and by showing them that poverty alleviation and future success lie within their own grasp, we have given them the impetus to change their lives. We believe that as Sri Lanka places itself on the road to accelerated national development that the nations commercial enterprises must push the agenda for sustainable development by doing business in pursuant of the triple bottom line. Our approach over the years has paved the way for distribution of returns beyond the conventional to a range of stakeholder groups through a myriad of manners. As we look to the future, let me reiterate that whilst financial returns to our shareholders and the surety of income to our investors/customers are top rung priorities, that sustainable development of rural communities, environmental preservation and development of our own teams remain core and fundamental to the vision and mission of Touchwood.
Sgd. Roscoe A. Maloney Chairman 15th August 2011
11
12
13
Deputy Chairmans Statement
The need of the hour is sustainable business

The financial year 2010/2011 was essentially a year in which Touchwood renewed its efforts towards laying a firmer foundation for future growth. Touchwoods business model is unique in that it is truly sustainable, in not only the commercial rewards but also through sustainability of the environment and communities in which it operates. We believe that Touchwood epitomises the very business model that needs to be adopted in the future by global corporates, if we are to sustain Mother Earth. The premise of Planet, People and Profit needs to be the driving forces of future commerce. We can no longer afford to continue to engage in unsustainable and exploitative business. Globally, I believe this fact has been widely accepted although we have seen only a number of enterprises take the bold step towards sustainable business. Touchwood has taken that step, and the rewards are immense. We are a company that accounts for not only the commercial return but also takes full satisfaction in the knowledge that the core of our existence as a corporate, and our actions will yield fruitful returns beyond the realm of business to impact the viability of our planet for future generations.
Touchwoods business model is unique in that it is truly sustainable, in not only the commercial rewards but also through sustainability of the environment and communities in which it operates.
Global economy weakens further
The global economy during the year under review demonstrated unbridled turbulence. We have witnessed economic reform, stimulus packages and budget cuts in many of the globes leading economies. Despite the precautions and the preventive mechanisms, the global economy lagged and in consequence stock markets, bonds, commodities and all other traditional investments plummeted. Whilst economic analysts predicted that the global recession would hit rock bottom in 2010 and recuperate in 2011, we have not witnessed this trend. Instead, in the first half of 2011, the United States experienced further economic turmoil with increasing debt. Calamities from freak weather added to the woes of the world. One of the major calamities the Tohoku earthquack in March 2011 while denting the Japanese industrial output will potentially leave its mark on the regional economy in the medium term.
14
Deputy Chairmans Statement
The power of the Touchwood proposition

Despite the uncertainty that pervades the global economy, few commodities continue to demand high prices. Amongst these are precious metals, gold, oil and timber. Deforestation has destroyed 1/5th of the worlds forests since 1950, and new global legislation is in place to protect the forests that remain as they play a vital role in carbon sequestration and the ecosystem. This means that agro-forestry will be the main source of timber in the future, a trend that is further accelerated by eco-conscious consumers who demand green timber from sustainably managed sources. Agro-forestry investments have generally outperformed stocks, bonds, and commodities over the long run. One of the main reasons investors, especially large institutional investors, turn to timber, is the fact that the asset displays low to zero correlation with other assets, especially those linked to financial markets. It has been demonstrated over a long period of time that adding timber to a portfolio of investments has the effect of improving overall risk-adjusted returns. This low correlation reflects the fact that the primary driver of returns -biological growth- is unaffected by economic cycles.
During the year under review Touchwoods Vanilla plantations entered its fourth year of posting on target returns to investors, approximately six plus years into the cultivation process.
At Touchwood, a decade of inspired action and foresight has yielded an array of sustainable forestry products as investment opportunities to both the institutional and retail investor. With over 2,800 acres of private forestry plantations that are home to high value, exotic tropical timbers, our client portfolio exceeds 25,000 investors globally and our operations span across 10 nations. During the year under review Touchwoods Vanilla plantations entered their fourth year of posting on target returns to investors, approximately six plus years into the cultivation process. Touchwood today epitomises the very best in agro-forestry practice and is a sustainable business model that goes beyond commercial value in delivering returns to mother earth to offset global warming through sustainable re-forestation.
Performance at a Glance
For the year under review, the Company posted a profit before tax of Rs. 399.7 million, a growth of 17.2 percent from that of 2009/2010 and a net attributed profit of Rs. 357 million, a 23 percent growth from that of the previous year. The guaranteed appreciation of the Companys biological assets yielded an overall revenue of Rs. 1,209 million, a notable increase of 94 percent. The performance of the company after tax has been impacted by the provision for deferred tax as detailed in the Chief Executive Officers Review. The Companys asset base witnessed a significant improvement and is currently valued at Rs. 5.9 billion as at 31st March 2011.
15
Strategy of value addition

The adoption of a strategy of seed to shelf in the financial year under review, has garnered greater returns for your Company. As an organisation that has always been perceptive of future needs, Touchwood in 2010/2011 employed a strategy of value addition for the long-term viability of its operations. Thus, recognising the burgeoning global market for aromatics, essential oils, and value added timbers and by-products, Touchwood undertook a 3600 approach to its business. An integral component of our strategic plan is to optimise returns across the value chain through value addition and down streaming. During the financial year under review, this strategy was implemented in part. The specifics of these initiatives will be further explored in the Economic Bottom line on page 48. As we move into the future I am confident that value addition will pave the way for greater wealth creation for our stakeholders through optimised profits, whilst contributing fully towards the well being of the communities in which we operate. Touchwoods current strategy of managed forestry coupled with value-added crop diversification is in alignment with global investor trends. As such, I must stress to our shareholders, the strength of our conviction on the future value, viability and continuity of our business model.
Appreciations
I wish to take this opportunity to thank the Board of Directors and the Executive Management as well as the entirety of the Touchwood family for their unstinted support, guidance and overall governance to take Touchwood to greater heights. I also wish to take this opportunity to thank our customers and shareholders, all of you gave us the strength and resolve to persevere in challenging times.
Sgd. Asitha Koralage Deputy Chairman 15th August 2011
16
Chief Executive Officers Review

A focus of optimisation and diversification
As the financial year 2010/2011 draws to a close, the achievements at Touchwood have been many. The year in essence was one of optimising our resources to achieve greater productivity and efficiency, steps that I am confident have placed us in good stead for the future growth of the Company. Aside from fine-tuning the operational aspects we embarked on an ambitious drive towards diversification. The cumulative outcome of operational and other strategic reconfigurations to the business will no doubt be visible in the medium term. As a viable commercial enterprise, we continued to prove to our shareholders, customers and other stakeholders that Touchwood is truly a sustainable business. We believe that commerce should benefit beyond the bottomline. In this belief, we continued to operate along the tenets of fairness, equality, ethics and governance, inculcating these across the organisation. We have embedded practices that ensure the well-being of the society, communities and the environment.
During the year, Touchwood Investments in collaboration with Touchwood Group entered in to the flooring market with the commencement of work on our purpose built flooring manufacturing plant in Sri Lanka.
From a standpoint of stability and strength, Touchwood continued to fortify. For the third consecutive year Touchwood emerged as one of Sri Lankas most valuable brands by being ranked within Sri Lankas Top 100 Brands to emerge at the 70th rank with an overall brand value of Rs. 154 million up 60% from last year. The Top 100 Brand Index is compiled annually by Brand Finance (Lanka), a subsidiary of a global entity, Brand Finance Plc. It is an independent consulting company that values brands following guidelines and methodologies adopted by its international counterpart. Brand Finance espouses the importance of recognising and growing brand equity with an emphasis on par with that applied to tangible assets of a business. In May 2010 we opted to raise further capital through a Rights Issue to raise Rs. 534 million. The Issue was oversubscribed by an encouraging 49%. The capital raised has been allocated to expand our plantation acreage, implementation of our diversification strategy, research and development and increase brand visibility as per the objectives laid out at the outset of the rights issue. Through land procurement we have set in motion the planning and cultivation of a further 600 acres over the next 2 years. We currently hold a 100% buffer stock comprising of 500 acres of cultivated plantation, in addition we are pursing the development of a further 400 acres as buffer stock. These initiatives will not only future proof our customers investments but also accumulate substantial asset value. In 2010/2011 Touchwood actively pursued a strategy of diversification, with focus on backward and forward integration across the value chain. Termed the seed to shelf strategy we continue to explore avenues through which we can tap and explore value growth especially in light of the tremendous opportunities and demand for aromatics and essential oils in the global cosmetic and food product markets. We forecast that by the end of the financial year 2012/2013, Touchwood will see a significant portion of its income derived from non-core products as an outcome of these diversification strategies. The focal initiative towards this end during the year was the establishment of distillation plants for the distillation of a variety of essential oils. As a first step, a Sandalwood oil distillation plant was successfully commissioned in 2010 for the first time in Sri Lanka with the technical collaboration of the Information Technology Institute (ITI). The distillation plant has the capacity to process half a ton of Sandalwood heartwood. With the establishment of this plant Touchwood is placed as the pioneer in the export of value added and sustainable Sandalwood products from Sri Lanka. Vanillin extraction was also undertaken in line with process standards compliant to ISO 55651 in the financial year and yielded A1 grade Vanillin.
17
18
Chief Executive Officers Review

We also took prudent steps towards the development of a second Sandalwood nursery in Mahiyangana in addition to the existing nursery in Balangoda upping the nursery capacity by 100%. The development of the second nursery is in view of the plantation expansions as per our strategic plan. As a result, Touchwood is in a position to commence plantation of a further 500 acres of Sandalwood. Our focus during the year, in terms of plantation efficacy and process was to improve the health and well-being of each eco-system through the re-introduction of age-old agricultural practices. Sri Lanka has historically had a rich agricultural heritage. Our forefathers understood and worked with nature in complete harmony and balance. We now strive to re-introduce those same agricultural practices to our plantations with a view to increase the long term fertility of the soil. In the year under review, Touchwood relied 95% on organic material and manure as fertiliser for its plantations. In eradicating chemicals from the agricultural practice, we hope to achieve a position of being 100% organic by 2012. Towards this end, we invested and commissioned a research and development facility in collaboration with the Sri Jayawardanapura University during the year under review. The facility is a fully equipped tissue culture laboratory and will strive towards the development of more efficient and environment friendly agriculture practices, to be adopted by Touchwood in the future. During the year, Touchwood Investments in collaboration with Touchwood Group entered in to the flooring market with the commencement of work on our purpose built flooring manufacturing plant in Sri Lanka. The 45,000 square foot state-of-the-art manufacturing plant is set out on 3 acres in Minuwangoda. The plant is expected to be commissioned in October 2011 and will specialise in the manufacture of wooden flooring solutions, predominantly Bamboo flooring, a product that has witnessed exponential growth in demand due to its eco-empathy, distinct appearance and other natural properties. Pre-processed bamboo from Touchwood Group plantations will be exported from Thailand to Sri Lanka where 90 percent of the value addition will take place before being exported worldwide.
Touchwood won the first place at the National Quality Circle Award 2010 under the Manufacturing and Service sector having competed with a cross section of renown commercial enterprises across the nation.
With tourism rebounding, we were confident that demand for domestic tourism will continue to rise. Moreover, with a view to showcase the successes of our plantations and to cascade the learnings on sustainable agricultural practice to the public at large, Touchwood constructed a unique eco tourism property in the Girandurukotte plantation. From a corporate social responsibility angle, we continued investing into our Sandun Arana programme as well as taking a lead role in H.E President Mahinda Rajapaksas campaign to plant 1.1 million trees. In accomplishing this extraordinary act of generosity to Mother Nature, Touchwood planted 150,000 trees to further the vision of the President towards a greener Sri Lanka. Aside from this we continued to engage in a number of other projects and endeavours towards sustainability. You will be able to better explore these in the Sustainability Report on page 30. Recognition of Touchwoods good governance and performance reporting processes came by way of the Company being awarded a Certificate of Compliance by the Institute of Chartered Accountants of Sri Lanka at the Annual Report Awards 2010. We are indeed proud of this achievement and the recognition of our efforts towards full disclosure. We have from the inception adopted a triple bottomline approach to business and in 2011/2012 our aim will be to comply with the criteria outlined by the Global Reporting Initiative (GRI) towards achieving completeness in sustainability reporting. Quality has been a key focus across the business and the plantations in particular. Our continual drive towards greater quality consciousness yielded admirable results in the year under review. Not only did our internal performance indicators demonstrate a high yield and quality practice but the recognition we garnered at the National Quality Circle Awards 2010 was also commendable. Touchwood won the first place under the Manufacturing and Service sector having competed with a cross section of renowned commercial enterprises across the nation. The award was, I believe, the outcome of the relentless commitment and support of every employee at Touchwood to pursue excellence especially in the areas of agro-forestry practice. Aside from our plantations conforming to the ISO 14000 standards, we initiated the
19
processes required towards obtaining accreditation and compliance to SA 8000, a global social accountability standard for decent working conditions, developed and overseen by Social Accountability International (SAI). SA8000 is an auditable certification standard based on the UN Universal Declaration of Human Rights, Convention on the Rights of the Child and various International Labour Organization (ILO) conventions. During the year under review the company reached a historic milestone. Total revenue of the company crossed the Rs. 1bn threshold to reach Rs. 1.466 bn from Rs. 0.857 bn in the prior year, a 71% increase. Sales revenue during the year increased by 10% over the prior year to cross the Rs. 250 mn threshold to reach Rs. 257 mn. The gain on biological asset revaluation reached Rs. 1.2 bn an increase of Rs. 0.6 mn compared to the previous year, mainly due to the increased acreage under cultivation acquired under the rights issue funds deployment. The value, while significant is consistent with the practise adopted in the prior years. The new plantations are maintained in line with the strict guidelines advocated by ISO and independent external forestry consultants engaged by the company. As such the board of directors are confident that the initial recognitions valuation is a fair representation of the future value of the trees. Selling and other administrative expenses grew by Rs. 96 mn to total Rs. 206 mn, the growth in expenses reflects the investment the company has made in the brand value of the company and improving the management capacity to manage the exponential growth in the client asset base and diversification strategies. After the provision for purchase back guarantee, reflected under other expenses in the income statement, profit before tax reflected a healthy growth of 17.2% to reach Rs. 399.7 mn. Further to the UTI ruling on deferred tax for BOI companies in 2010, the company sought expert tax advise with a view to reducing the companys tax exposure through tax planning. As a result of the tax opinion received the company has made a retrospective provision for deferred tax. The total impact of this provision was Rs. 217 mn of which Rs. 39.8 mn has been accounted for in the current years income statement. The total assets crossed the Rs. 5 bn threshold, reaching Rs. 5.9 bn, a growth of 45% compared to the prior year, consisting mainly of biological assets and cash reserves of Rs. 371 mn. The shareholders equity reflects a very healthy growth of 43% to reach Rs. 2.9 bn. In looking to the future, Touchwood remains committed to the goal of increasing its agro-plantation acreage to 15,000 acres over the next five years. In pursuant of the strategy of diversification, plans are in place to develop plantations of coconut and other cash crops to meet the growing demand in the medium term. Aquisition of lands for this purpose is currently underway. I am confident that Touchwood will continue to perform commendably in the forthcoming financial year. By the year 2018 we expect the first Mahogany payout from plantations in Ihalakanda and Gomaragala. Our growth expectations are in line with forecasts and I believe our drive to enhance the buffer stock will be key to future wealth generation due in large to the accumulation of biological assets. In concluding this review, I take great pleasure in saying a job well done to the entirety of the Touchwood team. The communities within which we operate have taken us into their homes and hearts, we remain committed to enhancing their quality of life. Our customers and shareholders have believed in our ability to make a difference and we are grateful for this sense of conviction. My thanks also to the Chairman, Deputy Chairman for their visionary leadership and of course the Management Team for driving the need for excellence across the business function.
Sgd. Channa Abeygunawardene Chief Executive Officer 15th August 2011
20
Board of Directors
8 7 4 3 1 2 5 6 9
1.
R. A. Maloney Chairman
4.
Ryan Crowley Alternate Director
7.
Janath Olaboduwa Alternate Director
2.
S. P. Asitha Koralage Deputy Chairman
5.
Swarna Maloney Director
8.
Aloysius Ralph Pereira Independent Director
3.
Channa Abeygunawardene Chief Executive Officer
6.
Prageeth Herath Alternate Director
9.
L. L. Kulatunga Independent Director
22
Board of Directors
R. A. Maloney Chairman Mr. Maloney, the Founder/Group Chairman of Touchwood, commenced operations of Touchwood in 1999, owing to the increasing demand for timber and diminishing forest cover. He holds an MBA (Australia) with 26 years experience in business management ranging from retail, wholesale, and manufacturing to plantations. Mr. Maloney is the Group Chairman/Managing Director of the other Companies in the Touchwood Group, which currently operates globally.
Channa Abeygunawardene Chief Executive Officer Mr. Abeygunawardene joined Touchwood in 2004 as the Business Development Manager and was instrumental in developing the international SBUs. His involvement in Business Development, Sales Management and Branch/Regional Management saw him promoted to General Manager in late 2005. An Electronics Engineer by profession, he is also a Microsoft Certified Engineer and a Member of the Institution of Engineering and Technology (formerly IEE) of UK. Mr. Abeygunawardene possesses over 16 years of Management exposure in UK, Japan, Middle East and Thailand. Ryan Crowley
S. P. Asitha Koralage Deputy Chairman With over 20 years of senior level work experience, Mr. Koralage possesses varied experience in the fields of Strategic and Business Management. Mr. Koralage has been with Touchwood for 8 years and is presently the Group Deputy Chairman. The international exposure he gained through working in the UK, Thailand, Hong Kong, Australia and Middle East has been instrumental in conceptualising Touchwoods global expansion. Mr. Koralage holds an MBA (Australia) and is professionally qualified in Information Technology and Business (UK). He is also a member of the Institute of Management.
Alternate Director Mr. Crowley commenced work in Touchwood in May 2008 and was promoted to Group Legal Manager in August 2008. In July 2009 he was promoted to his current position of Group International Technical Support Manager which involved him leading both the Legal and Administration Business Functions of the Group. He has a number of years of work experience in both the public and private sectors having worked in the Department of the House of Representatives at Parliament House in Canberra, Australia for over 6 years as well as in various other organizations such as Dharmniti Law Office located in Bangkok Thailand. Mr. Crowley has a Bachelors in Arts and Laws (Australia), Masters in Laws (Australia) and is a Graduate in Australian Migration Law and Procedure.
23
Swarna Maloney Director Mrs. Maloney was instrumental in conceptualising Touchwood in 1999. She has held various positions from Group Head of Finance, and Head of IT to current Group Operations Director. She holds a BSc. in Business Administration and has 16 years experience in Finance, IT and business management both nationally and internationally. Prageeth Herath Alternate Director Mr. Herath has over 16 years active planting and manufacturing exposure with expertise in tea and rubber. His experience includes senior management level involvement at leading plantation and manufacturing companies. Janath Olaboduwa Alternate Director An Attorney at Law by profession, Mr. Olaboduwa has experience over 21 years in the field of Law, as an Administrator as well as in the private bar, predominantly in the area of company law. He has gained international exposure by participating in several summits and serving as a legal executive on several United Nations Development Programme projects.
Aloysius Ralph Pereira Independent Director Mr. Pereira joined the Royal Ceylon Air Force in 1954, and was trained as an Aeronautical Engineer for three years at the Royal Air Force School of Technical Training in the UK in 1955. He worked as a Engineer/Factory Manager at Tissa Industries. He is a full member of the Australian & New Zealand Pulp & Paper Institutes Technical Association and is presently is a Consultant as a Pulp and Paper Technologist. L. L. Kulatunga Independent Director Mr. Kulatunga is a fellow of both the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants of the United Kingdom. He also holds an MBA from the Indian Institute of Management, Ahmedabad, India with over 37 years post qualifying experience.
24
Management Team
Channa Abeygunawardene Chief Executive Officer
Janath Olaboduwa Manager Legal (Alternate Director)
Somasiri Munasinghe Head of Finance
Dhammika Mahipala Senior Manager - Plantations
Jeffry Ebert Head of Sales & Marketing
25
Maj. Gen. Athula Jayawardene (Rtd.) Head of HR
Prageeth Herath Head of Plantations (Alternate Director)
Nanthini Nanthakumar Business Coordinator
Harischandra Jayalath Manager Forestry & Projects
Pradeep Kumara Technical Manager - Forestry
Gayan Abeyveera Manager IT
26
27
The creation of a thousand forests are in one acorn.
MANAGEMENT DISCUSSION & ANALYSIS
28
Management Discussion & Analysis

Deforestation: Sri Lankan perspective
Little of Sri Lankas original forest cover remains following decades of conversion and degradation pressures. The remaining forests harbour much of Sri Lankas rich biodiversity. Forests in Sri Lanka are officially classified into nine categories: Montane, sub-montane, lowland rainforest, moist monsoon, dry monsoon, riverine dry, mangroves, sparse forest, and forest plantations excluding rubber. Tropical rain forests are found in the wet zone, sub-montane forests in the central highlands and dry monsoon forest in the dry zone . In 1992 and 1996, dry monsoon forests covered the largest area making up >50% of the total forest cover, followed by sparse forests (> 21%), moist monsoon forests (11% in both years) and lowland rainforests (6% in both years). The forest cover in Sri Lanka declined drastically over the past century. Early inventories suggest that Sri Lankas closed canopy forest cover declined from about 84 percent of the land area in 1881, to 44 percent in 1956 and to 27 percent in 1983 (Figure 5). Closedcanopy forest cover declined further to 24% (1.58 million hectares) in 1992 and 22.2% (1.47 million hectares) in 1996 (from Table 1). Bandaratillake and Fernando (2003) suggest a figure of 22.4% (1.46 million hectares) in 1999. The Department of Forestrys last update of forest cover assessment was conducted in 1999 through the utilization of LANDSAT TM imageries acquired during 1996 and aerial photographs of 1999. The assessment uncovered the alarming rate of deforestation with forest cover as percent of land area declining from 44.2% in 1956 to 29.6% four decades later. The total forest cover according to this assessment was about 1,942,229 ha or 29.6% of the land area. Depletion As a % of land area 44.2 37.5 31.2 29.6 440,592 411,651 104,380 15.2 16.7 5.1 0.6 1.9 1.3 Area (ha) Percentage Average annual depletion (%)
Total Forest cover Year 1956 1983 1992 1996 Area (ha) 2,898,842 2,458,250 2,046,599 1,942,219
Source - Sri Lanka forestry outlook study by forest department, government of Sri Lanka. Working paper No.APFSOS II/WP/2009/29, Asia - Pacific forestry sector outlook study II, FAO-Regional office for Asia and the Pacific.
The Business Model

Touchwood as a company proposes a unique form of investment that promises returns in the short, medium and long term. Future Value is the core of the Touchwood business proposition. As an Agro-forestation company, our investment portfolio comprises of a range of valuable and rare timber resources managed for future harvest. Simply put, Touchwood is in the business of growing trees to meet the future demand for timber, thus alleviating deforestation whilst growing our customers investments through value creation for increased timber demand. Consumers are increasingly demanding timber from sustainable sources. The proportion of timber harvested from old growth, natural forests will decline in favour of production from sustainable managed resources in the future. Thus, the equation put forward by Touchwood; agro-forestation = habitat control + future value is a compelling proposition for the future sustenance of eco and financial assets despite economic downturns. Our forestry plantations secure because: The Companys profit is anticipated at maturity therefore plantation maintenance is imperative. Independent evaluations by agro-forestry experts and international bio-diversity consultants ensure best practices in continuous monitoring and process improvements. Each plot and trees are uniquely numbered lending quick identification and tied to an agreement via a deed transfer.
Managed and Agro-forestation as an answer to deforestation

Touchwood engages in a sustainable business wherein sustainability and the adoption of sustainable practices are an inclusive aspect of our business proposition. Through managed forestry and agroforestation we look to reverse the trend of deforestation through reforestation. We practice the viable solutions put forward for nations to be more discerning in their approach to global warming and deforestation. We are confident that not only do we lead by example but that we are an icon of sustainable business practice that has sown the seeds of sustainable practice to be followed for greater value creation in the future. Touchwood is driven by a set of values and beliefs that shapes the way we do business. Our intentions are propelled by a desire to go beyond the constraints of pure commercial intent to consciously impact the lives of people and the future of our planet. We are in essence a triple bottom line company - People, Planet, and Profit. We recognize that our clients desire an expected action and outcome and work actively to meet those expectations. As a company that is sensitive to issues that are paramount to the future sustenance of Mother Earth, we respect and uphold diversity, integrity and honesty.
29
Sandalwood Plantation in Panketiya, Balangoda
The best of risk mitigation in practice: 100% tree buffer stock, 1:3 volume stock, scattered land use, patented agro-forestry techniques, maintenance of bio-diversity and product diversity. Innovation and the best of R&D practice ensure quality and timely delivery of harvest.
Ours is a bullet-proof business model because our eco-assets are neither correlated to the global or local economic trends, nor the variations in other asset classes such as stocks, bonds, real estate or the money market. As an independent asset class, timber and value added spices and herbs define their own value in global markets. In the last 49 years timber has seen a lull in the market only three times, thus performing with much less risk and greater returns than other investment tools.
Five Step Plantation Process

Our business model is defined by five steps - acquisition of land, cultivation, crop maintenance, harvest and distribution of returns that pave the way for the enhancement of your investments whilst simultaneously purifying mother Earths lungs.
Step 1 - Acquisition of Land

At Touchwood we make a concerted effort to procure the most suitable land for plantation. With the assistance of forestry management, horticultural and bio-diversity experts from across the world, we earmark, select and procure large extents of land that are best suited for specific crops. As differing species optimise growth in differing climatic and soil conditions, our priority is to ensure that we purchase lands that have enhanced fertility and bear the correct natural and biological environment for conducive growth of a crop. Pre-determination of critical factors such as rainfall, soil type, land typology and climatic conditions and secondary factors such as proximity to developed commercial infrastructure enable us to form a sound decision prior to purchase of lands. Upon purchase, the land is further subdivided based on client requirements and plot sale.
Step 2 - Cultivation
Touchwoods products are all rare and high value timbers protected by C.I.T.E.S. (Convention on International Trade in Endangered Species of Wild Flora and Fauna). Our plantations grow unique products that are exotic and have a high marketability, most of which are threatened and rare to their natural locations. As a result, our harvests yield above industry returns due to a scenario of excess demand in the global timber market. Our agro portfolio consists of a wide variety of perennial crops, short-term cash crops, indigenous plants and herbs to maximise synergies with our main crops and acts as investments that provide returns both in the short, medium and long term. We endeavour
30

to achieve sustainable production by optimising land use through integrated farming and agro forestry technologies and through the implementation of appropriate, sustainable agricultural practices. We offer our customers more than a Asset-backed investment, in effect we create an opportunity to collaborate towards the future well-being of our planet Earth, by inspiring individuals and organisations to offset their carbon footprint through reforestation.
Step 3 - Crop Maintenance

Maintenance of plantations is a priority at Touchwood. Our commitment to protect our plantations is driven by actions that transcend the commercial aspects of agro forestation. Our passion for our plantations has resulted in Touchwood being recognised as the standard in Asia for managed forestry maintenance practices. An experienced team of agro-scientists heads our technical team and are supported by global resource specialists in agro-forestry, forest silviculture, forest management, horticulture and bio-diversity who work hand in hand to achieve yields that are above predetermined norms. Global experts are currently engaged in a series of Research and Development initiatives for Touchwood Investments, which includes an initiative to quantify the total carbon sequestration of the Touchwood plantations as well as the development of a Geographic Information System (GIS) for Touchwoods forest plantations. We maintain working partnerships with credible and recognised institutions for agro-forestry in all our countries of operation including The University of Minnesota (USA), Kasetsart University (Thailand), University of Melbourne (Australia), University of Sri Jayawardhanapura and the University of Uwa Wellassa (Sri Lanka). Touchwoods own auditors monitor plantation health through a random sampling process with independent auditors evaluating plantation health and quality yearly. The technologies we adopt at our plantations are world-class. Specialised Research & Development and Forestry Management divisions consistently source and test new agro-forestry methodologies and technologies prior to large-scale adoption. We encourage our clients to visit our plantations periodically to view their plots and cultivation, to engage with our plantation teams and to enjoy the satisfaction of being immersed in a natural habitat. For those who are unable to do so, we provide a specialised report per plot and a full analysis of each tree conducted by our expert foresters.
Step 4 - Harvest
Upon maturity of our plantations harvesting is carried out with utmost care with the intention of maximising the value of the final product. Our harvesting and processing centres are equipped with both the technology as well as the know-how to ensure that the final produce meets the exacting standards of the highest caliber demanded by the world market. Timber as well as cash crops and value added produce are placed in the market for sale through Touchwoods network of global offices. Touchwood ensures that all produce placed for sale is sold at or above prevailing market prices. Clients have the option of selling the product independantly if the price offered to them at harvest does not meet their expectations.
Step 5 - Distribution of Returns

Financial stability is the core of this model with initial plot sale and accrued income recognition acting as the foundation for the long-term sustenance and commercial viability of the business whilst further economic gain is garnered through a combination of manufacture and sale of finished and unfinished products as well as through value addition. Touchwoods global presence allows for marketability of produce globally with an earnings ability that exceeds ten times the outflow at maturity. The 100 per cent buffer stock maintained by us allows for a doubled earnings capacity whilst the natural appreciation of the main asset - both biological assets and the land - over time, enhances the future value proposition. Due to the nature of the business, it lends itself conducive for Carbon Trading thus extending the earnings capability. Bio culture and cash crops create a scenario for increased returns whilst the model also lends itself towards eco-tourism prospects.
Acquisition and Development of Land
Cultivation
Crop Maintenance (Organic Fertilizing)
31
Harvest
Distribution of Return
Value Additions
International Operations
Founded in 1999, Touchwood pioneered forestry investment in the Asia Pacific region. A decade of inspired action and foresight has yielded an array of sustainable forestry products as investment opportunities to both the institutional and retail investor. With over 2,800 acres of private forestry plantations that are home to high value, exotic tropical timbers, our client portfolio exceeds 25,000 investors globally and our operations span across 10 nations. Touchwoods Vanilla plantations entered its fourth year of posting on target returns to investors, approximately six plus years into the cultivation process. Touchwood today epitomises the very best in agro-forestry practice and is a sustainable business model that goes beyond commercial value to delivering returns to mother earth to offset global warming through sustainable re-forestation.
more than eight decades of relevant experience and includes some of the worlds foremost authorities in the area of agro-forestry including but not limited to: The University of Minnesota (USA) Kasetsart University (Thailand) University of Melbourne (Australia) University of Sri Jayawardhanapura University of Uwa Wellassa (Sri Lanka) Operating in over ten countries across the world, our network acts as a catalyst for innovation and connecting with critical business partners. Our operations and approved by the Forest Department of Sri Lanka and the Board of Investment. We are the standard for agroforestry in the region.
Systems and processes

The ISO 14000 series developed by the International Organisation for Standardisation (ISO) is a collection of voluntary standards that assists organisations to achieve environmental and financial gains through the implementation of effective environmental management. The standards provide both a model for streamlining environmental management, and guidelines to ensure environmental issues are considered within decision-making practices. In Essence, ISO 14001 is the standard for Environment Management Systems. Touchwoods operations conform to the ISO 14001 standards as well as to the ISO 9001 process standard for Quality Management. Our operations are on par with global standards for forestry management and we adopt global best practices across every aspect of our operations. Touchwoods biological assets are stated on fair value basis from the year 2004/2005 to the current financial year 2010/2011, in accordance with the International Accounting Standard (IAS) 41 Agriculture. We have obtained an independent professional opinion from a reputed Chartered Valuer for the valuation of the biological assets of the Company and the assumptions employed by the independent professional valuer are in complete harmony with the letter and spirit of the IAS 41 Agriculture. Touchwood adopts Triple Bottom Line Reporting and is a Public Quoted Company, and is therefore 100 per cent transparent across all functions and actions of the Company. We are the only agro-forestry company listed on the Colombo Stock Exchange.
R&D Facilities & Nurseries

Touchwood in 2010/2011 stamped its ownership on technologies, practices and processes that are undeniably its own through a series patents and trademarks, including our innovative Integrated Pest Control System. Touchwood invested and commissioned a research and development facility in collaboration with the Sri Jayawardanapura University during the year under review. The facility is a fully equipped tissue culture laboratory and will strive towards the development of more efficient and environment friendly agriculture practices, to be adopted by Touchwood in the future. A Sandalwood oil distillation plant was successfully commissioned in 2010 for the first time in Sri Lanka with the technical collaboration of the Information Technology Institute (ITI) of Sri Lanka. The distillation plant has the capacity to process half a ton of Sandalwood heartwood. With the establishment of this plant Touchwood is placed as the pioneer in the export of value added and sustainable Sandalwood products from Sri Lanka.
Future Viability - Managed Forestry as an Asset Class

Demand for timber is expected to increase in response to both global population increases and growth in the global economy with an increase in timber consumption per capita. Supply will continue to be under pressure as environmental constraints restrict harvesting and consumers increasingly demand timber from sustainable resources. Biological growth increases both the volume and value of the timber - as trees increase in diameter they are utilised for more valuable
External Collaborators and Advisors

Our experience in agro-forestry over the last decade has given us the ability to garner exceptional support for future growth. In fact, collectively our investment advisory and management team has
32
Tissue Culture Laboratory - in collaboration with University of Sri Jayawardanapura
end products. This growth is predictable at the time of investment and at constant timber prices provides the investor with an assured return. At a time when there is increasing focus on global warming and sustainability issues, timber holds many advantages over other raw materials such as steel, brick and oil derivatives which require substantial amounts of energy to manufacture and have lower insulation properties. Wood is a renewable and sustainable resource and is considered environmentally friendly. Unlike fossil fuels the carbon dioxide from using wood is recycled by regenerating forests and does not permanently remain in the atmosphere. Wood production requires less energy than other materials such as steel. The United Nations Food and Agricultural Organisation (FAO) has forecasted that world wood demand will increase from the 3506 million cubic metres consumed in 1990 to over 5000 million cubic metres annually by the year 2010 - an increase of 40% over 20 years. This represents an annual increase equivalent to 78 million cubic metres per year. Investments into Agro-forestation has been viewed as a sound Portfolio Diversification Strategy as it broad-bases the portfolio risk, given that agro-forestation investments carry only a moderate to low risk due to its independence from other financial market tools stocks, bonds money markets , or real estate - and given its ability to offset inflation and currency devaluation. It possesses a unique ability to meet medium term investment horizons whilst providing attractive returns due to a scenario of prudently managed risk and low volatility. Furthermore, the continued global demand for timber places agroforestation businesses such as Touchwood in an even stronger position with scope for exponential growth. Agro-forestation has been propelled by an increasing demand for timber as a direct result of hyper-population growth that has manifested in almost all parts of the world. Timber is an internationally traded commodity. It has wide ranging traditional uses, and is now being extended to include biomass for electricity generation and bio ethanol as a substitute for oil derived fuels, both from a non polluting source. These new markets are creating significant new demand for timber - demand that is forecast to grow.
Thus, managed forestry is a sound proposition for the future sustenance of eco and financial assets despite an economic downturn. Forestry investments are a proven asset class for institutional and private investors. The combination of value in a naturally growing commodity and the underlying land provides investors with a low risk asset creating long-term capital appreciation in a sustainable, environmentally beneficial medium. Negative correlation to other assets and low volatility provides an optimum route to diversify a portfolio and reduce risk.
What the Media Says

Timber has only had 3 down years in the past 47 years.....have beaten the stock market with less risk. The track record of early investors - and a slew of recent academic research indicate that timber is a near perfect asset.
- Smart Money Magazine
Returns 5 times higher than equities or bonds

- FT.com
Forestry was the best performing asset class of 2007 delivering returns of 31.6%
- IPDs index
Indeed as an asset class, timber - a renewable resource with a constant demand - stands out as a remarkably stable investment
- Bloomberg Wealth Manager
Average annual returns on timber....have outstripped those from leading global stock indices, property, oil and gold for the past decade.
- The Economist Magazine
Mitigating Risks - Our Approach

Touchwood adopts a holistic approach to risk mitigation. Determining the probable material effects of an uncertain environment on our business goals, allows the Company to manage events that will negatively impact the financial, physical, biological and human capital of the organisation. Touchwood recognises risk management as a key area that contributes towards safeguarding the interests of our stakeholders, by stabilising our operations.
33
Dr. N L A Karunaratne Vice Chancellor - University of Sri Jayewardenepura Message from Vice Chancellor - University of Sri Jayewardenepura Touchwood Investments PLC has firmly established a joint research program under the name of USJP - Touchwood Biotechnology Research Project since 2010. This is the first University - Industry partnership established to improve a research laboratory at the University of Sri Jayewardenepura. The project upgraded the existing Plant tissue culture research laboratory at the Department of Botany and employed two highly skilled personnel as Senior Research Officers to work under the project. The main objective of the joint venture was to upgrade the existing laboratory and to maintain it for a period of five years while the plants produced through the tissue culture to be established in the plantations. Super Teak (Tectona gradis) which produces high quality timber was selected as one of the trees species to be propagated through tissue culture. Research work on Giant Bamboo (Dendrocalamus asper), Binkohomba (Munronia pinnata) and some other important plant species are ongoing and the progress of the project is highly satisfied. Touchwood Investments PLC is not only involved in the research project but also cooperates with other social events such as sponsoring for conferences, tree plantation programs etc., as well. I would like to take this opportunity to wish the organization good luck. With all the best wishes!
We view effective Risk Management as a tool of good business strategy, and hence do not limit our scope only to compliance requirements. While well-defined policies are in place, the Company constantly strives to update and improve controls and procedures. The risk management policies ensure the identification, measurement, monitoring and controlling of risk. Our Board of Directors has overall responsibility to assess risks associated with the Company and maps potential risks onto a Risk Awareness assessment which has proven to be an effective way to manage the Companys risks. Our Strategic Risk Management approach embraces the following with practices and process in place to mitigate: Management Risk Financial Risk Market Risk Social Risk Regulatory Risk Agricultural Risk Acts of God Insurance Risk Country Risk Reputation Risk Legal Risk
Corporate Governance
Touchwood and its Directors endorse the principles of good Corporate Governance. The Board of Directors in a consistent manner focuses on reviewing all procedures and policies in an effort to adopt and practice the most current tenets of governance across the entirety of the organisation. This is drive by a desire to enhance controls, to facilitate monitoring of performance and for the compliance and establishment of lines of responsibility and accountability in every facet of the Companys operations. Touchwood seeks to comply with the governance principles advocated by the Institute of Chartered Accountants of Sri Lanka, whilst also instituting numerous self-governance initiatives.
Products and Services Sandalwood (Santalum album)

Sandalwood is one of the oldest known sources of perfume in the world. Recorded use of the wood dates back to over 4,000 years. With origins harking to China, India and Egypt, it is now also grown in other markets such as Philippines, Indonesia and Sri Lanka. Historically, the wood was also prized by furniture makers and in India many of the temples were built from Sandalwood.
34

Uses:
The evergreen sandalwood tree grows to a height of up to 30 feet (8 meters). The syrupy, balsamic oil is extracted from the roughly chipped and powdered heartwood through steam distillation. With a warm, woody odour, the essential oil is used as fixative in perfumes and gives the lingering, classic base note to many expensive and renowned brands of fragrances. Sandalwood also has sedative properties and is demanded for therapeutic uses such as for the treatment of depression and tension. An expectorant and an anti-spasmodic, Sandalwood is used for treatment in traditional medicine. With diverse, uses the East Indian Sandalwood (as it is less commonly known) fits into a plethora of end products from soaps, incense, medicines, aromatic timber to oil. In the essential oil trade, sandalwood oil trades as one of the most valuable natural products. Each tree yields up to 30-35 kilograms of saleable timber with per kilo price averaging of Rs. 10,600 (USD 106). From a hectare approximately 10-14 tonnes of heartwood are harvested.
Mahogany (Swietenia Macrophylla)

Mahogany is considered the worlds most luxurious timber. It is listed by CITES (Convention on International Trade in Endangered Species of Wild Flora and Fauna) as an endangered species due to the rapid dwindling of mahogany in our forest cover.
Uses:
Mahogany is used for manufacturing of yachts, high-end furniture and interior constructions. Mahogany has a generally straight grain and is usually free of voids and pockets. It has a reddish-brown color, which darkens over time, and displays a beautiful reddish sheen when polished. It has excellent workability, and is very durable. These properties make it a favourable wood for crafting furniture.
Demand & Pricing:

Global demand for Sandalwood has always been on the rise and has been propelled by a scenario of diminished supply. As a result, Sandalwood timber and oil prices have risen significantly over the years and the projected to continue rising owing greatly to the banning of sandalwood exports by India. The price of Sandalwood has increased significantly from US$ 4,000/tonne to US$ 115,000 in the 17 years period from 1990 to 2009 (H S Ananda Padmanabhas International Market Report to TFS, Australia). Therefore, Sandalwoods global price has increased at 22% per annum over the past 20 years.
Demand & Pricing:

The demand for mahogany has risen remarkably over the last 20 years due to the timbers resistance to extreme weather conditions (both hot and cold). Maturity for the Mahogany timber is at the age of 15 years if fertilised and maintained. To obtain the optimal value, trees are felled at 18 years, allowing for the timber to acquire substantial graining and to be well seasoned. Touchwood uses technology to obtain strong, straight and healthy trees ensuring that at harvest, value is maximised. Mahogany in log form is not permitted for export due to a scenario of insufficient supply of Mahogany in Sri Lanka and is expected to continue till local demand can be fully satisfied with local produce. In the medium term, Touchwoods yield from Mahogany plantations will satisfy local demand. The Company is also billed to be a major exporter of Mahogany in dressed grooved plank form in the future. Therefore, in the open market - both global and local - Touchwoods harvests will obtain the highest price.
Annual Demand:
Sandalwood Oil India International (current) Present Production Projected global Demand Sandalwood Heartwood Global > 40 Tonnes > 30 Tonnes < 50 Tonnes > 80 Tonnes
> 6,000 Tonnes
Investment Benefit:
Core benefits in investing in Sandalwood plantations are many. Optimal plantation practices will allow the harvest of as many as 400 trees per hectare with a rotation period between 12-16 years.
Vanilla (Vanilla planifolia)

The main species harvested for vanillin is Vanilla planifolia. Vanilla grows as a vine, climbing up an existing tree pole, or other support. It can be grown in a wood (on trees), in a plantation (on trees or poles),
Sandalwood
Mahogany
Vanilla
35
Vanilla Plantations - North Matale
or in a shader, in increasing orders of productivity. Its growth environment is referred to as its terroir and includes not only the adjacent plants, but also the climate, geography and local geology. Left alone, it will grow as high as possible on the support, with few flowers. Every year, we fold the higher parts of the plant downwards so that the plant stays at heights accessible by a standing human. This also greatly stimulates flowering.
Why grow in Sri Lanka?

Vanilla grows best under hot humid climate from sea level to an elevation of 1500 m. Most of its production is done 10 to 20 degrees above and below the equator. The ideal growing conditions are moderate rainfall, 150-300 cm, evenly distributed through 10 months of the year. The optimum temperatures for cultivation are 15-30C (~60-90F) during the day and 15-20C (~60-70F) during the night. Sri Lanka, as a tropical country is blessed with the perfect conditions for Vanilla plantation. As a nation that is renowned for its spices, the country holds equity to garner commendable prices in the international market for its commodity produce. We are confident this will add value to vanillas marketability. With the availability of ample expertise, unutilised manpower and land, the opportunity to grow Sri Lankas vanilla plantations is immense. Moreover, the support of the Government of Sri Lanka for the production of cash crops further improves the future outlook for Vanilla production.
Uses:
Vanilla remains the single most popular flavouring agent in the culinary world. Also used extensively in cosmetics and perfumes, the global demand for Vanilla continues to exceed production. There are three main commercial preparations of natural vanilla: whole pod, powder, and extract.
Demand & pricing:

The export potential for Vanilla is high, and coupled with increasing global prices for the commodity, the potential for high returns makes it a conducive addition to the Touchwood product portfolio. By meeting international standards in plantation management, harvest techniques and in value addition, we are confident of enhancing our returns from this crop.
Investment Spectrum
Vanilla as an asset class provides investment opportunity to a broad spectrum of potential investors from retail investors to corporate investors. It serves as a simple and regular income for those who seek to augment their existing annual incomes, whilst also serving as a multiplier of income to those seeking to develop a regular expenditure for future use (such as for higher education purposes of children). Ideal for the investors who are either pensioners or on the verge of retirement, Vanilla as a cash crop investment will yield a regular supplementary income.
Why Vanilla & Trees?

The dual growth of Vanilla and Timber maximizes the yield per hectare. As such, we are able to optimise our resources effectively and to garner the highest return for our investors. Vanilla is harvested every nine months and therefore allows for an annual return on yield. This enhances the returns to investors who will be able to avail themselves of the annual return from the vanilla yield as well a lump sum return.
36
37
When you plant a tree, you plant a legacy.
SUSTAINABILITY REPORT
38
Sustainability Report
Principles and Reporting Guidelines
This sustainability report is Touchwoods second consecutive year of reporting in compliance with the Sustainability Reporting Framework proposed by Global Reporting Initiative (GRI). The Report strives to comply with specific Reporting principles and Reporting Guidance as laid out by the G3 guidelines and indicator protocols for economic, environment, human rights, labour, responsibility and societal performance. In the financial year under review, the Company will be reporting against C level requirements of GRI G3 guidelines. This report represents the companys formative steps towards enhancing the report content. Its long-term objective is to achieve full compliance to A level requirements and is focused on achieving this goal by instituting practices and processes within the organisation to quantify and assess the organisations footprint on the community, economy and the environment. In this report, efforts have been made to disclose information on the majority of the recommended performance indicators where it can be extracted from systems. The performance indicators have been selected on the basis of availability of quantifiable data and based on the level of relevance to the Companys operations. The indicators reported on exceed the minimum recommended for the self assessed C level. However, the Company would only seek to graduate to B and B+ levels over a period of 3 years. The content of the report has been mainly influenced by the nature of the business and the resultant footprint on the stakeholders of the Company and generally accepted materiality levels for each area of impact. The organisation has identified its key stakeholders as follows; Customers - investment protection and income generation Shareholders - return on investment Community - forest cover, climate change, enhance knowledge base and poverty alleviation Government - forest cover, support government agriculture policies Employees - job security and career growth These stakeholders have been selected based on the significant impact the operations of the company has on them.
Sustainability as a business concept

Touchwood pioneered managed forestry investment in the Asia Pacific region and specialises in growing high value native tropical timbers as an alternative and sustainable source for forest products. Through commitment to our vision, our stakeholders, to listening and learning, to improvement and advancement, we have demonstrated our ability to make a difference by not just growing trees but through
Touchwood pioneered managed agro-forestry investment in the Asia Pacific region and specialises in growing high value native tropical timbers as an alternative and sustainable source for forest products.
Report Boundary & Scope
Effort has been made to achieve completeness of the report with regard to the dimensions of scope and boundary for the reporting period. This report covers the performance of the entity Touchwood Investments PLC for the reporting period April 2010 to March 2011. the creation of a business concept that goes beyond business to the creation of future value for our next generations. By offering an investment option that goes beyond financial gain to ecological and environmental gain, we have empowered investors with a choice to invest responsibly. The communities in which Touchwood operates appreciate the benefits of our commitment and we continue to invest in and develop the skills of Touchwood people who work tirelessly to ensure that stakeholder expectations are met. What we do, in essence, is the creation of a brighter future for our investors, our future generations and in some small way for the well being of our Mother Earth by integrating our business concept to benefit a larger and more critical concern. Thus sustainability is
Materiality
Sustainability is intrinsic to the nature of the business of Touchwoods commercial operations. Accordingly, this report is an effort to present in a structured manner the companys commitment to the Economic, Environment and Social wellbeing through its triple bottom line concept.
39
Panketiya Sandalwood Plantation
part and parcel of our business. It is integrated and a subset of what we do. Through agro-forestry we create equitable wealth for our stakeholders and the environment. At Touchwood we firmly believe in the precept of sustainability for the well-being of future generations. Future Value is the core of the Touchwood business proposition. Our principle business lies in the conservation of the planets eco-systems through planned reforestation. By utilising forestry as an investment tool, our business proposition is to monetise forestry thereby instilling the concept of investment returns based on the development of managed forestry cover. For every tree harvested, our business model ensures the replanting of up to 3 new trees. We engage in viable solutions put forward for nations to be more discerning in their approach to global warming. We are a sustainable business practice that has sown the seeds of sustainable practice to be followed for greater value creation in the future. We provide sustainable livelihoods to communities within which we operate and create jobs both directly and indirectly through our plantation operations. We take pride in assisting rural development, uplifting communities and supporting poverty in rural areas.
Given the constraints on Earths natural resources, Touchwood believes in acting consciously towards the preservation of natural rainforests through the propagation of agro-forestry. No doubt, with the increasing population rate, land will become scarce and the demand for timber will propel upwards. We believe in meeting this expected demand through plantation of exotic timber thereby actively assisting in the reduction of harvesting from natural rainforests. This we are confident will add value to our environment. Currently a reforestation of over 2,800 acres has enabled Touchwood to not only create more opportunities for our investors who seek both long-term and medium-term investments, but also to assist in the preservation of natural rainforests. Essentially, we go beyond mere Corporate Social Responsibility, we believe that what we do as a business is strategic to the future well-being of mother Earth.
40
GRI Index
Page No. 1. 1.1 2. 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.10 3.11 4. 4.1 4.2 4.3 4.4 4.14 4.15 Strategy and Analysis Statement from the Chairman, Deputy Chairman and CEO Organisational Profile Name of the Organisation Primary Brands, Product and Services Operational Structure of the Organisation Location of the Organisation Number of Plantations Nature of Ownership and Legal Form Markets Served Scale of the Organisation Significant Changes during the Reporting Period Report Parameters Reporting Period Date of the most recent previous report Reporting Cycle Contact point for more Information Report Scope and Boundaries Boundary of the Report Limitations on Scope Basis of Reporting Restatements Significant Changes Governance, Commitments and Engagements Governance Structure of the Organisation Chair of the Highest Governance Body Highest Governance Body Mechanisms for Employees/Shareholders to provide Recommendations/Direction to the Board List of Stakeholder Groups Identification and Selection of Stakeholders Corporate Governance Corporate Governance Corporate Governance AGM/Corporate Governance Investor Information Investor Information 57 - 60 57 - 60 57 - 60 105, 57 - 60 103 - 104 103 - 104 Year ended 31st March 2011 None 1st April to 31st March Corporate Information Sustainability Report Sustainability Report Report covers only Sri Lankan Operations of TIPLC Accounting Policies Accounts have been restated for retrospective deferred tax provision None Inner back cover 38 - 55 38 - 55 76 - 83 74 Corporate Information What We Do Management Discussion and Analysis Board of Directors & Management Team Corporate Information The Touchwood Plantations Corporate Information What We Do Financial Statements CEOs Statement/Financial Statements Inner back cover 2 28 - 35 20 - 25 Inner back cover 6-7 Inner back cover 2 72 - 102 16 - 19 72 - 102 Chairmans/Deputy Chairmans and CEOs Statements 10 - 19
41
Page No. Performance Indicators Economic Performance Indicators EC1 EC2 Direct Economic Value Generated and Distributed Financial Implications and Other Risks Financial Statements CEOs Statement/Risk Management 72 - 102 16 - 19 61 - 62 72 - 102 43 - 55 43 - 55 43 - 55 43 - 55 43 - 45 43 - 45 43 - 55 43 - 55 54 - 55 54 - 55 54 - 55 54 - 55 52 - 55 54 - 55
Environmental Performance Indicators EN3 EN4 EN6 EC7 EC8 EN3 EN5 EN14 EN26 LA1 LA2 LA10 LA11 LA12 LA13 Coverage of the Organizations Defined Benefit Plan Obligations Significant Financial Assistance Received from Government Policy, Practices and Proportion of Spending on Locally Based Suppliers Procedures for Local Hiring Development and Impact of Infrastructure Direct Energy Consumption by Primary Energy Energy Saved due to Efficiency Improvements Notes to the Financial Statements Sustainability Report Sustainability Report Sustainability Report Sustainability Report Sustainability Report Sustainability Report
Environmental Performance Indicators
Strategies, Current Actions, and Future Plans for Managing Sustainability Report Impacts on Biodiversity Initiatives to Mitigate Environmental Impact Total Workforce by Employment Type Total number and rate of Turnover Average Hours of Training per Year per Employee Programmes for Skills Management and Lifelong Learning Percentage of employees receiving regular performance reviews Breakdown of employees per category according to gender, age group Sustainability Report Sustainability Report Sustainability Report Sustainability Report Sustainability Report Sustainability Report Sustainability Report
Social Performance Indicators
Society Performance Indicators Community SO1 Nature, Scope and Effectiveness of any Programs and Practices that assess and manage the Impacts of Operations on Communities Total number of Legal Actions for Anti competitive Behavior, Anti Trust and Monopoly Practices Monetary Value of Significant Fines and Total Sustainability Report 52 - 55
SO7 SO8
None None
42
ENVIRONMENTAL BOTTOM LINE
He plants trees to benefit another generation.
43
ENVIRONMENTAL SUSTAINABILITY
Global Warming and Climate Change
Annually 36 million acres of forests are destroyed with the highest levels of deforestation evidenced in South America with 9.4 ,million acres lost per year. Research indicates that 150 acres of forest are lost every minute globally. However, alarmingly the fastest rates of deforestation occur in South East Asia, signaling a change in the trend of deforestation from a geo-physical perspective. The biggest causes of deforestation and forest degradation are agricultural expansion, cattle ranching, road and urban infrastructure projects, commercial logging, mining, subsistence farming and collection of firewood. Deforestation and forest degradation releases about 1.7 billion tons of carbon annually, about 20 percent of global carbon emissions. Total emissions from deforestation in 2008-2012 are expected to equal 40 billion tones of carbon dioxide. Global warming and climate change are undeniable phenomena in present times, with only 6 per cent of the earth covered with rain forests today compared to 14 per cent in the past. Traditionally there has been a strong correlation between population growth and the level of timber consumption. FAO analysis indicates that Every woman, man and child consumes a fully grown tree per year.
The Programme currently has 29 partner countries spanning Africa, Asia-Pacific and Latin America. REDD+ is seen as one of the most cost-effective ways of stabilising the atmospheric concentration of greenhouse gas (GHG) emissions to avoid a temperature rise of two degrees Celsius. Countries have got together to purchase only timber from certified sources, that is from forests and plantations which have been managed on a sustainable basis. Even in the developing nations the enterprises engaged in international timber trade are compelled to resort to this. Locally, Governments make and implement policies and programmes that encourage sustainable use of forests. In Sri Lanka Forest Policy, Forest Ordinance, Fauna and Flora Protection Ordinance, CITIES (involves the trade of fauna and flora), Wildlife Policy are ones more targeted towards protection of forests while the National Environment Act and National Environmental Regulations (1993) which calls for the Environmental Impact Assessment for larger development projects and National Environment Policy 2003 in respect of over ranching. Forestry Master Plan which was prepared in 1995 has made projections up to 2020 to conserve and sustainably use forests. A recent initiative of the Government to have Strategic Environmental Assessments for the country helps to conserve forests and wildlife areas while giving the green light for
Touchwoods core business concept primarily revolves around environmental conservation with our vision being to help stop the destruction of our precious rainforests.
With a global population of over 6.7 billion and ever increasing, this is a serious threat to our environment. Global population is projected to grow by approximately 24 per cent by 2030 to 8.3 billion, with consumption of round wood forecast to increase by 35 per cent between the years 2000 to 2030. A few forest carbon schemes are evolving on the international stage. The Clean Development Mechanism (CDM) under the Kyoto Protocol allows developing countries to undertake afforestation and reforestation projects as per prescribed guidelines and obtain payments for the same. Developed countries can use the net carbon sequestered by such projects to offset their greenhouse gas emissions and meet their mandated emission reduction targets. Now a new expanded concept REDD+ (Reducing Emissions from Deforestation and Forest Degradation, Conservation and Enhancement of Forest Carbon Stocks, and Sustainable Management of Forest) is under negotiation at the United Nations Framework Convention on Climate Change (UNFCCC).The UN-REDD Programme assists developing countries prepare and implement national REDD+ strategies, and builds on the convening power and expertise of the Food and Agriculture Organisation of the United Nations (FAO), the United Nations Development Programme (UNDP) and the United Nations Environment Programme (UNEP). sustainable development by zoning the land into appropriate land uses. Touchwood has assured that all of its practices comply with the laws, principles and guidelines set by the Forest Stewardship Council.
Our Strategic Approach to Sustainability

One of the smallest, but biologically diverse countries in Asia, Sri Lanka is recognised as a Biodiversity hotspot of global importance. Its varied climate and topographical conditions have given rise to a rich diversity of species, believed to be the highest in Asia in terms of unit land area. Much of the countrys species are endemic, a reflection of the islands separation from the Indian subcontinent since the late Mesozoic period. The diversity of ecosystems in the country has resulted in a host of habitats, which contain high genetic diversity. Sri Lanka has been identified by the environment activist group Conservation International (CI) as one of 25 biodiversity hot spots in the world. However, over the period 1990-2005, Sri Lanka recorded one of the highest deforestation rates of primary forests in the world with a loss of more than 35 percent of its old-growth forest cover. Similarly, the total forest cover diminished by an estimated 18 percent during the same period.
44
Sri Lanka
Forest Cover Total forest area % of land area Primary forest cover % of land area % total forest area Deforestation Rates 2000-2005 Annual decrease in forest cover : Annual deforestation rate Total forest loss since 1990 Total forest loss since 1990
(Source: www. Mongabay.com)
: : : : :
1,933,000 ha 29.9% 167,000 ha 2.6% 8.6%
EMS provides a structured approach to planning and implementing environmental protection measures as well as for monitoring environmental performance, the environmental management into the Companys daily operations, long term planning and other quality management systems. Our operations in Sri Lanka have been recognized as the first Forestry Management Company in South Asia to achieve accreditation status for its plantations, by conforming to the ISO 14001: 2000 having being assessed and accredited by TUV of Germany. Land quality degradation is widely prevalent across the world as a direct result of poor farming practices, and is now recognized as a critical environmental issue across the globe. Touchwood passionately seeks to reverse this trend by consciously choosing land that has previously been farmed, and which is considered low fertility. Through green farming methods, these lands are nurtured to levels of high fertility, thereby recuperating disused land for viable agricultural use. Touchwoods forestry operations are carried out to the strictest and most widely accepted forest management techniques. The practices adopted by the Company ensure the prevention of soil erosion whilst maximising the nutrient contents through natural means. The plantations strike a careful balance between natural species and introduced species, thereby ensuring that the soil is not exposed to direct rainfall, thus preventing excessive soil erosion. The existing treeline acts as a erosion barrier whereupon the washing away of soil through harsh rainfall is minimised through the cushioning effects of the existing foliage. Furthermore, the forest ground cover remains rich with decaying plant material which in turn increases the water filtration capacity inducing a greater absorption of rain fall to the ground water, thereby recharging the water table. Excess water is slowly released to the water streams originating from the plantations forestry. This natural process ensures that soil erosion is minimal and that the soil maintains its fertility through proper cycling of nutrients between the physical and biological environments of the forest. Moreover, ground cover vegetation increases the soil organic matter content due to the decomposing biomass, and therefore protects and enhances the soil fertility. Respecting reservations & natural forests: Touchwood has adhered rigorously to the regulations for natural forests, water courses and buffer zones, natural forest and vegetation cover have been preserved and maintained. Irrespective of the land use, land resources have been managed strictly according to environmental regulations and in order to minimise erosion and soil loss, downstream impact and the impact on local communities. The Company at all times meets the rules and regulations laid down by the various government institutions. Planting, reestablishment and maintenance of all agricultural and forest crops followed the environmental rules and guidelines laid down by the CEA and other monitoring authorities.
29,800 ha 1.5% 25.5% 417,000 ha 17.7%
: : :
Increase in defor. rate since 90s :
Touchwoods core business concept primarily revolves around environmental conservation with our vision being to help stop the destruction of our precious rainforests. We are acutely aware and sensitive to the fact that there is a multitude of environmental concerns that demand our attention. To this effect we are considerate of the need to create the best solutions through a cohesive business concept that aligns corporate strategy with environmental needs. Touchwood is essentially in the business of Agro-forestation, a concept that is widely acclaimed as a means to bio-diversity conservation. Whilst agro-forestation balances the scale of commercial with sustainable ecological returns, at Touchwood we take the initiative to ensure that our practices are best in class, and therefore those that are geared for optimisation of returns to both commercial and ecological interests. As opposed to agro-businesses that adopt a monoculture approach to plantation (planting large expanses with a single crop to increase efficiency and yield and adding high inputs of fertilisers, pesticides, and herbicides), we at Touchwood are ardent proponents of agro-forestation. In other words, by planting an array of crops and allowing for a number of vegetation structures to coexist, we enable the formation of high-quality habitats that are critical for biodiversity conservation.
Processes and Policies in Place

Environmental Management Systems: Land protection, water protection and air protection are key elements of focus in our daily operations. In an effort to encompass best practices that aim to create a scenario of zero negative impact on the environment we adopt a series of global standards modulated and implemented through an Environmental Management System (EMS). These serve as the framework for the Companys sustainability efforts. Working hand in hand with day to day operations of each forestry estate, the EMS manages the impacts of the Companys activities on the environment.
45
CO2 Free Campaign initiative - offsetting carbon foot print towards a greener Sri Lanka (In collaboration with Kumar Sangakkara and Mahela Jayawardene)
Forest plantations continue to be managed specifically to minimise environmental impact, erosion and downstream pollution. Rekindling the legacy of Sri Lankas agricultural heritage: Sri Lanka has an incredibly rich agricultural heritage including over 2500 varieties of rice as well as huge numbers of indigenous species of fruits and vegetables. It has extensive ancient irrigation systems that number a colossal 42,000 tanks and traditional labour practices and farming techniques that were once highly productive, all of which are in danger of disappearing as knowledge dies off. Touchwood is cognizant of the need to rekindle these practices as we too believe in the adage of looking after the environment so that the environment will look after our produce and life in the long term, a philosophy embraced by farmers of yester-year. In our dedication to implement agro-technology best practices, we continue to minimise environmental effects through non-invasive, non-degenerative methods. Outlined in brief below are a few of these practices: Use of insect prevention netting technology patented by Touchwood. This has replaced the use of chemical pesticides for insect pest management and thereby reduces the pollution to natural water resources Continuation of optimal soil fertilisation techniques that are applied based on the outcomes of soil tests Inorganic fertilisers are applied in a controlled manner through its combination with organic compost. Fertiliser leaching is fully controlled through the application of correct dosages at the optimal times
Manual weeding is employed and serves to reduce air pollution Drip irrigation through a micro irrigation system has been implemented throughout our plantations to ensure sufficient water supply through out the year. This method not only conserved the amount of water used to maximum efficiency but also allows for proper growth conditions for our plants at all times The introduction of an integrated pest management system which encourages the use of bio-pesticides such as Neem The promotion of use of straight fertilisers instead of mixtures so that nutrient deficiencies can be directly targeted and the fertiliser used to optimal advantage Protection of water stream banks by the growth of wide bands of riparian vegetation to serve as a natural filtering system for silt and leaching of inorganic fertiliser particles Reduction of air pollution from plantation sites to a state of almost zero pollution through the use of manual labour for forestry operations The plantations were cleared on a need basis thus ensuring the natural habitat is maintained as far as possible and silvicultural practices are adopted for pest and disease control Scientific weed management to control root competition of Mahogany and weeds thereby managing to control soil erosion as well as the soil temperature Field Development efforts for Mahogany plantations include in excess of 40 per cent cover crops thereby retaining soil moisture, avoiding erosion, and assisting towards the addition of Nitrogen and hummus to soil. Individual platforms for each
46
tree discourages soil erosion and opens room for the addition of mulch and fertilizer Field Development efforts for Sandalwood plantations which are placed in the dry zone area necessitates ground cover through cover crops to avoid erosion and control soil temperature. Sloping Agricultural Land Techniques have been implemented on 80% of the land area successfully with contour planting practiced across newly established Sandalwood fields. Reverse slope platform have been cut on contour lines for planting Sandalwood. This helps prevent soil erosion and leaching out of fertilizer. In addition, terraces and drainage systems utilizing naterial organic to the plantation site have been constructed where necessary to ensure soil conservation. Almost all the road frontages have been lined with hedges to avoid erosion and earth slips Plantation best practices: As a responsible agriculturalist, Touchwood grows not only plants but also the soil through plantation practices that enrich the soil in view of the fact that to develop one inch thick layer of top soil an approximate 100 years is required. However, if more than 80 mm of rainfall occurs to an unprotected land, the probability of the erosion of this one inch of top soil is high. crops maintain soil and air temperatures at levels favourable to the better growth of different agricultural crops.
Terracing
All undulate terrain terracing has been done to avoid erosion. Terraces are used in farming to cultivate sloped land. Graduated terrace steps are commonly used to farm on hilly or mountainous terrain. Terraced fields decrease erosion and surface runoff.
Contour Planting Reverse slope platforms Paving of all leader drains Soil development & moisture conservation Establishing leguminous cover crops
Leguminous cover crops such as Mucuna bracteata and Pueraria phaseoloids are established after land clearing. These cover crops will conserve the soil by preventing soil erosion and enhancing soil physical and chemical properties such as organic carbon, soil moistures, nitrogen content.
S.A.L.T - Slopy Agriculture land Technique

SALT is a technology package of soil conservation and food production that integrates several soil conservation measures (Tacio 1988, Evans 1992). Basically, the SALT method involves planting field crops and perennial crops in bands 3-5 m wide between double rows of nitrogen-fixing shrubs and trees planted along the contour. These minimise soil erosion and maintain the fertility of the soil. Field crops include legumes, while the main perennial crops are forest species, coffee, banana, and fruit trees. SALT helps considerably in the establishment of a stable ecosystem. The double hedgerows of leguminous shrubs or trees prevent soil erosion. Their branches are cut every 30-45 days and incorporated back into the soil to improve its fertility. The crop provides permanent vegetative cover which aids the conservation of both water and soil. The legumes and the perennial
Weed management
Weeding can be done in three ways: complete weeding, patch weeding and line weeding. The importance of weeding is to reduce the plant competition for water and nutrition. The choice of a particular method for management of weed depends on the age of mahogany plants, climatic conditions, type of weed and its distribution and size.
Avoid chemical usage and applying compost to enhance microbiological activities in the soil.
Organic fertilisers increase physical and biological nutrient storage mechanisms in soils. Organic fertilisers also re-emphasise the role of humus and other organic components of soil, which are believed to play several important roles. These include helping to retain soil moisture, reducing stress due to temporary moisture stress, Improving the soil structure and helping to prevent topsoil erosion
Slopy Agriculture Land Technique
Contour planting
Reverse slope platforms
47
National Tree Planting Campaign
Tree Planting Campaign inaugurated by Hon. Minister Nimal Siripala De Silva
Carbon Balance Sheet

Touchwood carefully considers its activities and actions in order to minimise its carbon contribution to the environment. The Company is a firm believer in the need to be constantly and consistently conscious of our activities and our impacts on mother Earth and her resources. Our core business activity - agro forestation - remains one of the most effective means by which to remove CO2 from the atmosphere. The average Carbon Dioxide production per person in a developed country per year is 9.7 metric tonnes. The CO2 emissions from an individual, which is called the Carbon Footprint comes from their household usage and transport requirements. The required mathematics of a carbon offset for an individual therefore is: Average carbon emission per person per year Amount of CO2 absorbed by a single tree Required number of trees to offset carbon production 9,700 Kg 20.3 Kg 478
National Campaign to save the Sandalwood Tree

A national campaign termed Sandun Arana conceptualised by Touchwood Investments and launched in partnership with the Ministry of Environment and Natural Resources in 2008 continued to play a key role in the Companys public engagement process in 2009. The project aimed to create greater awareness of the need for preservation of the Sandalwood tree. The project implementation focused on the donation of Sandalwood trees to places of worship in Sri Lanka in a bid to create greater visibility for the species in a sanctified setting, thereby contributing towards the re-introduction of the Sandalwood tree to the populace of Sri Lanka albeit reversing the trend of extinction. A total of 100,000 Sandalwood trees have been planted to-date across Sri Lanka in over 500 religious locations as a direct outcome of the Sandun Arana project.
National Tree Planting Campaign

Touchwood carried out the single largest tree planting initiative by planting and maintaining 150,000 saplings during the year as a part of the National Tree Planting Campaign of 1.1 million trees launched by His Excellency the President Mahinda Rajapakse with the view of sustaining a greener Sri Lanka for our future generations.
Therefore, if a person planted 478 threes that are now mature, that person would be a carbon free individual. Touchwoods Environmental Bottomline currently stands at: 1. 2,854 acres planted in 37 plantations covering six districts (as of 31st March 2011) 2. 8,970 tonnes of CO2 absorbed by 386,457 trees of Sandalwood & Mahogany 3. 12306 tons of CO2 absorbed by 17,861 trees of other types
Sandun Arana National Tree Planting Campaign
Dharmadootha Temple - Nugegoda
Bishops House - Badulla
Sooriyawewa International Cricket Ground Tree Planting Campaign
48
Sustainability Reporting Report

ECONOMIC BOTTOM LINE
A man does not plant a tree for himself, he plants it for posterity.
49
Product Value Additions
Sandalwood Oil Extraction Plant - Panketiya
Vanilla Processing Centre - Matale
Twood Flooring - Timber Flooring Solutions
ECONOMIC SUSTAINABILITY
Touchwood Investments is committed to enhance its contribution to domestic macro-economic activity through the export of value added agro products. Export of such high end products will no doubt yield an inflow of foreign exchange earnings into the economy. We have identified numerous produce, namely Vanilla, Sandalwood, Mahogany and Teak which all pose the potential to be high foreign exchange earners for Sri Lanka. Given the appreciating value of such exotic assets, the inelastic demand for high-end wood is deemed to be significant. Moreover, the production of value added products also bears the potential to attract foreign investment into the country, especially given the rise in confidence, after the end to terrorism. We expect to see more investors turning to Sri Lanka in seeing the possibility of the revenue to be generated from the export of such lucrative goods.
synthesised and stored in a special structure called gland which is located in different parts of plant such as leaves, flowers, fruits, seeds, barks and roots. These essential oils can be extracted by various physical and chemical processes such as steam distillation, maceration, expression and solvent extraction, and are mainly used as flavours and fragrances. For many years, these plants have been used as raw materials for cosmetics, pharmaceuticals and botanical pesticides. Evidently the ongoing demand for Sandalwood appears to be very strong. The use of Sandalwood in joss sticks is intimately tied to Asian cultures and has been for thousands of years. It is a strong, stable market. The major Asian suppliers, India and Indonesia, have completely restricted Sandalwood log exports because of dwindling stocks. China recently changed its policy enabling recommencement of importation of Sandalwood thus opening a new and potent market
Currently, Sri Lankas spice market is burgeoning, garnering a significant level of foreign exchange revenue to the country.
Value-added wood exports have a bright future. The value of furtherprocessed wood exports from producer countries of the International Tropical Timber Organisation (ITTO) totalled just under US$ 4.2 billion in 19961997, the highest points recorded in COMTRADE statistics so far. The following year (1998) saw a 17% drop to US$ 3.5 billion. Despite the lack of comprehensive data for 1999, it is believed that exports stabilised in most countries. Some reported vigorous export growth during 1999-2000. The flavouring, beauty, cosmetics and pharmaceutical industries consider aromatic plants such as Vanilla and Sandalwood as essential and exotic raw materials. Such plants target a niche market. Aromatic plants (AP) are plants that possess aromatic compounds, most of which are essential and highly demanded oils which are volatile in room temperature. These compounds are for the wood. Moreover, the use of Sandalwood oil in perfumes, oils, soaps and aromatherapy is well established and growing, owing to its exceptional fixative quality and woody fragrance. Currently, Sri Lankas spice market is burgeoning, garnering a significant level of foreign exchange revenue for the country. It is believed that the development of the agro-product and value added wood market will be similar in significance to the spice market. Taking the high quality of timber into consideration, the level of foreign exchange revenue is likely to be a substantial percentage of the export potential. Sustainable timber will earn higher yields in the long term, as nations across the world now brace themselves for the signing of a convention against the purchase of illicit timber. No doubt this will reduce the harm caused to our rain forests, and assist in preserving our environment for our future generations.
50
Some of the most beautiful and sought-after woods in the world come from tropical rainforest trees. These increasingly rare tropical hardwoods are highly prized for their outstanding beauty and good working properties. To illustrate the high value of tropical hardwoods, teak sells for nearly four times the price of black walnut, considered to be the finest hardwood grown in North America, and a single teak log can now bring as much as $20,000 internationally. Annual world consumption of tropical hardwoods is now more than 250 million cubic meters, or over 100 billion board feet, per year. Southeast Asia, until recently, has been the largest source of supply for tropical hardwoods, but this geographic source will largely be depleted within the next five years. All of the primary forests in India, Burma (Myanmar) and Bangladesh are consumed or destroyed. Ivory Coasts forests are essentially non-existent. Nigerias forests have been decimated as well. World consumption of tropical hardwoods has multiplied nearly 25 times in just the last four decades, to more than 100 billion board feet per year. The demand for tropical hardwoods continues to grow rapidly. While supply is limited, the demand outlook for Teak is very positive. It has long been sought after in Asian, European and North American countries. These markets are well established and are likely to grow, particularly as a result of population and economic growth in China and India. The unique presence of tectoquinone in Teak gives rise to its durability by repelling termites, marine borers and other insects and therefore is considered one of the finest hardwoods the world over. Demand for commercial plantation Teak is likely to increase with the availability of a sustainable supply of quality Teak from wellmanaged plantations. The latest statistics dramatically underscore the benefits of planting tropical hardwood plantations. As the worlds population continues to increase in numbers and prosperity, the demand for beautiful tropical hardwoods will continue to grow rapidly. As country after country in the tropics depletes its own supply of tropical forest and passes from being an exporter of tropical hardwoods to having to import wood to fulfill its domestic needs, international demand for tropical hardwoods will continue to grow dramatically. Over time as the world loses more and more rainforest, there will be a rising imperative to protect the small amount of rainforest remaining. Likewise, as international demand for tropical hardwoods increases and the availability of the natural rainforests as a source of supply of these hardwoods decreases, both because of continued harvesting and because the dwindling remaining forests will be increasingly protected, the prices of all tropical hardwoods will likely soar. There is substantial opportunity in planting nearly any species of tropical hardwoods - and even more opportunity in planting tropical hardwoods that are sought after for their beauty or unique properties. As the worlds tropical forests are depleted, consuming countries are turning increasing attention to plantation grown timber.
As the worlds population continues to increase in numbers and prosperity, the demand for beautiful tropical hardwoods will continue to grow rapidly.
51
Sustainability Reporting
SOCIAL BOTTOM LINE
A tree is our most intimate contact with nature.
52
SOCIAL SUSTAINABILITY
Livelihood sustenance and development
At Touchwood the belief is that poverty alleviation should be targeted and reduced through the mobilisation of those affected to economic activity. As such, the Company mobilises communities in terms of direct and indirect jobs though the operations of Touchwood. Apart from monetary compensation the Company has infused investment into eco-friendly infrastructure development, forestry and associated skills development, imparted agro-best practices and showcased livelihood sustenance programmes for these communities in the hope that by imparting skills and know-how, these individuals can be encouraged to create a better livelihood sustenance for themselves and their families. At Touchwood, our work environment fosters values that are akin to the philosophy of the Touchwood culture, its vision and mission. We inculcate an appreciation for nature, for Mother Earth and inspire our people to work in genuine concern for the well being of our planet. But that alone is not the Touchwood promise, our corporate drive for innovation and achievement cascades across the length and breadth of the organisation and permeates the very being of our team. Opportunity abounds and by fostering freedom to decide, act and improvise we have leveraged the essence of laissez-faire managerial styles to give employees an opportunity to become achievers on a daily basis sans any hierarchical or social barrier. We have found that this approach, coupled with an open door policy, has helped us develop a best-in-class workforce that has enabled the company to claim ownership to perform beyond expectations. We take pride in our low turnover rate maintained through the years. The dedication and perseverance of our employees brought forth the commendable operational results for the year under review.
Health and Safety

Health and safety is in line with ISO standards all workers are given safety equipment in the plantations and a hazard audit is conducted periodically to ascertain possible safety issues, thus creating a pre-emptive hazard mitigation process.
Reward and Recognition

Employee reward and recognition schemes have been initiated to improve employee engagement. These schems reward excellence in performance in line with company goals.
Recruitment and Selection

As a policy and in an attempt to reward our existing employees, preference is given to internal recruitment, wherever possible, for new vacancies. Thus, employees are assured of a career path within the organisation. The Management provides clear guidance and know-how for career development to employees on an ongoing basis to ensure that new skills are imparted and personal development is achieved.
Training and Development

A number of general as well as specialized training programmes were organised for the staff based on the business plan and corporate objectives. Training is in line with ISO standards and involves pre- and post-training evaluation of participants backed by Divisional Heads comments on improvement.
Performance Management and Compensation

Key performance objectives are set at the beginning of each year and an objective-oriented evaluation is carried out at the end of the year, in an open discussion with each employee. All employees, including plantation workers are entitled to Profit Related Pay. Employees are also provided cross-functional opportunities through their appointment to special project teams which are evaluated annually and rewarded accordingly.
At the Workplace
We are strongly committed to the creation of an invigorating workplace. Our work day commences with an energy boosting session where employees are given the chance to contribute and are acknowledged and appreciated.
Employee Satisfaction
Surveys are carried out bi-annually to explore job satisfaction among our employees. The survey results are then backed with analysis and corrective measures undertaken where required.
Giving the gift of life, we have rescued over fifty cows from slaughterhouses
We provide our staff with their daily requirement of fresh cows milk from our very own herd
53
Touchwood Participated in the Mercantile Cricket Tournament
100 CO2free Notice Boards placed in the vicinity of Colombo (Reducing visual pollution, apart of the Colombo Development Programme)
Kelani River Journey Journeys for Climate Justice
Team Building
Team building is given focus on a weekly basis with a session dedicated to the enhancement and maintenance of good relationships among staff. The forum acts as an effective mechanism for the creation of a one team attitude. Meanwhile more serious conflict resolution is addressed at a weekly meeting where disputes with peers are discussed in an open session that promotes team spirit and respect for each other.
Similarly, with a view to provide nourishment to our plantation workers, we saved over 50 cows from slaughter and are currently utilising them to supply fresh milk for our plantation staff. The initiative was driven from our recognition of the fact that communities and workers lack adequate nourishment due to poverty. We also continued to renovate places of religious importance to the nation with a view to protecting and preserving national heritage.
Community Development
Our plantations are situated in rural areas where infrastructure is minimal and the quality of life is poor. As we expand our presence in these areas, we have enmeshed ourselves with the communities by assisting them with roadways, bridges and other infrastructure facilities, including assistance to upgrade nearby schools and places of religious worship. Our presence has also meant that direct and indirect employment opportunities are on the increase - and the resultant increase in income has had a cascading effect on the quality of life of the villagers and their children. Touchwood drives an island-wide programme to educate students including pre-schoolers on the importance of trees and the importance of preserving our environment. This attitude building programme instills an admiration for the environment amongst young minds and inculcates the good habit of environmental preservation for the future well being of our planet. In collaboration with Divaina Newspapers, Touchwood Investments conceptualised and implemented a knowledge enhancement series on the natural reserves and places of biological interest across Sri Lanka. The series appearing on a weekly basis highlighted the natural wonders of key locations across the country and served as medium to encourage tolerance and empathy towards conservation of the national biological assets. In 2010/2011, Touchwood integrated with the communities in the Mahaweli Zone for the purpose of community development. With the investment of Rs. 9 million, the Company initiated road construction and infrastructure development in a bid to enhance the lives of the farmer communities residing in the zone.
SA 8000 Certification
The aim of Touchwood by achieving the certification of Social Accountability International Standard, which is based on principles of the 11 conventions of the International Labour Organization (ILO), United Nations Convention on the rights of child and the Universal Declaration of Human Rights, is to convey a clear message that Touchwood works with Employees and suppliers to promote and improve work place conditions. By the practice and the compliance of these standards we direct the organisation towards a powerful leverage of change. As a business entity, this certification will address the improvement of brand relationship, interaction with customers and investors and validation of stakeholder inclusiveness. Viz. 1. Workplace conditions 3. OHS (Occupational Health & Safety) 4. Freedom of association 6. Discussions, disciplinary practice 8. Compensation 5. Collective bargaining 7. Work hours 9. Management System 2. Child & forced labour
54
TRIPLE BOTTOM LINE PERFORMANCE INDICATORS
Economic Bottom Line

Revenue
1,500,000 1,200,000 Rs. 000 900,000 600,000 300,000 0 2007 2008 2009 2010 2011 12,000 No. of Clients 9,500 7,000 4,500 2,000 2008 2009 2010 2011 Sandalwood (48%) Vanilla (41%) Mix Products (10%) Foreign Products (1%)
Client Base
Product Distribution
Net Assets per Share

250 200 Rs. Rs. 150 100 50 0 2007 2008 2009 2010 2011 35 30 25 20 15 10 5 0
Earnings per Share

20 15 10 5 0
Price Earnings Ratio
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
* Figures reflected in 2011 is based upon a 1:4 share split
Environmental Bottom Line

1. 2,854 acres planted in 37 plantations covering six districts Kalutara Kandy Ratnapura Badulla Matale Polonnaruwa
2. Planted over 500,000 high value trees - absorbs approximately over 9,000 tonnes of CO2 per year. 3. Maintained bio diversity - preservation of other trees - further carbon absorption takes place 4. Environmental impacts Compliance - ISO 14001 Aspect registers maintained, audited and improved annually Environmental Impact Assessment records maintained Water - all natural sources are protected Energy - 90% of our plantations utilize solar energy Bio diversity - maintained everywhere possible Soil protection - prevention of erosion through ground cover crops, bio diversity etc. 95% 95% 100% 90% 40% 80%
55
Social Bottom Line

Sandun Arana National Project Launched under the guidance of Ministry of Environment & Natural Resources to plant and protect trees in places of religious significance, schools and government entities Ministry of Justice Sooriyawewa International cricket ground This tree planting campaign was conducted in the Ministry of Justice with the participation of Hon. Minister Athauda Senevirathna and Touchwood staff With the inauguration of Sooriyawewa international cricket ground a tree planting event was conducted with the participation of Hon. Minister Namal Rajapaksa, Hon. Minister V.K. Indika, Hon. MP Sanath Jayasooriya, Secretary of Sri Lanka Cricket Mr. Nishantha Ranathunga, Chairman of Sri Lanka Cricket Mr. D.S.de Silva and the management of Touchwood Investments PLC As a part of the National Tree Planting Campaign 2010 Touchwood planted 150,000 plants in the name of His Excellency President Mahinda Rajapaksa. The event was inaugurated by the Hon. Minister Nimal Siripala de Silva. This was held November 2010 at Girandurukotte Inspector General Dr. Mahinda Balasuriya, DIG Badulla, together with the Touchwood staff participated in the tree planting event held on February 2011. with the participation of Hon. Chamal Rajapaksa and Touchwood Management staff With the grace of A tree planting event was conducted in the premises of the Dharmadootha Temple together with the Touchwood staff With the participation of Bishop Rt.Rev.Dr. Winston Fernando, Fr.Prasanna and Touchwood Marketing Staff a tree planting event was held on March 2011
Girandurukotte
DIG Office Badulla Medamulana Dharmadootha Temple - Nugegoda Bishops House - Badulla
Age Analysis
30 No. of Employees 25 20 15 10 5 0 18-30 31-40 Age
*Only Head Ofce Staff
Gender Analysis
Staff Strength
Directors (6) Senior Management (7) Managers (6) Senior Executive (14) Executive (43) Ofcers (26) Clerical Staff (5) Plantation Staff (121)
Male (69%) Female (31%)
41-50 Above 50
* Only Head Ofce Staff
Service Analysis
250 No. of Training Programmes No. of Employees 200 150 100 50 0 2006 0-1 2007 2008 2009 2010/11 6-10 2-5 15 12 9 6 3 0
Training Analysis
2006
2007
2008
2009 2010/11
56
Touchwood wins the National Quality Circle Award 2010

We are proud to announce that Touchwood Investments Sri Lanka is the only agro-forestry company in the country to win the prestigious National Quality Circle Award - 2010. Touchwood won the first place under the Manufacturing and Service sector presented on the 26th July 2011. This award was won amongst competing renowned companies in the country. This marks a significant milestone in our progress towards excellence. The award was possible due to the relentless commitment and support of all our valued staff members, specially the plantations for the superior agro-forestry practices deployed that exceeded worldwide standards. As always we are thankful to all our stakeholders for the confidence and trust placed in the company. Undoubtedly the company strives to gain excellence in all aspects of our business protecting the best interest of all our stakeholders.
57
The Directors endorse the principles of good Corporate Governance. Over the past year, the Board has focused on reviewing all procedures and policies. The Directors are desirous of enhancing controls, facilitating monitoring of performance and compliance and establishing lines of responsibility and accountability. Governance Principle Conformance In view of the responsibilities of a Director and the contribution expected from him or her, any appointments of new Directors are considered by the Board as a whole. Board Meetings are held every other month. The CEO reports on performance, while the financial position is reported through comprehensive board papers. The Board also calls for reports on any issues which it feels should be studied in depth, whether in the micro or the macro environment. Availability of formal schedule of matters specifically reserved for the decision making of the Board Obtaining of independent professional advice The Board is responsible for; Deciding the vision and the strategy of the Company Approving appointments of key senior officers Approving budgets and targets and monitoring performance against these budgets and targets Reviewing risk management and enhancing controls where necessary Ensuring compliance with statutory and regulatory requirements Approving significant acquisitions Reviewing existing policies and procedures and improving on them where necessary The Board seeks the independent professional advice of third parties. These include the Companys lawyers, auditors or tax consultants, and such advice is sought at the Companys expense. The Company Secretaries are Corporate Advisory Services (Pvt) Ltd. Their advice and support can be sought by any director. They are also the contact point for any shareholder. The removal of the Company Secretaries is a matter for the whole Board. Each Director is called upon to exercise independent judgment when participating in the discussion and decision making, and to give the Company the benefit of their expertise and experience. At the monthly Board meetings adequate time is given so that all information provided can be discussed and any Director can seek clarification or further information if desired. Formal training has not been considered necessary. However, the Board seeks to be aware of potential risks and opportunities, both in the local and global environment. Detailed below are the corporate governance principles advocated by the Institute of Chartered Accountants of Sri Lanka, and the Companys compliance thereto.
BOARD OF DIRECTORS AND BOARD COMMITTEES

Procedure for appointment of new Directors
Holding of regular Board Meetings
Company Secretary
Independent judgment
Dedication of adequate time and effort
Training for directors
58
Governance Principle Conformance A balance of power is established by having three separate directors to serve as Chairman, Deputy Chairman and Chief Executive Officer. The Chairman oversees the agenda of Board meetings, and the reports provided, to ensure that decision making and critical analysis of performance is facilitated. He also encourages all Directors to contribute at meetings, whilst providing effective leadership The CEO oversees the operational functions of the Company and reports to the Board on performance, risk analysis and mitigation measures and governance and compliance issues. There is a sufficient amount of financial acumen and knowledge available among the Directors. The advice of the auditors and tax consultants is called for when required. The Board consist of 6 Directors of which 2 are independent Directors. These Independent Directors Chair the Board Sub Committees. Reports on operational and financial performance are submitted regularly. The Board is provided with any additional information it requests. One third or nearest to one third of the Directors retire by rotation, and offer themselves for re-election. The Board, having considered each Directors performance, recommends to the shareholders the re-election of a retiring Director. The Directors believe that the Companys performance and compliance levels reflect the effectiveness of the Board. The CEO is held responsible for operational and financial performance, risk mitigation and compliance. His performance is measured against these areas. The profile of the CEO is found on page 22.
CHAIRMAN AND CEO

Clear division of responsibilities Role of the Chairman
Role of the CEO Financial acumen Balance of the Board / Independence of Directors Supply of quality information Availability of management information Re-election of Directors
Appraisal of Board performance Appraisal of CEO
DIRECTORS REMUNERATION Directors remuneration policy The review of the remuneration policy is one of the areas being retained for consideration in the next financial year. The Directors remuneration is disclosed on page 101.
Disclosure of remuneration
RELATIONSHIP WITH SHAREHOLDERS

Constructive use of Shareholder meetings Notices of Shareholder meetings are dispatched to all Shareholders giving the prescribed period of notice. Should a Shareholder be unable to attend, such Shareholder has the opportunity to convey his/ her views through a proxy. As the Company provides two way proxy forms, all Shareholders are able to communicate their wish on any decision which has been submitted for their approval. The Board encourages Shareholders to actively participate at all Shareholder meetings. Each decision voted on separately Procedures for voting Each agenda item is voted on separately, enabling every Shareholder to indicate his assent or dissent on each item. Voting is on a show of hands, unless a poll is called for. The outcome of each decision is then declared by the Chairman. Should a poll be called for, the Auditors will be available to oversee the counting of the poll votes, after which the Chairman will declare the result.
59
Governance Principle Availability of sub committee Disclosure of major transactions
Conformance Board sub committees have been established. While there have been no such transactions to date, should there be any, they will be disclosed in accordance with the regulations. The Board believes in enhancing shareholder value, and to this end is striving to optimise use of the Companys resources, reduce costs and increase profitability. As at 31st March 2011, the Companys market capitalisation was Rs. 1,674,854,400 The share price as at end of trading on 31st March, 2011 was Rs. 23.50.
Enhancing shareholder value
FINANCIAL REPORTING
Interim Financial Statements are provided to all shareholders within the stipulated timelines. The Annual Report contains comprehensive financial report. All these Financial Statements are prepared in accordance with the Companies Act No 7 of 2007, the Listing Rules of the Colombo Stock Exchange and Sri Lanka Accounting Standards. Any price sensitive information is disclosed promptly.
Declaration by the Directors
The Directors annual report on the affairs of the Company is found on page 63. The Directors have disclosed any interests in contracts with companies of which they (or their spouses) are Directors and /or significant Shareholders. These disclosures have been tabled at Board Meetings and recorded in the Minutes.
Statement on responsibility for Financial Statements Going concern
The statement by the Directors on their responsibility for the preparation and presentation of financial statements is on page 69. The Board is confident that the business is a going concern. This statement is also included in the Directors report on page 63. Such a situation has not arisen. However, should such a situation arise, the statutory procedure will be complied with.
Summoning an EGM if assets fall below half Shareholders funds
INTERNAL CONTROLS
Periodic review of controls Internal Audit Reports have been called for by the Audit Committee to enable them to analyse existing controls and make recommendations to the Board on changes where deemed necessary. The Risk Management review is on pages 61 to 62.
Reporting to the Shareholders on risks
AUDIT & AUDITORS

Audit committee The Audit Committee has called for Internal Audit Reports, in order to review existing controls and risk mitigation. Relationship with external auditors The Audit Committee also meets with the External Auditors to review the audits and the objectivity and independence of the auditors. The Audit Committee Report is on page 68.
60
Governance Principle Conformance The Company complies with the requirements of the Listing Rules of the Colombo Stock Exchange and the Companies Act No. 7 of 2007 and all other applicable laws and regulations. The Company has adopted the Voluntary Code on dealings by Directors, by the Company CEOs and connected parties issued by the Colombo Stock Exchange. The Company values its relationship with all stakeholders, including Shareholders, financiers and regulators. The Board seeks to ensure timely and comprehensive disclosures, optimising of performance and of compliance all of which they feel will serve to enhance stakeholder confidence.
CORPORATE GOVERNANCE PRACTICES

Compliance Self governance initiatives Relationship with stakeholders
BOARD COMMITTEES
Audit Committee The Audit Committee comprises the following: Mr. L. L. Kulatunga
(Committee Chairman/ Independent Director)
Mr. Ralph Pereira

(Independent Director)
Mr. Channa Abeygunawardene (CEO)
The Audit Committee meets quarterly to discuss Internal Audit Reports. The Committee also reviews the bi - annual Financial Statements before they are dispatched to the shareholders and regulators. The Audit Committee reviews all reports of the External Auditors and meets with the Auditors periodically to discuss these reports and any other issues. Having met with the Internal and External Auditors, reviewed and discussed their respective reports, the Audit Committee then makes recommendations to the Board which ensures that the recommended corrective actions and controls are implemented and monitored. Remuneration Committee The Remuneration Committee is a sub committee of the Board and comprises of 3 members of whom two are non-executive Independent Directors. The members of the Committee are Mr. L. L. Kulatunga (Committee Chairman/Independent Director), Mr. Ralph Pereira (Independent Director), Mr. Channa Abeygunawardene. The Chairman and members of the Committee are appointed by the board. The remuneration committee determines the policy for the remuneration of the Companys Executive Directors and other key management personnel of the Company. The Committee reviews and makes recommendation to the Board on the remuneration policy and strategy of the Company and evaluates whether the remuneration are linked to the individual performance. The committee also appraises whether such remuneration packages linked to the individual performance are aligned with the companys long term strategy and contribute to the enhancement of the performance of the key management personnel. The committee acts within the parameters set out by the terms of reference. The proceedings of the committee meetings are reported to the Board by the Chairman of the committee. The details of the aggregate remuneration paid to the key management personnel are disclosed on page 101. Executive Committee The Executive Committee comprises the following; Mr. Roscoe Maloney Mr. Channa Abeygunawardene Mr. Somasiri Munasinghe The Executive Committee has been delegated authority to oversee more routine operational issues. This includes approving expenses over designated limits. Mr. Asitha Koralage Mrs. Swarna Maloney
61
Risk Management
Associated risks assessment of biological assets
Touchwood Investments PLC recognises risk management as a key area that contributes towards safeguarding the interests of its stakeholders, by stabilising the operations of Touchwood Investments PLC. The Company views effective Risk Management as a tool of good business strategy, and hence does not limit its scope only to compliance requirements. While well-defined policies are in place, the Company constantly strives to update and improve controls and procedures. The risk management policies ensure the identification, measurement, monitoring and controlling of risk.
Social change
Changing social conditions will have an impact on social change. Historical international market information suggests that the demand has increased year on year while the supply has dropped due to scarcity.
Regulatory risk
Change in the Governments policy on harvesting trees could have an impact on the Companys business. However, the Company is approved by the Board of Investment for planting trees for commercial harvesting at the end of the harvesting cycle. Foreign, Local, Private & Public sector Investors have invested in the project on the strength of this BOI endorsement. Touchwood Investments PLC is the only plantation company that has obtained such approval in view of securing investor interest. Further, owing to the sustainable nature of the business, governments would encourage such projects the world over.
Management risk Plantation management

The Company is dependent on the expertise of its staff to ensure the success of its plantations. Some of the best foresters in Sri Lanka are on the payroll of the Company or provide regular consultancy services. The Company also obtains expert consultancy services of reputed international consultants from time to time. Annual independent evaluations are carried out by industry experts and academics. ISO audits are also carried out every year by foreign audit consultants (TUV). Existing long term collaborations with universities and other institutions bring in state of the art technical capabilities and management practices.
Agricultural risk Tree survival/growth levels

The Companys nurseries hold plants of up to 4 years old to be used at a time when an existing plant of up to the same age dies due to any reason. The Company operates 3 major nurseries and each site is also equipped with mini nurseries. Touchwood maintains a 100% tree buffer with an additional volume buffer to mitigate this risk further. As per the projected growth chart, unique action plans are prepared as a result of the independent evaluation to maintain average growth levels annually.
Financial risk Price

Movements in the Sri Lankan and US currencies affect our market price. However we carry out a valuation exercise annually in order to minimise the risk occurring at the end of the harvesting cycle. Thus, investors will know the exact asset value without having to wait till harvest. A very high discount rate of 12.5% is accounted (on real terms) in view of providing adequate security for future financial risk. An automatic hedge against currency devaluation and inflation is embedded in the product. The Company also has the luxury of capitalising on the best prices by holding the stock or releasing it at peak market conditions.
Scattered plantations
Touchwood has followed a strategy of geographically scattering the plantations. We are thereby enabled to compensate any loss, through the buffer from a different location to mitigate the risk factors given below.
Climate
The best climate for Mahogany in Sri Lanka is the wet zone. Tropical line is the most preferred climate for this species. Mahogany is planted specifically bordering the Sinharaja Reserve, which is the best climate zone. Sandalwood on the other hand requires dry cool weather; Balangoda to Badulla through Beragala are identified as the best climate. These areas of the country have been known for naturally grown Sandalwood for many years and are endorsed by industry experts, specifically for Touchwood.
Market risk Substitute products

There is a trend in many industries for the original resource to gain greater value when a substitute is introduced, due to the scarcity of the original. In our case, substitutes are most likely to be more harmful to the population and the environment than the original resource, resulting in the original gaining even greater recognition. Eventually, to balance the carbon cycle, the best source of renewable energy to use would be timber (or fuel wood).
Pests
Shoot borer is the only known threat for Mahogany plantations. This does not kill the plant but restricts its growth if sufficient measures
62
Risk Management
are not taken to counter it. Measures have been taken to overcome this by covering the plants with nets until they are strong enough to tackle the problem on their own; this occurs mostly in the first five years. The Company has also developed a patented netting technology and application of biological repellents for this purpose. Sandalwood species is not known to be affected by pest attacks. Should any pest attack or diseases take place, the Company shall take relevant preventive measures.
Reputational risk
Reputational risk may arise from loss of confidence placed in the organisation by the stakeholders. This can have an adverse effect on operations. In order to safeguard the Company from this risk and maintain confidence, the Company ensures that statutory, regulatory and other compliance requirements are met. The Company also employs a Compliance Officer to help achieve the required level of regulatory compliance, which is monitored by the Legal Officer. Touchwood is focused on providing an excellent service to the customers and contributing towards the economic development of Sri Lanka from a Triple Bottom Line perspective, thus adhering to its objective. The Companys regular interest in its Social Responsibilities also has a positive impact on its reputation.
Fire
Occurrence of this event is negligible in the wet zone of the country where Mahogany and Sandalwood are planted. The Company has taken counter measures to overcome such event by:
Spreading the plantations

Introducing fire belts around the edges of the sites in order to separate them from the adjoining lands, to ensure that the fire will not cross over to the Companys sites. Maintaining a buffer tree stock of 100% and a volume stock of 200% for any emergencies.
Legal risk
Legal risk arises due to the inability to enforce contractual obligations, unexpected lawsuits against the Company or adverse judgments that may cause material, unforeseen financial losses to the Company. The Company employs competent legal staff and obtains services from external consultants, where necessary, to minimise this risk.
Lack of nutrition
The Company has in-house and external experts to monitor nutrients to improve soil conditions and provide required nutrition supplements for the trees.
Act of God
The Companys sales agreements with its clients prevent it from being responsible for risks such as cyclones, floods, earthquakes & lightning etc. However, the Management shall oblige the client should such an event take place from the 200% volume buffer. In the past 10 years, Touchwood has not recorded such events.
Risk review and control

The Board has overall responsibility to assess risks associated with the Company. The Company identifies developing an organization wide Risk Awareness programme as an effective way to manage risks.
Insurance
All Plantations are comprehensively insured.
Country risk
Touchwood is working towards elevating its credibility, irrespective of the countrys position. All plantations are in government controlled, stable areas. Further, the Management is in the process of obtaining a country risk sharing guarantee from an institution such as Overseas Private Investment Corporation.
63
Report of the Directors

The Directors take pleasure in presenting their report together with the audited Financial Statements for the year ended 31st March, 2011. The Company has received notice from a shareholder of its intention in terms of Section 211 of the Companies Act No. 7 of 2007 to propose the re-election of Mr. L L Kulatunga. The Board of Directors recommends his re-election. In terms of Section 210 of the Companys Act No. 7 of 2007 Mr. Aloysius Ralph Perera, who is over the age of 70 years, retires. The Company has received notice from a shareholder of the intention in terms of Section 211 of the Companies Act No. 7 of 2007 to propose the re-election of Mr. Aloysius Ralph Perera. The Board of Directors recommends his re-election.
Principal activities
The principal activities of the Company remain re-forestation, and the maintenance and sale of such reforested areas to investors in the local overseas market.
Directorate
The Directors of the Company during the year under review are as follows: Roscoe Anthony Maloney Swamy Pandith Asitha Koralage Channa Abeygunawardene Swarna Maloney Liyanage Laksaman Kulatunga Aloysius Ralph Perera Chairman Deputy Chairman Chief Executive Officer Director Independent Director Independent Director
Directors Interest in shares

The Directors interests in shares as at 31st March, 2011 were as follows: As at 31.03.2011 R A Maloney S J Maloney S P A Koralage 11,664,000 6,409,600 496,000 As at 31.03.2010 1,458,000 801,200 62,000 -
Alternate Directors
Ryan Crowley Prageeth Bandara Herath Janath Sohitha Olaboduwa Alternate Director to Mr. R A Maloney Alternate Director to Mr. S P A Koralage Alternate Director to Mr. Channa Abeygunawardene
C Abeygunawardene L L Kulatunga Aloysius Ralph Perera
Interest Register
The Directors have made the declarations required by the Companies Act No. 7 of 2007. These have been entered into the Interest Register which is maintained by the Company. The Company carried out transactions in the ordinary course of business with entities in which a Director of the Company is a Director. The transactions with entities where a Director of the Company either has control or exercises significant influence have been classified as related party transactions and disclosed in Note 34.1 to the Financial Statements. The Directors have no direct or indirect interest in any other contract or proposed contract with the Company.
Directors Meetings
The Board meets once in two months. At each meeting, performance to date is reviewed and compared with targets. Presentations are made covering all aspects of operations, including productivity. The Board is constantly seeking to optimise resources and manage costs. The financial positions monitored against budgets. Comprehensive papers are presented on the financial position of the Company for the month under review and the year to date. Comparisons are also made with the previous years figures and with the macro environment, to detect trends and the impact of outside influences. Where necessary, decisions are taken by circular resolutions, to expedite action.
Directors remuneration
The Directors remuneration is disclosed on page 101.
Re-election of Directors
In terms of Article 91 of the Articles of Association of the Company, Mr. Swamy Pandith Asitha Koralage retires by rotation and seeks reelection. The Board of Directors recommends his re-election. In terms of Section 210 of the Companys Act No. 7 of 2007 Mr. L L Kulatunga, who is over the age of 70 years, retires.
Board sub committees

During the year under review, an Audit Committee was appointed by the Board. The Audit Committee approved an Audit Charter which describes the role and the functions of the Committee.
64
Report of the Directors

Review of business
With the unprecedented financial crisis of the recent past, the Company has found its business also affected. This impact has coincided with the expansion programme which the Company had recently commenced. Details on the Companys performance for the year under review can be found in the statements of the Chairperson, Deputy Chairman and the Chief Executive Officer (found on pages 10 to 19) The Audit Committee has approved an Audit Committee Charter, which lays out its role and its functions. The Committee has requested that Internal Audit reviews be carried out of all processes and procedures, to ensure that adequate controls are in place to safeguards assets, eliminate waste, optimize use of resources and maximise productivity. The Committee has also met with the External Auditors to discuss issues relating to the preparations and presentation of the Financial Statements, and any other issues of concern, which require the Directors attention. The Audit Committee Report can be found on page 68.
Directors responsibility for financial reporting

The Directors are responsible for the preparing of Financial Statements of the Company. The Directors believe that the Financial Statements (appearing on page 72) have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007 and Listing Rules of the Colombo Stock Exchange, and that they reflect a true and fair view of the state of Companies affairs for the year under review.
Remuneration Committee
During the yea under review, the Directors appointed a Remuneration Committee. The Remuneration Committee is a sub committee of the Board and comprises of 3 members of which two are non-executive Independent Directors. The members of the Committee are Mr. L L Kulatunga (Committee Chairman/Independent Director), Mr. Ralph Pereira (Independent Director), Mr. Channa Abeygunawardene. The Chairman and members of the Committee are appointed by the board. The remuneration committee determines the policy for the remuneration of the Companys Executive Directors and other key management personnel of the Company. The Committee reviews and make recommendation to the board on the remuneration policy and strategy of the Company and evaluates whether the remuneration are linked to the individual performance. The committee also appraises whether such remuneration packages linked to the individual performance are aligned with the companys long term strategy and contribute to the enhancement of the performance of the key management personnel. The committee acts within the parameters set out by the terms of reference. The proceedings of the committee meetings are reported to the Board by the Chairman of the committee. The details of the aggregate remuneration paid to the key management personnel are disclosed on page 101.
Responsibility statements
The Directors responsibility statement appears on page 69. The Chief Executive Officers and Head of Finance responsibility statement appears on page 70.
Going concern
The Directors are of the view that the Company is in a position to continue its operations in the foreseeable future. Accordingly, the Financial statements are prepared on the basis that the Company is a going concern.
Financial Statements
The Financial Statements are given on pages 72 to 102.
Financial Results
The financial results for the year ended 31st March 2011. 2011 Rs.000 s Revenue Net Profit Before taxation Less: taxation Net Profit after taxation 1,466,429 399,728 42,727 357,001 2010 Rs. 000 s 857,482 341,026 50,421 290,605
Auditors
In accordance with Section 154 (1) of the Companies Act No. 7 of 2007 a resolution proposing the reappointment of Messrs. KPMG Ford, Rhodes Thornton & Co., Chartered Accountants as Auditors of the Company for the ensuing year will be proposed at the Annual General Meeting. In terms of Section 155 (a) of the Companies Act No. 7 of 2007 a resolution authorizing the Directors to fix the remuneration of the Auditors Messrs. KPMG Ford, Rhodes Thornton & Co., Chartered
Audit Committee
During the year under review, the Directors appointed an Audit Committee. The committee comprises the following: Mr. L. L. Kulatunga (Committee Chairman/ (Independent Director), Mr. Ralph Pereira (Independent Director), Mr. Channa Abeygunawardene (CEO)
65
Accountants for the ensuing year will be proposed at the Annual General Meeting. The fees paid to auditors are disclosed in Note No. 6 on page 84 to the financial statements. As far as the Directors are aware, the Auditors do not have any relationship (other than that of an Auditor) with the Company or any of its subsidiaries other than those disclosed above. The Auditors also do not have any interest in the Company or any of its group Companies.
Equitable treatment of shareholders

The Directors have made every endeavour to ensure the equitable treatment of all shareholders, and are committed to maximizing shareholder wealth. All Notices of shareholders Meetings are sent out in accordance with the provision of the Companys Articles of Association. Any shareholder unable to attend is still able to indicate his/her consent or dissent on any decision, by completing and returning the two way proxy provided with the Notice.
Auditors Report
The Auditors report appears on page 71.
Notice of Meeting
The Notice of Meeting is found on page 105 If you are unable to be present, please complete and return the Form of Proxy (page 107 enclosed). By Order of the Board of Directors of Touchwood Investments PLC Sgd. L L Kulatunga Director
Events occurring after the Balance Sheet date

Events occuring after the Balance Sheet date has been disclosed under Note No. 36 on page 102.
Significant accounting policies

The significant accounting polices adopted when preparing the Financial Statements and any changes thereto (if applicable) are given on pages 76 to 83.
Statutory Payments
For the year under review, all known statutory payments have been made and all retirement gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts. Details are given in Note No. 6 and 8 on Pages 84 and 85. Sgd. Channa Abeygunawardene Chief Executive Officer
Number of Employees
The number of employees as at 31st March 2011 was 222.
Sgd. CORPORATE ADVISORY SERVICES (PVT) LTD Company Secretaries 15th August 2011 Colombo
Stated Capital
The stated capital of the Company is Rs. 623,616,000/- made up of 71,270,400 Ordinary Shares. The shareholding structure is given on pages 103 to 104 together with the 20 largest shareholders. During the year, the share price ranged from Rs. 21.50 to Rs. 141.25. As at the end of trading on 31st March 2011 the share price was Rs. 23.50.
Compliance with laws and regulations

Following the revision of the Listing Rules of the Colombo Stock Exchange (CSE) in April 2009, the Company has submitted to the CSE the required Listing undertaking. The Company has not engaged in any activity that contravenes any applicable law or regulation.
66
67
Trees are your best antiques.
FINANCIAL REPORTS
68
Audit Committee Report
The Audit Committee Comprises of two Independent Non- executive Directors and four other Directors. The Chairman of the Audit Committee is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants of United Kingdom. The Composition of the Audit Committee is as follows. Mr. L L Kulatunga Independent, Non-executive Director, Chairman Mr. Ralph Pereira Independent, Non-executive Director Mr. Channa Abeyagunawardene The Committee has held regular meetings during the year under review to discharge its duties. The Committee has made in depth studies of internal audit reports, analysed the effectiveness of existing controls, systems and procedures and made appropriate recommendations to the Board of Directors, which have been duly complied with. The Committee has also met with the external Auditors and continue the hold regular meeting with them, to discuss Accounting issues, the Management Letter and Managements Responses and corrective action taken. The Committee recommends the payment of fees to the External Auditors, and has given consideration of the independence of the External Auditors.
The Audit Committee has recommended to the Board of Directors that Messrs KPMG Ford Rhodes Thornton & Company be reappointed as Auditors for the financial year ending March, 31st 2012. The reappointment of Audit Firm and the determination of its fee by the Board of Directors will be subject to the approval of the shareholders at the Annual General Meeting to be held on September 30, 2011.
Sgd. L L Kulatunga Chairman - Audit Committee 15th August 2011 Colombo
69
Directors Responsibility for Financial Reporting
The Companys Financial Statements for the year ended 31st March, 2011 have been prepared and presented in conformity with the requirements of the Sri Lanka Accounting standards, the Listing Rules of the Colombo Stock Exchange & the Companies Act No. 7 of 2007. These Financial Statements present a true and fair view of the operations and the position of the Company for the year under review. The Directors have put in place systems and procedures which enable adequate information to be captured, and which facilitate the maintenance of accurate records. Appropriate accounting policies have been adopted. Internal controls, check and balances have been implemented. The Directors believe that they have taken all reasonable steps to safeguard the assets of the Company, to ensure the integrity, accuracy and safeguarding of operational data, and to prevent, deter and detect fraud.
M/s. KPMG Ford Rhodes Thornton and Company, the Auditors, have examined the financial and other records of the Company. Their opinion is given on page 63.
Sgd. Channa Abeygunawardene Chief Executive Officer
Sgd. L L Kulatunga Director
Sgd. CORPORATE ADVISORY SERVICES (PVT) LTD Company Secretaries 15th August 2011 Colombo
70
Chief Executive Officers & Head of Finances Responsibility Statement
The Financial Statements are prepared in compliance with the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 7 of 2007 and any other applicable statutes to the extent applicable to the Company. There are no departures from the prescribed accounting standards in their adoption. The accounting policies used in the preparation of the Financial Statements are appropriate and are consistently applied. The Board of Directors and the management of your Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis, in true and fair manner the form and substance of transactions and reasonably present the Companys state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal controls and accounting records, for safeguarding assets and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounting.
The Financial Statements were audited by KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants, the Companys external auditors. It is also declared and confirmed that the Company has complied with and ensured compliance by the auditor with the guidelines for the audit of listed companies where mandatory compliance is required, it is further confirmed that all the other guidelines have been complied with.
Sgd. Illegibly Channa Abeygunawardene Chief Executive Officer
Sgd. Illegibly S. Munasinghe Head of Finance 15th August 2011 Colombo
71
Independent Auditors Report
TO THE SHAREHOLDERS OF TOUCHWOOD INVESTMENTS PLC Report on the Financial Statements

We have audited the accompanying financial statements of Touchwood Investments PLC, which comprise the balance sheet as at 31 March 2011, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and other explanatory notes as set out on pages 72 to 102 of this annual report.
Opinion
As disclosed in policy 2.5 to financial statements the fair value of the biological assets are estimated using discounted cash flow method. Accordingly, the Sandalwood trees planted during the year were valued and an initial recognition gain of Rs.1.1 billion was recorded. However due to the unavailability of growth patterns corresponding to relevant height of trees as given in note 14.5.1 to the financial statements, we were unable to verify the appropriateness of the above initial recognition gain from fair valuation with census records obtained through physical verification of trees. In our opinion, so far as appears from our examination, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves on the above matter, the Company maintained proper accounting records for the year ended 31 March 2011, and the financial statements give a true and fair view of the Companys state of affairs as at 31 March 2011, and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
Managements 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. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these financial statements based on our audit. Except as discussed in the following paragraph, 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 policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Except as discussed in following paragraph, we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
Report on Other Legal and Regulatory Requirements

These financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007.
CHARTERED ACCOUNTANTS 15 August 2011 Colombo.
72
Income Statement
2011 For the Year Ended 31st March Revenue Direct Expenses Gross Profit Other Income Distribution Expenses Administrative Expenses Other Expenses Operating Profit Before Finance Costs Finance Costs Profit before Income Tax Expense Income Tax Expense Profit for the year Earnings per Share 9.1 8 5 6 7 4 Note 3 Rs. 1,466,429,264 (74,675,144) 1,391,754,120 88,415,157 (63,580,438) (142,786,601) (862,908,633) 410,893,605 (11,165,274) 399,728,331 (42,727,364) 357,000,967 5.28 2010 (Restated) Rs. 857,482,369 (78,815,172) 778,667,197 5,188,622 (40,197,664) (70,384,349) (311,607,493) 361,666,313 (20,640,281) 341,026,032 (50,421,456) 290,604,576 6.83
The Significant Accounting Policies and Notes form an integral part of these Financial Statements. Figures in brackets indicate deductions.
73
Balance Sheet
2011 As at 31st March ASSETS Non Current Assets Property, Plant and Equipment Investments Lease Right to Bare Land Mature Trees Biological Assets Current Assets Inventories Trade and Other Receivables Amounts Due From Related Parties Cash and Cash Equivalents Total Assets EQUITY AND LIABILITIES Capital and Reserves Stated Capital Revaluation Reserve Capital Reserve Preference Share Redemption Reserve Retained Earnings Equity Attributable to the Owners of the Company Non Current Liabilities Preference Share Capital Provision for Purchase Back Guarantee Debenture Retirement Benefit Obligations Deferred Tax Liabilities Deferred Revenue on Annual Maintenance Accumulated Preference Dividends Payable Reservation & Establishment Fee Advances Interest Bearing Borrowings Current Liabilities Interest Bearing Borrowings Amounts Due to Related Parties Current Tax Liabilities Trade and Other Payables Bank Overdrafts Total Equity and Liabilities Net Assets per Share The Significant Accounting Policies and Notes form an integral part of these Financial Statements. Figures in brackets indicate deductions. It is certified that these Financial Statements have been prepared and presented in compliance with the requirements of the Companies Act No. 7 of 2007. Sgd. S Munasinghe Head of Finance 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: Sgd. Channa Abeygunawardene Director / Chief Executive Officer Sgd. L L Kulatunga Director Note Rs. 2010 (Restated) Rs. 10 11 12 13 14 633,979,312 39,700,000 147,237,439 4,525,951,667 5,346,868,418 9,109,164 63,135,852 111,127,005 371,582,255 554,954,276 5,901,822,694 558,364,043 5,000,000 21,403,300 107,373,011 3,316,555,856 4,008,696,210 5,339,681 13,465,162 8,972,880 29,218,118 56,995,841 4,065,692,051
15 16 17 18
19 20 21 22
623,616,000 479,346,332 1,968,070,728 66,394,383 (199,143,557) 2,938,283,886 27,936,728 2,501,462,361 40,900,383 5,883,433 216,893,100 47,345,299 2,214,619 25,095,193 22,631,238 2,890,362,354 7,198,732 19,148,404 10,430,572 36,398,746 73,176,454 5,901,822,694 41.23
89,088,000 479,346,332 1,621,569,800 51,564,502 (194,813,715) 2,046,754,919 27,919,728 1,651,693,858 35,123,210 2,754,096 177,081,816 24,612,392 1,910,619 32,637,403 4,793,125 1,958,526,247 5,266,584 16,576,721 7,688,456 19,003,633 11,875,491 60,410,885 4,065,692,051 229.75
23 24 25 26 27 28 29 30 32
32 31 8.2 33 18
15th August 2011

Colombo
74
Statement of Changes in Equity

Stated Capital For the Year Ended 31st March 2011 Balance as at 31st March 2009 as Previously Restated Prior year adjustment (Note A) Balance as at 1st April 2009 (Restated) Profit for the year Revaluation of Lands Transfers Balance as at 31st March 2010 Right Issue Profit for the year Transfers Balance as at 31st March 2011 Rs. 89,088,000 89,088,000 89,088,000 534,528,000 623,616,000 Revaluation Reserve Rs. 213,491,560 213,491,560 265,854,772 479,346,332 479,346,332 Capital Reserve Rs. 1,308,608,448 1,308,608,448 312,961,352 1,621,569,800 346,500,928 1,968,070,728 Pref. Share Redemption Reserve Rs. 39,075,834 39,075,834 12,488,668 51,564,502 14,829,881 66,394,383 Retained Earnings (Restated) Rs. (25,645,422) (134,322,849) (159,968,271) 290,604,576 (325,450,020) (194,813,715) 357,000,967 (361,330,809) (199,143,557) Total Rs. 1,624,618,420 (134,322,849) 1,490,295,571 290,604,576 265,854,772 2,046,754,919 534,528,000 357,000,967 2,938,283,886
The Significant Accounting Policies and Notes form an integral part of these Financial Statements. Figures in brackets indicate deductions. Note A The company had not provided for deferred tax liability in respect of temporary differences arising from the gain/loss on the change in fair value of biological assets; which was determined by the management based on the opinion provided by the previous tax consultants of the company. However, in the opinion of the companys present tax consultant, as the planting of the trees are with the intention of the sale the resultant profit is liable for income tax. Accordingly, management of the company decided to revise the aforesaid accounting treatment on deferred taxation and determined to provide deferred tax for temporary differences arising on the gain/loss on the change in fair value of biological assets. The effect of this application has been accounted retrospectively as per SLAS 10 Accounting Policies, Changes in Accounting Estimates and Errors and the effect of restatement is summarized bellow; Effect on the Balance Sheet Balance Reported as at 1 April 2009 Effect of Restatement on 1 April 2009 Restated balance as at 1 April 2009 Effect on Income Statement Restated Balance as at 31 March 2010 The effect on the Income Statement Income Tax Expense Effect on Earnings per Share Deferred Tax Liabilities Rs. 184,462 134,322,849 134,507,311 42,574,505 177,081,816 2010/11 39,811,284 0.59 2009/10 42,574,505 1.00
75
Cash Flow Statement

2011 For the Year Ended 31st March CASH FLOW FROM OPERATING ACTIVITIES Net Profit before Income Tax Expense Adjustment for; Gain arising from changes in Fair Value of Biological Assets Depreciation Profit Disposal of Property Plant and Equipment Interest Income Interest Costs Provision for purchase Back Guarantee Transfer from Deferred Income Provision/(Reversal) for Retiring Gratuity Transferred from Reservation and Establishment Advance Preference Dividends Gain arising from changes in Fair Value of Mature Tree Operating Profit before Working Capital Changes (Increase) / Decrease in Inventories (Increase) / Decrease in Trade and other Receivables (Increase) / Decrease in Amounts due from Related Companies Increase / (Decrease) in Amounts due to Related Companies Increase / (Decrease) in Trade and other Payables Cash generated used in Operations Gratuity Paid Vanila Return Paid Interest Paid Tax Paid Advanced Received on Reservation and Establishment Fee Rental Received in Advanced on Annual Maintenance Net Cash used in Operating Activities CASH FLOW FROM INVESTING ACTIVITIES Acquisition of Property, Plant and Equipment Proceeds from Disposal of Property, Plant and Equipment Proceeds raised from Right Issue Investment in Shares Investment in Subsidiaries Interest Income Net Cash used in Investing Activities CASH FLOW FROM FINANCING ACTIVITIES Calls received for Preference Shares Loans obtained during the year Loans paid during the year (Redemption of Debentures) / Proceeds received for Debentures Lease Rentals paid Loan Grant during the year Net Cash from Financing Activities Net Increase / (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at the Beginning of the Year (Note 18) Cash and Cash Equivalents at the End of the Year (Note 18) The Significant Accounting Policies and Notes form an integral part of these Financial Statement. Figures in brackets indicate deductions. Rs. 399,728,331 (1,209,395,811) 11,916,860 (3,404,962) (43,278,758) 11,165,274 862,894,883 (2,276,532) 3,748,478 (179,503,190) 304,000 (39,864,428) (187,965,855) (3,769,483) (43,560,104) (7,154,125) 2,571,683 17,395,113 (222,482,771) (619,141) (13,126,381) (5,333,101) (173,963) 171,960,980 25,009,439 (44,764,938) (39,613,734) 7,041,713 534,528,000 (20,000,000) (14,700,000) 32,838,171 500,094,150 17,000 (5,219,782) (55,000) (7,831,803) (88,000,000) (101,089,585) 354,239,627 17,342,628 371,582,255 2010 (Restated) Rs. 341,026,032 (623,744,669) 7,030,134 (1,168,043) 20,336,281 310,783,317 (1,861,151) 1,069,486 (232,900,262) 304,000 (179,124,875) 9,768,456 (370,757) (8,510,000) 6,149,529 4,685,141 (167,402,506) (362,341) (8,672,156) (7,731,375) (789,227) 237,437,304 15,222,746 67,702,445 (10,088,251) 1,168,043 (8,920,208) 2,000 10,000,000 (48,520,218) (75,000) (2,911,334) (5,000,000) (46,504,552) 12,277,685 5,064,942 17,342,627
76
Notes to the Financial Statements

1. 1.1 REPORTING ENTITY Domicile and Legal Form
Touchwood Investments PLC (the Company) is a quoted public company with limited liability incorporated and domiciled in Sri Lanka under the Companies Act No. 17 of 1982, re registered under the Companies Act No. 07 of 2007, and registered under Section 16 of Board of Investment Act No 04 of 1978. The registered office of the Company is located at No.10, Prince Alfred Tower (Level 2), Alfred House Gardens, Colombo 03, Sri Lanka. No adjustments have been made for inflationary factors in the accounts.
1.8
Functional and Presentation Currency

The Financial Statements are presented in Sri Lankan Rupees, which is the Companys functional currency. All financial information presented in Rupee has been rounded to the nearest rupee.
1.9
Use of Estimates & Judgments

The preparation of the financial statements in conformity with SLASs requires management to make judgments, 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. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. Information about critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements and information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in future periods are included in the respective notes.
1.2
Date of Incorporation and Commencement of Commercial Operations

The Company was incorporated on 07th June 1999 as a private limited liability Company and commenced its commercial operations on the same date.
1.3
Principal Activities and Nature of Operations

The principal activity of the Company is to plant and manage private Agro-forestry and sell such plants as an investment to local and foreign investors.
1.4
Parent Entity and Ultimate Parent Entity

In the opinion of Directors, the Companys immediate and ultimate parent undertaking and controlling party is Touchwood Limited, which is incorporated in Hong Kong.
1.5
Number of Employees
The Number of Employees at the end of the year was 222. (220 - 2010).
1.10
Materiality and Aggregation

Each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.
BASIS OF PREPERATION 1.6 Statement of Compliance

The Financial Statements of the Company comprising the Balance Sheet, Income Statement, Statement of Changes in Equity, Cash Flow Statement together with significant Accounting Policies and Notes (the Financial Statements) are prepared in accordance with Sri Lanka Accounting Standards (SLASs) laid down by the Institute of Chartered Accountants of Sri Lanka except for the Biological assets of the Company which is measured and recognized in accordance with International Accounting Standards 41, Agriculture, which is applicable for agricultural activities and the requirements of the Companies Act No. 07 of 2007. The Financial Statements were authorized for issue by the Management on 15th August 2011.
1.11
Going Concern
The Board is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Therefore, continue to adopt the going-concern basis in preparing these Financial Statements.
1.12
Directors Responsibility for the Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. The Board of Directors acknowledges this responsibility as set out in the Annual Report of the Board of Directors.
1.7
Basis of Measurement
The Financial Statements are prepared in accordance with historical cost convention other than for land which has been re-valued as explained in the Note 10 and biological assets and mature trees those have been stated at fair value, as explained in the Note 13 and 14 to the Financial Statements.
77
1.13
Events After the Balance Sheet Date

All the material events after the Balance Sheet date have been considered and appropriate adjustments/ disclosures have been made in Note no. 36 to the Financial Statements, where necessary.
The provision for Income Tax is based on the profit for the financial year adjusted for tax purposes in accordance with the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto.
2.1.2
Deferred Tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. 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 realized simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax assets and liabilities are not discounted. The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognized as deferred tax asset is recognized as deferred tax expense and conversely any net decrease is recognized as reversal to deferred tax expense, in the income statement.
1.14
Comparative Information
Where necessary, certain comparative amounts have been reclassified to conform to the current years presentation.
1.15
New Accounting Standards Issued But Not Effective as at Balance Sheet Date
The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards which will become effective for financial periods beginning on or after 1 January 2012. Accordingly, these Standards have not been applied in preparing these financial statements as they were not effective for the year ended 31 March 2011. These Sri Lanka Accounting Standards comprise Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Application of Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed to be an adoption of SLFRSs. The Company is currently in the process of evaluating the potential effects of these Standards on its financial statements and the impact on the adoption of these Standards have not been quantified as at Balance Sheet date. The Company continues to adopt International Accounting Standards 41, agriculture as in the prior years due to the absence of an equivalent Sri Lanka Accounting Standard. The application of this standard is detailed in note 2.5. The company will adopt the proposed Sri Lanka Accounting Standard for Agriculture, from such date it becomes effective.
2.1.3
Withholding Tax on Dividends

Dividend distributed out of taxable profit of the local companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognized at the same time as the liability to pay the related dividend is recognised.
2.
SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
2.1
Income Tax Expense

Income tax expense comprises current and deferred tax. Current Tax and Deferred Tax is recognised in the Income Statement except the items recognised directly in the Statement of Changes in Equity.
2.1.4
Economic Service Charge (ESC)

As per the provisions of Economic Service Charge Act No. 13 of 2006 amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.
2.1.1
Current Tax
Current Tax is the expected tax payable/recoverable on the taxable income (if any) for the year, using tax rates enacted or substantially enacted at the Balance Sheet date and any adjustments to tax payable/receivable in respect of previous years. Current tax payable also includes any tax liability arising from the declaration of dividends.
2.1.5
Social Responsibility Levy (SRL)

As per the provisions of the Finance Act No.5 of 2005, and amendments thereto, the SRL was introduced with effect from 01st January 2005. Currently, the SRL is payable at the rate of 1.5% on the Corporate tax liability.
78

2.2 Foreign Currency Transactions
All foreign Currency transactions are converted into Sri Lankan Rupees at the rates of exchange prevailing at the time the transactions are affected. Monetary assets and liabilities denominated in foreign currencies are translated into Sri Lankan Rupees at a rate of exchange prevailing at the Balance Sheet date while non monetary assets and liabilities denominated in foreign currencies which are stated at historical cost are converted to Sri Lankan Rupees at the rates prevailing at the dates transactions are affected. Exchange differences arising there from are accounted for within the Income Statement. 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 labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalized borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized 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. An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in profit or loss. When revalued assets are sold, any related amount included in the revaluation reserve is transferred to retained earnings. 2.4.1.2 Subsequent Costs Subsequent expenditure is included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred. 2.4.1.3 Permanent Land Development Costs Permanent land development costs are those costs incurred in making major infrastructure development and building new access roads on lands. Permanent impairment to land development costs are charged to the Income Statement in full or reduced to the net carrying amounts of such asset in the year of occurrence after ascertaining the loss. The cost of land development is being charged over the estimated useful life of 15 years. 2.4.1.4 Revaluation of Lands The Company revalues its lands at least once in every three years which is measured at its fair value at the date of revaluation less any subsequent impairment losses. On revaluation of land, any increase in the revaluation amount is credited to the revaluation reserve in shareholders equity unless it off sets a previous decrease in value of the same asset that was recognized in the Income Statement. A decrease in value is recognized in the Income Statement where it exceeds the increase previously recognized in the revaluation reserve.
2.3
Research and Development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are directly attributable to preparing the asset for its intended use, and capitalized borrowing costs. Other development expenditure is recognized in profit or loss as incurred. Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses.
ASSETS AND BASES OF THEIR VALUATION

Assets classified as current assets in the Balance Sheet are cash and those which are expected to realize in cash, during the normal operating cycle of the Companys business, or within one year from the Balance Sheet date. Assets other than current assets are those, which the Company intends to hold beyond a period of one year from the Balance Sheet date.
2.4 2.4.1
Property, Plant and Equipment Free hold Assets

The Property, Plant & Equipment are measured at cost/ fair value less accumulated depreciation and accumulated impairment.
2.4.1.1 Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.
79
Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal. 2.4.1.5 Restoration Costs Expenditure incurred on repairs or maintenance of Property, Plant and Equipment in order to restore or maintain the future economic benefits expected from originally assessed standard of performance, is recognized as an expense when incurred.
The estimated useful lives for the current and comparative years are as follows: No. of Years Buildings Plant & Machinery Motor Vehicles Furniture & Fittings Leasehold Lands Land Improvements 20 5 4 5 30 15 Rate 5.0% 20.0% 25.0% 20.0% 3.3% 6.6%
2.4.2
Leasehold Assets
Assets obtained under finance lease, which effectively transfers substantial risks and benefits incidental to ownership of the leased assets, are treated as if they have been purchased outright and are capitalized at their cash price. Assets held under finance lease are depreciated over the shorter of the lease period or the useful lives of equivalent owned assets, unless ownership is not transferred at the end of the lease period. The principal / capital elements payable to the lesser is shown as liability / obligation. The lease rentals are treated as consisting of capital and interest elements. The capital element in the rental that is applied to reduce the outstanding obligation and interest element is charged against profit, in proportion to the reducing capital element outstanding. The cost of improvements to or on leased property is capitalized, disclosed as improvements to leasehold property and depreciated over the unexpired period of the lease, or the estimated useful lives of the improvements, whichever is shorter. Assets acquired by the way of finance lease are measured at an amount equal to the lower of their fair value of minimum lease payments at the inception less accumulated depreciation and accumulated impairment losses.
The Company provides depreciation from the date the assets are available for use whereas depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognized, at the above mentioned rates on a straight line basis over the period appropriate to the estimated useful lives of the different types of assets or in an earlier date where any circumstance indicate such assessment requires. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
2.5
Biological Assets and Agricultural Produce

In the absence of Sri Lanka Accounting Standards, International Accounting Standards 41, Agriculture has been used for the valuation of biological assets. The biological assets are stated at its fair value less estimated point of sale cost, with any resultant gain or loss recognized in the Income Statement. Fair value of the biological assets are estimated using discounted cash flow method. Point of sale costs include all costs that would be necessary to sell the assets, excluding costs necessary to get the assets to market. The biological assets are classified as Consumables and Bearer biological assets. Consumable biological assets are those that are to be harvested as agricultural produce or sold as biological assets. Bearer biological assets are those other than consumable biological assets. Bearer biological assets are not agricultural produce but, rather, are self-regenerating. Mahogany, Teak and Sandalwood trees are considered as Consumable biological assets and Vanilla vines are considered as Bearer biological assets.
2.4.3
Depreciation and Amortization

Depreciation is based on the cost of an asset 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 component 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. Land is not depreciated.
2.5.1
Nature of Activities
Life span of Mahogany trees to maturity is expected to be 18 years from the date of planting. Mahogany plants are grown in the wet zone, the Company is expecting to carry out proper fertilising program in order to get the expected return. Life span of Teak trees to maturity is expected to be 18 years from the date of planting. Teak plants are grown in the mid zone and the Company is expecting to carry out proper fertilising program in order to get the expected return.
80

Life span of Sandalwood trees to maturity is expected to be 16 years from the date of planting. Sandalwood plants are grown in the dry zone and the Company is expecting to carry out proper fertilising program in order to get the expected return. The agricultural produce (timber and heart wood) is to be harvested only at maturity. Realisable value of the agricultural produce (timber and heart wood) at the time of maturity will be used to settle Purchase Back Guarantees, which is more fully explained in the respective Accounting Policies. Bearer biological assets (Vanilla Vines) life span to maturity is 4 years from the date of planting. Vanilla vines are grown in up country mid zone and the Company is expecting to carry out proper fertilizing program in order to get the expected harvest. As per the standard specifications, agricultural produce (Vanilla) can be harvested for another10 years from the date of maturity. Realizable value of the agricultural produce (Vanilla) at the time of harvest will be used to settle the Purchase Back guarantees which are, more fully explained in the respective Accounting Policies. 2.5.2.2 Fair Value of Bearer Biological Assets Value per immature vanilla vine is determined by considering the average yield expected from the Weighted Average Cost of Capital and the market price of 1 kg of vanilla. Market value of 1 kg of Vanilla Market Value of 1 kg of vanilla is determined considering the average market price of a 1 kg of vanilla as per the standard specification as at the balance sheet date, net of selling cost. Expected Harvest This refers to the harvest pattern corresponding to the relevant age. The Company is expecting to harvest Vanilla Pods for a period of 10 years from the year of maturity. Respective assumptions are disclosed under Note 14.3.1 to these Financial Statements.
2.5.3
Mature Trees
The mature trees considered as part of unplanned forestry in our plantation, which includes commercial exotic timber species such as Teak, Jack, Halmilla, etc. are ready for harvest. These trees are valued once in a three years time (3 years) to ensure that the book values match the current market values.
2.5.2
Valuation of Biological Assets

Fair Value of Biological assets is determined based on a valuation carried out by a qualified valuer in determining the fair value of biological assets, the number of trees in plantations are physically verified together with their heights and girth. The basis used by the valuer is as follows;
2.5.4
Inventories
Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in firstout principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Input Material At actual cost on weighted average basis. Nurseries At the cost of direct materials, direct labour, and an appropriate proportion of directly attributable overheads less provision for overgrown plants.
2.5.2.1 Fair Value of Consumable Biological Assets Value per immature tree is determined by considering the growth pattern of the trees, age and the current market price of a mature tree. Value of Mature Mahogany Tree Market value of a mature Mahogany tree is determined by considering the average market price of a mature tree as per the standard specification as at the Balance Sheet date, net of selling cost. Value of Mature Teak Tree Market value of a mature Teak tree is determined by considering the average market price of a mature tree as per the standard specification as at the Balance Sheet date, net of selling cost. Value of Mature Sandalwood Tree Market price of Sandalwood heart wood is determined by considering the Tamil Nadu Auction Price of a mature tree, since there is no local market for Sandalwood, as per the standard specification as at the Balance Sheet date, net of selling cost. Growth Patterns of Trees The height and girth of the trees are measured and compared with accepted standard growth specifications in determining the average growth patterns for the respective age groups.
2.5.5
Impairment of Non-Financial Assets

The carrying amounts of the Companys non-financial assets, other than mature trees, biological assets, inventories and 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 assets recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.
81
The companys corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognized in profit or loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis. Impairment losses recognized in prior periods are 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 assets carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.
a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation in accordance with Sri Lanka Accounting Standard No. 36 on Provisions, Contingent Liabilities and Contingent Assets.
2.5.8
Borrowings
Borrowings include borrowings from financial institutions. They are brought to account at the gross value of the outstanding balance. The cost of borrowings is recognized as an expense in the period in which they are incurred.
2.5.9
Employee Benefits
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. All employees who are eligible for Employees Provident Fund and Trust Fund contributions are covered by relevant contributory funds in line with respective statutes and recognized as an expense in the Income Statement as incurred. The Company contributes 12% and 3% respectively to the above funds.
2.5.9.1 Defined Contribution Plans - EPF and ETF
2.5.6
Trade and Other Receivables

Trade and other receivables are stated at the amounts they are estimated to be realized net of provisions for bad and doubtful debts or if any impairment losses a provision for impairment of trade receivables is established when there is evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of debtors, probability that the debtors will enter bankruptcy or financial recognition, and default in payments are considered as indicators that the trade receivable is impaired.
2.5.9.2 Defined Benefit Plans Retirement Benefit Obligations (Gratuity) A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Companys net obligation in respect of defined benefit pension 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 unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the market yield (at the balance sheet date) on government bonds that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed once in every three years by an independent, qualified actuary using the projected unit credit method. The Company recognizes all actuarial gains and losses arising from defined benefit plans in the income statement and all expenses related to defined benefit plans in personnel costs. However the settlement is decided according to the Payment of Gratuity Act, No. 12 of 1983. The liability for payment arises on completion of 5 years continuous service by an employee. This retirement benefit obligation is not externally funded.
2.5.7
Cash and Cash Equivalents

Cash and Cash Equivalents are defined as cash in hand, demand deposits and short-term highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash and cash equivalents comprise cash balances and call deposits with original maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Companys cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
LIABILITIES AND PROVISIONS

Liabilities classified as current liabilities on the Balance Sheet are those which fall due for payment on demand or within one year from the Balance Sheet date. Non current liabilities are those balances that fall due for payment after one year from the Balance Sheet date. All known liabilities have been accounted for in preparing these Financial Statements. Provisions and liabilities are recognized when the Company has a legal or constructive obligation as
82

2.5.9.3 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 recognized for the amount expected to be paid under short-term cash bonus if the Company 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. 2.5.10 Provision for Purchase back Guarantee Provision for Purchase back guarantee is created for the guarantees given to purchase back the harvest at an agreed time and price. The liability is measured based on the present value of the cost expected to be required to settle the obligation. Further as per the agreement entered into with customer, the value of purchase back guarantee will be reduced to 50% or 33 1/3 % of the initial agreed amount, if the payment of maintenance fee defaulted for more than 3 years. Where volume back guarantees are provided considered as contingent liability and those trees are not considered as assets accordingly. Preference Share Capital Preference share capital is classified as a financial liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized in the income statement as accrued.
2.5.14 Trade and Other Payables

Trade and other payables are stated at their costs.
2.5.15 Share capital

Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
INCOME STATEMENT 2.5.16 Revenue and Income Recognition

Income generated from the operation of the business consists of the followings. Plantation Establishment Fee income, maintenance income, operating lease income, gain arising from changes in fair value of biological assets and earning income. The revenue is recognized on the following basis, a) At the issue of the investment certificate, the total is recognized as revenue. The annual maintenance fee is recognized in the year of receipt. Where both Plantation establishment fee and maintenance fee paid at the issue of certificate in respect of operating lease the maintenance fee is deferred over a period of 16 and 18 years for Sandalwood and Mahogany respectively. b) A gain or loss arising on initial recognition of a biological asset and agricultural produce at fair value less estimated point of sale cost. Thereafter subsequent change in fair value less estimated point of sale costs of a biological asset and agricultural produce.
2.5.11 Reservation and Installment Fee Advances

Reservation and Installment fee advance account an investment as a complete investment once all the payment due are fully paid. The reservation and installment fee account consists payments accounted for investments that are not completed.
2.5.12 Debenture
Debenture notes with tenure of 18 years were issued in August 2005. On maturity the notes will be redeemed along with the interest. Accordingly the interest has been accrued and accounted for in the Income Statement annually. Debenture can be redeemed at any time at the issue price by the debenture holder.
2.5.13 Deferred Revenue on Annual Maintenance

Deferred Revenue include the prepayment paid on annual installments due on investments. This deferred revenue is recognised as revenue in the Income Statement over the tenure of the clients contract on the anniversary of the contract.
2.5.17 Other Income

All other income is recognized on an accrual basis.
2.5.18 Expenditure Recognition

All expenditure incurred in the running of the business and in maintaining the Property, Plant and Equipment in a state of efficiency is charged to revenue in arriving at the profit / (loss) for the year.
83
For the purpose of presentation of Income Statement, the Directors are of the opinion that function of expenses method present fairly the elements of the enterprises performance, hence such presentation method is adopted. Borrowing costs are recognized as an expense in the period in which they are incurred and charged to the Income Statement.
2.5.22 Earnings per Share

The Company presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share 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 year. Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares.
2.5.19 Finance Income and Finance Costs

Finance income comprises interest income on funds invested, dividend income and gains on the disposal of investments are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on the date that the Companys right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. Finance costs comprise interest expense on borrowings, dividends on preference shares classified as liabilities and impairment losses recognised on financial assets (other than trade receivables), are recognised in profit or loss. 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 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.
2.5.23 Commitments and Contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognized in the Balance Sheet but are disclosed unless they are remote.
2.5.24 Financial Risk Management Strategies

The Company is exposed to financial risk arising from changes in Mahogany, Teak, Sandalwood timber and Vanilla prices. However the Company, based on past trend in Mahogany, Teak, Sandalwood and Vanilla prices, does not anticipate that the prices will decline significantly in the foreseeable future and therefore has not entered into any other contracts to manage the risk of decline in Mahogany, Teak, Sandalwood and Vanilla prices. The Company reviews its outlook for Mahogany, Teak, Sandalwood and Vanilla prices regularly in considering the need for active financial risk management.
2.5.20 Segmental Reporting

A segment is a distinguishable component of the Company that is engaged in either providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to different risk and rewards that are different from those of other segments. However, there are no distinguishable components to be identified as segments for the Company.
2.5.21 Cash Flow Statement

The Cash Flow Statement has been prepared using the Indirect Method of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 9 Cash Flow Statements. Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. The cash and cash equivalent include cash in hand and balances with banks. Interest paid is classified as operating cash flow. Interest received and dividends received are classified as investing cash flows. Dividends paid are classified as financing cash flows.
84

2011 Rs. 2010 Rs.
For the Year Ended 31st March
3.
REVENUE
Plantation Establishment and Maintenance Income Local - Plantation Establishment - Annual Fee Foreign Commission from Agarwood Sales - Foreign Commission from Agarwood Sales - Local Commission from Bamboo Sales - Foreign Maize Sales Gain Arising from Changes in Fair Value of Biological Assets (Note 3.1) 155,485,353 100,094,396 882,089 275,182 296,433 1,209,395,811 1,466,429,264 151,159,005 70,474,599 4,038,073 2,402,920 2,917,153 2,745,950 623,744,669 857,482,369
3.1
Gain / (Loss) Arising from Changes in Fair Value

This amount relates to gain arising from changes in the fair value of biological asset, by adoption of IAS-41- Agriculture. This gain is totally unrealized as at the Balance Sheet date. 2011 Rs. (23,328,441) 34,034,000 1,188,879,134 9,811,119 1,209,395,812 2010 Rs. 331,484,328 47,409,600 250,031,602 (5,180,861) 623,744,669
For the Year Ended 31st March Mahogany (Note 14.1) Vanilla (Note 14.2) Sandalwood (Note 14.3) Teak (Note 14.4)
4.
OTHER INCOME
Interest income on Short Term Deposits Interest income on Loan Net Gain on Disposal of Property, Plant & Equipments Net Gain on Foreign Currency Exchange Surplus Arising from Valuation of Mature Trees (Note 13) Miscellaneous Income 43,297,983 19,225 3,404,962 2 39,864,428 1,828,557 88,415,157 1,168,043 40,796 716 3,979,067 5,188,622
5.
OTHER EXPENSES
Provision for Purchase Back Guarantee (Note 24) Other Operating Expenses 862,894,883 13,750 862,908,633 310,783,317 824,176 311,607,493
6.
OPERATING PROFIT BEFORE FINANCE COST

Is after charging all expenses including the following; Directors Emoluments Auditors Remuneration - On Statutory Audit - KPMG Ford, Rhodes - ISO Audit Expenses Legal Fees Depreciation and Amortisation Marketing Incentives Personnel Cost Includes Defined Contribution Plan - Gratuity Provision/(Reversal) Defined Benefit Plan - EPF - ETF Other Staff Costs (Salaries, Wages and etc.) Bonus 19,140,000 1,035,000 1,121,317 3,302,254 11,916,860 16,419,899 3,748,479 5,542,389 1,318,580 70,023,396 2,162,787 3,750,000 900,000 103,527 4,798,424 7,030,134 15,407,274 1,069,486 3,908,027 977,007 49,453,812 2,057,050
85
For the Year Ended 31st March
2011 Rs.
2010 Rs.
7.
FINANCE COSTS
Debenture Interest Loan interest Lease Interest Preference Share Dividend (Note 7.1) 5,956,666 997,743 3,906,865 304,000 11,165,274 5,137,848 13,200,000 1,998,433 304,000 20,640,281
7.1
Change in Classification
During the current financial year company modified the classification of dividend expense of preference shares from item in the changes in equity statement to finance cost to reflect more appropriately the cost of redeemable preference shares which is in long term debt capital nature. Comparative amounts were re-classified for consistancy, which resulted Rs. 304,000 being re-classified expense charged in the changes in equity to finance cost.
8. 8.1
INCOME TAX EXPENSE Current Tax

The Company in terms of Section 16 (1) of the Inland Revenue Act No. 10 of 2006, Specified Profits from cultivation, would be exempt from income tax for a period of 5 years from 1st of April 2006. The Corporate tax applicable to profits other than specified Profits would be at 33.33%. As per the Inland Revenue (Amendment) Act No 22 of 2011, such profit would be liable to Income Tax at the rate of 10% commencing from the year of assessment 01 April 2011. 2011 For the Year Ended 31st March Income Tax on Profits for the year (Note 8.2) Under / (Over) provisions of Income Tax in prior years Transferred (from) / to Deferred Taxation (Note 27) Rs. 10,430,572 (7,514,492) 39,811,284 42,727,364 2010 (Restated) Rs. 7,841,965 4,986 42,574,505 50,421,456
8.2
Reconciliation between Taxable Profit and Accounting Profit

Profit Before Income Tax Expense Aggregate Disallowable Items Aggregate allowable Items 399,728,331 903,875,549 (1,304,841,563) (1,237,683) (1,237,683) 43,317,208 43,317,208 14,439,069 216,586 14,655,655 (4,330,451) 105,368 (10,430,572) 341,026,032 323,415,630 (629,440,775) 35,000,887 (11,523,376) 23,477,511 1,208,839 24,686,350 8,228,783 123,432 8,352,215 (510,250) 7,841,965
Profit/(Loss) from Plantation (Exepmt) Adjusted Profit from the Business Taxable Income from Other Sources Total Taxable Income Tax on Other Income 33.33% Social Responsibility Levy (1.5% on Income Tax) Current Tax Expense for the Year Less: Tax Credit Tax Paid during the year under Self Assesment Basis Deemed Dividend Tax in respect of Undistributed Earnings
86

8. 8.3 INCOME TAX EXPENSE (Contd.) Deferred Tax
Provision has been made for deferred taxation under the liability method in respect of temporary differences arising from carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purpose except for described in Note 27. Difference arising from the deferred tax liability has been recognised in the Financial Statement during the year.
8.4
Economic Service Charge

During the year the Company has paid Rs.656,492/- (Rs.510,250/- in 2010) as Economic Service Charge and this amount can be set off against the Income Tax Liability had it been paid to the Department of Inland Revenue and balance can be carried forward for a period of 5 years.
9. 9.1
EARNINGS AND DIVIDENDS PER SHARE Earnings per Share

The calculation of Basic Earnings per Share at 31 March 2011 is based on the profit for the year attributable to the ordinary shareholders of and a weighted average number of ordinary shares outstanding, calculated as follows; 2011 For the Year Ended 31st March Profit Attributable to Ordinary Share Holders Weighted Average Number of Ordinary Shares (9.1.1) Basic Earning per Shares Rs. 357,000,967 67,574,849 5.28 2010 (Restated) Rs. 290,604,576 42,570,910 6.83
9.1.1
Weighted Average Number of Ordinary Shares (9.2)

At the beginning of the year Effect on Right Issue (Note 19.3) Effect on 1:4 Subdivision of Shares (Note 19.4) At the end of the year 8,908,800 7,984,912 50,681,137 67,574,849 8,908,800 1,733,927 31,928,183 42,570,910
In accordance with SLAS 34 - Earnings per Share (Revised 2005), the effect on bonus element of the right issue and the effect on sub division of shares have been adjusted retrospectively. 9.1.2 Diluted Earnings per Share There were no potential dilutive ordinary shares outstanding at any time during the year ended 31 March 2011. Therefore, diluted Earning Per Share is same as Basic Earnings per Share reported above.
9.2
Dividends per Share

Board of Directors had not approved and paid or proposed any dividends for the financial year ended 31 March 2011. (2010 - Nil)
87
10.
PROPERTY, PLANT AND EQUIPMENT

Cost Balance As At 01.04.2010 Rs. 541,387,602 2,868,052 3,619,435 25,603,267 5,580,231 579,058,587 7,185,780 7,185,780 586,244,367 Additions/ Revaluation During the Year Rs. 31,092,300 3,330,889 11,079,870 8,689,238 1,743,044 55,935,341 30,915,000 30,915,000 3,409,183 90,259,523 Disposal During the Year Rs. 7,239,000 7,239,000 3,390,000 3,390,000 10,629,000 Balance As At 31.03.2011 Rs. 572,479,902 6,198,941 7,460,305 34,292,505 7,323,275 627,754,928 34,710,780 34,710,780 3,409,183 665,874,891
As at 31st March Freehold Assets Land Buildings Motor Vehicles Machinery and Equipment Furniture & Fittings Leasehold Assets Motor Vehicles Software - ERP Total Accumulated Depreciation Freehold Assets Buildings Motor Vehicles Machinery and Equipment Furniture & Fittings Leasehold Assets Motor Vehicles Software - ERP Total Working Progress Carrying Amount
933,234 1,955,436 17,217,630 4,621,328 24,727,628 4,773,715 4,773,715 29,501,344 1,625,020 558,364,043
263,143 1,523,190 4,091,931 408,716 6,286,980 5,222,647 5,222,647 407,234 11,916,860 4,500,376
1,222,249 1,222,249 3,100,000 3,100,000 4,322,249 925,020
1,196,377 2,256,377 21,309,561 5,030,044 29,792,359 6,896,362 6,896,362 407,234 37,095,955 5,200,376 633,979,312
10.1
The lands owned by the Company was not revalued during the year under review. The lands and the revalued values are detailed in note no. 10.4. Carrying amount that would have been recognised had the assets been carried under the cost model is Rs. 296,883,476/-. Based on the assesment of potential impairment carried out internally for property, plant and equipment by the Board of Directors as at 31st March 2011, no provision was required to be made in the financial statements.
10.2 10.3
88

10.4 Details of the Estates hold by Company are given below;
Estate Name Ihalakanda Gomaragala Munihinkandha Panthiya Kalugalahena Footprint St Anthonys Kukulegaga Kent Seelani Rusigama Palawatta North Matale Leelajan Lev Grown Liyangama Footprint 02 Hartly Abangaga Salagama Pankatiya Lochnager 4 Palugedara Kandaketiya Soranatota Meegahakivula Burnside Makulugolyaya Aggalaulpatha Date of revaluation - During the period 1st March 2010 to 31st March 2010 The key assumptions made by the valuer are as follows: a. The land value per acre of the estates revalued, ranges from Rs 100,000/- to Rs 300,000/b. The land values are determined based on the locality, demand, supply and other factors applicable c. These lands are used for agriculture purposes Independent Valuer - Mr. R S Wijesuriya; Incorporate Valuer. 10.5 10.6 10.7 There were no capitalized borrowing costs related to the acquisition of property, plant & equipment during the year (2009/10 - nil). There were no items of property, plant & equipments retired from the active use as at 31st March 2011. There were no temporary idle items of property, plant & equipments as at 31st March 2011. No of Acres 68.86 67.42 47.00 117.97 34.89 45.35 43.26 40.00 29.54 75.13 23.5 33.34 57.06 46.42 26.00 70.50 39.54 45.31 108.13 26.00 48.24 15.80 87.99 47.00 99.00 25.00 50.00 32.00 36.00 Cost / Revaluation 13,772,000 20,448,000 9,400,000 35,400,000 6,105,750 8,756,000 10,815,000 10,057,500 7,385,000 22,557,000 4,700,000 9,999,000 9,766,750 6,963,000 2,600,000 10,489,000 6,856,000 6,796,500 32,439,000 9,185,000 7,236,000 2,500,000 8,411,488 4,557,000 7,359,149 4,292,510 7,000,000 5,000,000 5,000,000 Re-valued Value 2009 / 10 20,658,000 27,264,000 14,100,000 59,000,000 10,467,000 13,134,000 21,630,000 16,092,000 10,339,000 30,076,000 7,050,000 16,665,000 22,968,886 23,210,000 7,800,000 27,972,000 10,284,000 22,655,000 54,090,500 10,639,200 19,296,000 6,347,200 27,601,300 18,239,955 21,618,359 9,398,313 21,165,587 9,465,000 13,253,602
89
11.
INVESTMENTS
As at 31st March Investments in Subsidiary (Note 11.1) Other Investments 2011 Rs. 19,700,000 20,000,000 39,700,000 2010 Rs. 5,000,000 5,000,000
11.1
Investments in Subsidiaries
The Board of Directors have assesed the fair value of investment in Subsidiary based on the net assets attributable for the investment. No. of Shares Farm Grow (Private) Limited T wood Flooring (Private) Limited 500,000 1,470,000 % Holding 100% 49% 2011 Rs. 5,000,000 14,700,000 19,700,000 2010 Rs. 5,000,000 5,000,000
11.1.1 The Financial Statement of above companies have not been consolidated as at the Balance Sheet date in accordance with section
153 (6A) of the Companies Act No 07 of 2007 since there is no real value to the shareholders of the company due to the insignificant accounts involved. However, this basis will be reassessed on a timely basis in line with quarterly annual reporting to Colombo Stock Exchange. Operational results and financial position of these companies have been summarised below. 2011 Rs. 114,471,987 2,511,746 111,960,241 2010 Rs. 12,289,615 4,126,085 8,073,530
As at 31st March Total Revenue Total Assets Equity Total Liabilities
12.
LEASEHOLD RIGHT OVER BARE LAND

Cost Balance 01.04.2010 Rs. Leasehold Right to Bare Land 21,403,300 21,403,300 Additions During the Year Rs. Transfers During the Year Rs. (21,403,300) (21,403,300) Balance 31.03.2011 Rs. -
During the year Burnside Estate; which was held as leasehold right to bare land in the previous year was transferred to company own property.
90

13. MATURE TREES
As at 31st March Balance at the beginning of the year Fair Valuation Surplus during the year Balance at the end of the year 2011 Rs. 107,373,011 39,864,428 147,237,439 2010 Rs. 107,373,011 107,373,011
13.1
The mature trees considered as part of unplanned forestry in Ratnapura, Kalutara and Matale Districts having commercial exotic timber species such as Teak, Albizia, Jack, Halmilla, etc are ready for harvest, have been valued by Mr. L.B. Ariyathilake Independent Chartered Valuer on 24 June 2011 at an amount of Rs. 147,237,439. The resultant surpluses on re-valuation amounting to Rs.39,864,428/- has been recognised in to Income Statement for the financial year ended 31 March 2011. The key assumptions used for valuation of mature forestry trees are as follows; a. Based on the price list of State Timber Corporation and price timber logs & sawn timber in the popular furniture manufacturing areas of Sri Lanka. b. When considering the market price of the estimated out put of standing timber an average value of market prices were taken after deducting 10% of price for cost of harvesting and transportation.
14.
BIOLOGICAL ASSETS
As at 31st March Consumable Biological Assets (Mahogany) Bearer Biological Assets (Vanilla) Consumable Biological Assets (Sandalwood) Consumable Biological Assets (Teak) Note 14.1 Note 14.2 Note 14.3 Note 14.4 2011 Rs. 2,354,247,066 242,879,000 1,872,159,020 56,666,581 4,525,951,667 2010 Rs. 2,377,575,507 208,845,000 683,279,886 46,855,463 3,316,555,856
14.1
Consumable Biological Assets (Mahogany)

Carrying amount at beginning of the year Gain/(Loss) arising from changes in fair value less estimated Point of sales cost attributable to - Physical Change - Price Change 2,377,575,507 253,674,863 (277,003,304) (23,328,441) 2,354,247,066 2,046,091,179 432,339,237 (100,854,909) 331,484,328 2,377,575,507
Carrying amount at the end of the year
14.1.1 Planted-year wise analysis of Consumable Biological Assets (Mahogany)

Planted Year 2000 2001 2002 2003 2004 2005 No. of Trees Planted 4,058 13,573 18,576 51,104 32,063 56,641 Planted Year 2006 2007 2008 2009 2010 2011 Total No. of Trees Planted 41,026 7,246 459 4,133 228,879
91
As at 31st March
14. 14.2
BIOLOGICAL ASSETS (Contd.) Bearer Biological Assets (Vanilla)

As at 31st March Carrying amount at the beginning of the year Gain arising from changes in fair value less estimated Point of sales cost attributable to physical change Carrying amount at the end of the year 2011 Rs. 208,845,000 34,034,000 242,879,000 2010 Rs. 161,435,400 47,409,600 208,845,000
14.2.1 Planted-year wise analysis of Bearer Biological Assets (Vanilla)

Planted Year 2004 2005 2006 2007 No. of Vine Planted 7,108 7,380 25,196 Planted Year 2008 2009 2010 2011 Total No. of Vine Planted 2,992 3,397 25,362 71,435
14.3
Consumable Biological Assets (Sandalwood)

As at 31st March Carrying amount at beginning of the year Gain arising from fair value less estimated Point of sales cost. Carrying amount at the end of the year 2011 Rs. 683,279,886 1,188,879,134 1,872,159,020 2010 Rs. 433,248,284 250,031,602 683,279,886
14.3.1 Planted-year wise analysis of Consumable Biological Assets (Sandalwood)

Planted Year 2009 2010 2011 Total No. of Trees Planted 19,570 15,196 60,079 94,845
14.4
Consumable Biological Assets (Teak)

As at 31st March Carrying amount at beginning of the year Gain arising from fair value less estimated Point of sales cost Carrying amount at the end of the year 2011 Rs. 46,855,463 9,811,118 56,666,581 2010 Rs. 52,036,324 (5,180,861) 46,855,463
14.4.1 Planted-year wise analysis of Bearer Biological Assets (Teak)

Planted Year 2009 Total No. of Trees Planted 7,239 7,239
92

As at 31st March
14.
14.5
BIOLOGICAL ASSETS (Contd.)

The above biological Assets of the Company were valued by Mr. B. L. Ariyatillake, independent Chartered Valuer. Based on the Valuation Report dated 31st March 2011, the immature mahogany plantations are valued at Rs. 2,354,247,066/- (Rs.2,377,575,507/- in 2010), immature Vanilla vines are valued at Rs.242,879,000/- (Rs. 208,845,000/- in 2010), the immature Sandalwood plantations are valued Rs. 1,872,159,020/- (Rs. 683,279,886/- in 2010) and the immature Teak plantations are valued at Rs. 56,668,581/- (Rs.46,855,463/- in 2010) which included under note 14 to these Financial Statements.
14.5.1 Significant Assumptions Made by the Valuer

In assessing the fair value, the key assumptions made by the Valuer are as follows; (A) Consumable Biological Assets (Mahogany) Market value of a Tree Mahogany price is mainly obtained from International Market price of Mahogany Timber, State Timber Corporation and the Local Market in determining the value of mature tree. Cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature mahogany tree is assumed to be Rs.45,000/- (Rs. 50,000/- in 2010) for the purpose of valuation as at the Balance Sheet date. Determination of growth patterns In determining the growth patterns, the following assumptions have been made. a) Time period of maturity estimated at 18 years. b) An average mature tree would contain 0.9 (0.9 - in 2010) cubic meters of timber. c) Fully mature tree is expected to have an average height of 64 feet. d) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : silviculture of Mahogany 1998 J.E. Mayhew and A.C. Newton) adjusted to suit the local conditions. Discount Rate Discount Rate of 12.5% (12.5% in 2010) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuers. Maintenance Cost The on going cost of growing the trees has been deducted in determining the cash flow and on consistant in real terms. (B) Bearer Biological Assets (Vanilla) Market value of a Vine The Company has obtained the membership of the Kandy Vanilla Growers Association (KVGA) on 08th November 2009. The market price is mainly obtained from the Kandy Vanilla Growers Association and Export Agricultural Department. One Kilogram of Vanilla is assumed to be Rs.1,000/- (Rs.1,000/- in 2010) as at the Balance Sheet date. Determination of expected harvest patterns In determining the expected harvest patterns, the following assumptions have been made. a) Time period to obtain harvest is 4th year from date of planting. b) A mature vanilla vine would give a total harvest of 15Kg of harvest during its maturity. c) Value per immature vanilla vine is determined by considering expected harvest pattern of vine. Discount Rate Rate of return on capital is assumed to be 20%. (20% in 2010)
93
As at 31st March
14.
14.5

(Contd.)
14.5.1 Significant Assumptions Made by the Valuer (Contd.)

(C) Consumable Biological Assets (Sandalwood) Market value of a Tree Sandalwood price is mainly obtained from International Market price of Sandalwood (Source : Karnataka auction prices through our consultant Dr. Anantha Padmanabha) Timber Market in determining the value of mature tree. The estimated cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature Sandalwood tree is assumed to be Rs. 5,000/- per 1 kg (5000/- in 2010), for the purpose of valuation as at the Balance Sheet date. Determination of growth patterns In determining the growth patterns, the following assumptions have been made. a) Time period of maturity estimated at 16 years. b) A average mature tree would contain 25 kg of heart wood. c) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Sandalwood consultant Dr. Anantha Padmanabha) adjusted to suit the local conditions. d) Fully mature tree expected to have average girth (Root Collar) of 70 cm. Discount Rate Discount Rate of 12.5% (12.5% in 2010) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuer. Maintenance Cost The on going cost of growing the trees has been deducted in determining the cash flow and on consistant in real terms. (D) Consumable Biological Assets (Teak) Market value of a Tree Market price is mainly obtained from International Market price of Teak Timber, State Timber Corporation and the Local Market in determining the value of mature tree. Cost of sawing and other outgoings have been deducted to obtain the net value of sawn timber per mature tree. Value of a mature Teak tree is assumed to be Rs.56,000/- (Rs.56,000/- in 2010)for the purpose of valuation as at the Balance Sheet date. Determination of growth patterns In determining the growth patterns, the following assumptions have been made. a) Time period of maturity estimated at 18 years. b) A average mature tree would contain 0.7 cubic meters of timber. c) Fully mature tree is expected to have an average height of 70 feet. d) Growth pattern corresponding to relevant height is based on published international growth patterns (Source : Thai Orchid Laboratory) adjusted to suit the local conditions. Discount Rate Discount Rate of 12.5% (12.5% in 2010) is used as the rate of return on the capital. This rate is based on the current accepted rates of returns expected by investors and general rates used by the valuer. Maintenance Cost The on going cost of growing the trees has been deducted in determining the cash flow and on consistant in real terms.
94

As at 31st March
14.
14.5

(Contd.)
14.5.1 Significant Assumptions Made by the Valuer (Contd.)

Sensitivity Analysis - Mahogany, Sandalwood and Teak Discounting Rate 16.50% 14.50% 13.00% 12.50% 12.00% 10.50% 8.50% Changes in Discounting Rate +4% +2% +0.5% 0% -0.5% -2% -4% Impact to Net Assets 1,300,351,017 2,013,677,517 2,683,892,632 2,938,283,886 3,210,101,817 4,143,656,013 5,724,478,329 Profit (1,280,931,902) (567,605,402) 102,609,713 357,000,967 628,818,898 1,562,373,094 3,143,195,410
The sensitivity analysis explains the sensitivity of the Mahogany, Sandalwood and Teak fair value to the discounting factor. However the discounting rate of 12.5% has been used for the mahogany, Sandalwood and Teak biological asset valuation during the year. 14.6 The Mahogany trees included in the biological asset valuation are only those trees, which the company maintain in order to meet the obligation arising from the purchase back guarantee agreement it has with the client. This included the trees in clients plots as well as company stock. Trees on which there is no purchase back guarantee is shown under Note 24.3. 2011 Rs. 2010 Rs.
15.
INVENTORIES
Sandalwood - Nurseries Sandalwood - Stock Jatropha - Nurseries Vanilla Process Bean Stock Plantation Stock 807,460 100,000 4,245,387 3,045,000 911,317 9,109,164 1,098,360 1,196,321 3,045,000 5,339,681
95
As at 31st March
2011 Rs.
2010 Rs.
16.
TRADE AND OTHER RECEIVABLES

Prepayments & Advances Loans Against Preference Shares Project Costs Staff Loans (Note 16.1) ESC Receivable WHT Receivable Other Receivable (Note 16.2) 26,322,606 2,737,670 13,785,668 267,951 1,053,098 3,629,674 15,339,185 63,135,852 8,640,580 2,760,265 28,185 836,988 1,199,144 13,465,162
16.1
Staff Loans
Balance at the beginning of the year Loans granted during the year Loans settled during the year Loans written off Balance at the end of the year 28,185 456,772 484,957 (217,006) 267,951 678,227 95,000 773,227 (745,042) 28,185
16.2
Other Receivables
Interest Receivable Salary Advances Deferred Revenue Expenses against Loan Sales Sundry Advance Proceeds Receivable from Disposal of PPE Corporate Credit Card Other 3,440,587 136,011 3,715,762 5,260,779 2,670,000 116,046 15,339,185 234,787 206,177 680,007 28,173 50,000 1,199,144
17.
AMOUNTS DUE FROM RELATED PARTIES

Touchwood (Pvt) Ltd Farm Grow (Pvt) Ltd T wood Flooring (Pvt) Ltd Green Forestry Ventures (Pvt) Ltd 1,141,643 14,841,392 95,077,020 66,950 111,127,005 817,400 8,063,530 91,950 8,972,880
18.
CASH AND CASH EQUIVALENTS

Favourable Balances Cash in Hand Cash at Bank Short Term Deposits Unfavourable Balance Bank Overdrafts used for cash management purposes Cash and Cash Equivalents for the purpose of Cash Flow Statement 617,826 19,855,828 351,108,601 371,582,255 371,582,255 592,985 19,340,121 9,285,012 29,218,118 (11,875,491) 17,342,627
96

As at 31st March 2011 2010
19
STATED CAPITAL
Ordinary Shares (Note 19.1) No. of Shares (Note 19.2) 623,616,000 71,270,400 89,088,000 8,908,800
19.1
Movement in Stated Capital

At the Beginning of the Year Issued During the Year (8,908,800 voting shares at Rs. 60/- each) 89,088,000 534,528,000 623,616,000 89,088,000 89,088,000
19.2
Movement in No. of Shares

At the Beginning of the Year Issued During the Year Number of Shares in Issue before Subdivision 1:4 Subdivision of Shares 8,908,800 8,908,800 17,817,600 53,452,800 71,270,400 8,908,800 8,908,800 8,908,800
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the company. All shares rank equally with regard to the companys residual assets.
19.3
Rights Issue
The Board of Directors of the Company at a meeting held on 23rd April 2010 resolved to recommend rights issue to the shareholders for the existing 8,908,000 ordinary shares of the Company by obtaining shareholders approval at an Extra Ordinary General Meeting held on 14th May 2010. Upon the aforesaid rights issue, the resulting number of shares reported as 17,817,600 and the issue price of one share was Rs. 60. Shareholders in effect received one share for every one share held by them. All the shares have been subscribed to by the shareholders.
19.4.
Sub Division of Shares

The Board of Directors of the Company at a meeting held on 22nd June 2010 resolved to recommend to the shareholders sub-division (splitting) of the existing 17,817,600 ordinary shares of the Company by obtaining shareholders approval at an Extra Ordinary General Meeting held on 09th July 2010, without any change to the Stated Capital of the Company. Upon the aforesaid sub-division, the resulting number of shares reported as 71,270,400. Shareholders in effect received four shares for every one share held by them.
20.
REVALUATION RESERVE
The revaluation reserves comprises of the gain arisen from revaluing lands. This reserve is realized upon the disposal of the revalued lands.
21.
CAPITAL RESERVE
Rs. 346,500,928/- (2010 - Rs. 312,961,352) has been transferred to the Capital Reserve during the year. This reserve comprises unrealized gains arising from the fair value of the biological assets net of purchase back guarantee. This is not used for distribution of profits until it is realized in cash.
22.
PREFERENCE SHARE REDEMPTION RESERVE

Profits have been retained in order to utilize for redemption of preference shares at an agreed premium.
97
23.
PREFERENCE SHARE CAPITAL

As at 31st March Called up amount at the beginning of the year (3,040 Non-Voting, Redeemable, Cumulative Preference Shares) Calls in arrears (Note 23.1) Balance at year end (3,040 Non-Voting, Redeemable, Cumulative Preference Shares) 2011 Rs. 30,400,000 (2,463,272) 27,936,728 2010 Rs. 30,400,000 (2,480,272) 27,919,728
The preference shares were issued on 3rd July 2003, at a redemption premium of Rs. 196,500/-, which is payable together with 1% annual dividend. These Preference Shares will be redeemed at the end of the 18th year from the date of allotment.
23.1
Call In Arrears
As at 31st March Balance at the beginning of the year Received during the year Balance at the end of the year 2011 Rs. 2,480,272 (17,000) 2,463,272 2010 Rs. 2,482,272 (2,000) 2,480,272
Security The company has planted one Mahogany tree for each Preference Shares issued and sold. Trees were planted in Panthiya Estate. These trees have been valued at its fair value and included in the value of Biological assets. As at 31st March 2011 Rs. 1,651,693,859 862,894,883 (13,126,381) 2,501,462,361 2010 Rs. 1,349,582,697 310,783,318 (8,672,156) 1,651,693,859
24.
PROVISION FOR PURCHASE BACK GUARANTEE

Provision at the beginning of the year Provision made during the year (Note 24.2) Payment of Vanilla return Provision at the end of the year
24.1
No cash back guarantees has been offered in respect of tree sale agreements executed during the year. However volume guaranteed have been given and disclosed below. Product Mahogany Vanilla Sandalwood Sandalwood & Vanilla Total No of Contracts 82 287 5 374 Current Year No of Volume guarantee Trees/Vines Given (Cu.ft/kg) 22,625 5,268 4,200 32,093 172,900 131,700 10,650 315,250 No of Contracts 120 99 1,096 10 1,325 Year todate No of Volume guarantee Trees/Vines Given (Cu.ft/kg) 2,349 45,175 34,177 4,200 85,901 46,980 206,160 854,425 29,820 1,137,385
24.2
As per the purchase back guarantee agreement, the Company has the right to terminate the contract and pay only 50% of the initial agreed guarantee until 2002/03 and 33.33% there after, if 3 or more instalments are in arrears. Therefore the above provision has been made based on performing purchase back guarantee agreements. The above provision for purchase back guarantee has been arrived after discounting following actual guaranties (payable at maturity) given after considering the expected maintenance income receivable, using a cost of capital relevant to each contracts varying from 18% to 34%. (IRR) Total Purchase Back Guarantees payable at maturity; 2011 Rs. 21,934,900,000 1,302,200,000 236,496,338 23,473,596,338
24.3
Mahogany Sandalwood Vanilla Total Guarantee Given
98

2011 Rs. 2010 Rs.
As at 31st March
25.
DEBENTURES
Balance at the beginning of the year Redeemed During the year Redeemed During the year Accrued Interest 13,645,000 (55,000) 13,590,000 27,310,383 40,900,383 13,720,000 (75,000) 13,645,000 21,478,210 35,123,210
The Company has issued 2,744, secured, redeemable, unlisted cumulative debentures. These debentures are redeemable on or after 18 years from the allotted date at an interest rate of 17% per annum. The interest on debentures will be paid after maturity of 18 years. The issue opened on 17th March 2003 and will be closed on the day the issue is fully subscribed. Security The company has planted one Mahogany tree for each debenture issued and sold. Trees were planted in Rusigama Estate. These trees have been valued at its fair value and included in the value of Biological assets. 2011 Rs. 2010 Rs.
As at 31st March
26.
RETIREMENT BENEFIT OBLIGATION - GRATUITY

Balance at the beginning of the Year Provision made during the Year (Note 26.1) Payments made during the Year Balance at the end of the Year 2,754,096 3,748,478 (619,141) 5,883,433 2,046,951 1,069,486 (362,341) 2,754,096
An Actuarial Valuation of the retirement benefit obligation was carried out as at 31st March 2011 by Actuarial & Management Consultants (Pvt) Ltd. The Valuation method used by the actuaries to value the benefit is the Projected Unit Credit Method, the method recommended by the Sri Lanka Accounting Standard No.16 (Revised 2006),Employee Benefits.
26.1
Expense recognised in Profit or Loss

As at 31st March Current Service Costs Interest on Obligations Recognition of Transitional Asset Expected (return)/outgoing on plan assets 2011 Rs. 3,748,478 3,748,478 2010 Rs. 763,980 292,700 12,806 1,069,486
26.2
The Key Assumptions used by the Actuary include the followings;

Rate of Interest Rate of Increase of Salaries 10.0% (Per Annum) 10.0% (Per Annum) 10.0% (Per Annum)
26.2.1 Financial Assumptions Executives Non Executives
26.2.2 Demographic Assumptions In addition to the above financial assumptions, demographic assumptions such as mortality, withdrawal, disability and retirement age were considered for the actual valuation. A 67/70 mortality table issued by Institute of Actuaries, London was used to estimate the gratuity liability of the company. Retirement- Age The Company will continue as a going concern. Male/Female 55
99
2011 As at 31st March Rs.
2010 (Restated) Rs.
27
DEFERRED TAX LIABILITIES

Balance at the beginning of the year Effect on Restatement Restated Balance Provision made during the year 177,081,816 177,081,816 39,811,284 216,893,100 184,462 134,322,849 134,507,311 42,574,505 177,081,816
27.1
Recognised Deferred Tax Assets & Liabilities

As at 31st March Deferred tax assets and liabilities are attributable to the following originations of temporary differences; Taxable / (Deductible) Temporary Differences Biological Assets Mature Tree Property, Plant and Equipment Purchase Back Guarantee Retirement Benefit Obligation Applicable Tax Rate Net Deferred Tax Liabilities 2011 Rs. 2010 Rs.
4,525,951,667 147,237,439 3,087,683 (2,501,462,361) (5,883,433) 2,168,930,995 10% 216,893,100
3,316,555,856 107,373,011 1,337,248 (1,651,693,858) (2,754,096) 1,770,818,161 10% 177,081,816
Future Applicable Tax Rate As per the tax consultants opinion, profits derived by the Company from its normal course of business may be considered as profits derived from Agriculture and would be liable for income tax at the rate of 10% commencing from the year of assessment 01 April 2011. Accordingly, tax rate of 10% has been considered as future enacted tax rate for the purpose of deferred taxation.
28.
DEFERRED REVENUE ON ANNUAL MAINTENANCE CHARGES

As at 31st March Balance at the beginning of the year Payments received in advance during the year Less: Amortised during the year Balance at the end of the year 2011 Rs. 24,612,392 25,009,439 (2,276,532) 47,345,299 2010 Rs. 11,250,797 15,222,746 (1,861,151) 24,612,392
29.
PREFERENCE SHARE DIVIDENDS PAYABLE

Balance at the beginning of the year Appropriated during the year 1,910,619 304,000 2,214,619 1,606,619 304,000 1,910,619
100

2011 Rs. 32,637,403 171,960,980 (179,503,190) 25,095,193 2010 Rs. 28,100,361 237,437,304 (232,900,262) 32,637,403
As at 31st March
30.
RESERVATION & ESTABLISHMENT FEE ADVANCE

Balance at the beginning of the year Advance received during the year Transferred to revenue during the year Balance at the end of the year
31.
AMOUNTS DUE TO RELATED PARTIES

Touchwood Ltd. Touchwood Asia Co. Ltd 11,424,046 7,724,358 19,148,404 7,035,489 9,541,232 16,576,721
32.
INTEREST BEARING BORROWINGS

Payable after one year Long Term Loan (32.1) Lease Creditor (32.3) Payable within one year Short Term Loan (32.2) Lease Creditor (32.3) 22,631,238 22,631,238 7,198,732 7,198,732 1,500,000 3,293,125 4,793,125 3,719,782 1,546,802 5,266,584
32.1
Long Term Loan

Balance at the beginning of the Year Loans obtained during the year Re-payments made during the year Interest payable Payable within one year Payable after one year 1,500,000 (1,500,000) 1,500,000 1,500,000 1,500,000
32.2
Short Term Loan

Balance at the beginning of the Year Loans obtained during the year Re-payments made during the year Interest payable Payable within one year 3,719,782 (3,719,782) 36,771,374 10,000,000 (48,520,218) 5,468,626 3,719,782 3,719,782
32.3
Lease Liability
Balance at the beginning of the year Leases obtained during the year Re-payments made during the year Interest in suspense Rental Payable within one year Rental Payable for 1 - 5 Years 7,067,073 42,189,408 (7,831,803) 41,424,678 (11,594,708) 29,829,970 7,198,732 22,631,238 9,978,407 (2,911,334) 7,067,073 (2,227,146) 4,839,927 1,546,802 3,293,125
33.
TRADE AND OTHER PAYABLES

Salaries and Incentives Payable Creditors & Accrued Expenses Other Payables 5,086,289 10,362,717 20,949,740 36,398,746 5,202,367 8,691,976 5,109,290 19,003,633
101
34.
RELATED PARTY DISCLOSURES

The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 30 Related Party Disclosures (Revised 2005), the details of which are reported below. The Pricing applicable to such transactions is based on the assessment of the risk and pricing model of the Company and is comparable with what is applied to transactions between the Company and its unrelated Customers.
34.1
Related Party Transactions

Name of the Company Touchwood Limited Nature of Relationship Cross Holding Name of Common Directors Mr. R. A. Maloney Mrs. J. G. S. Maloney Mr. S.P.A. Koralage Mr. R. A. Maloney Mrs. J. G. S. Maloney Mr. S.P.A. Koralage Mr. R. A. Maloney Mrs. J. G. S. Maloney Mr. S.P.A. Koralage Nature of transactions Agarwood Annual Fee Commission on Foreign sales Payments made TIL Product Sales Payments for Expenses Amount Received/ (Charged) Rs. 18,050,509 (210,667) (12,653,634) (797,650) 324,243
Touchwood (Pvt) Limited
Subsidiary
Twood Flooring (Pvt) Ltd
Associate
Loan Payments for Expenses Interest on Loan Share Purchases Cash Receipts Technical fees Payments made
(88,000,000) (14,899,241) (7,000,000) 14,700,000 122,221 (1,344,560) (3,161,434)
Touchwood Asia Limited
Cross Holding
Mr. R. A. Maloney Mrs. J. G. S. Maloney Mr. S.P.A. Koralage Mr. S.P.A. Koralage Mr. Channa Abeygunawardene
Farm Grow (Private) Limited
Subsidiary
Expense on Buildings Capital Expenses over Land Audit Fee Sale of Trees Cash Receipts
(752,837) (6,015,025) (10,000) 17,325,000 25,000
Green Forestry Ventures (Pvt) Limited
Joint Venture
Mr. Channa Abeygunawardene
Note No. 34.1 Related Party Transactions should be read in conjunction with Note No. 17 Amount due from related parties and Note No. 31 Amount due to related parties.
34.2
Transactions With Key Management Personnel

According to Sri Lanka Accounting Standard 30 (Revised 2005) Related Party Disclosures, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including executive and non-executive Directors) and their immediate family member have been classified as Key Management Personnel of the Company. The immediate family member is defined as spouse or dependent. Dependent is defined as anyone who depends on the respective Director for more than 50% of his/her financial needs. Company has paid fees for Directors during the year amounting to Rs. 20,000/-. (2009/10 - Nil) Emoluments / Benefits paid to Key Management Personnel during the year 2010/11 amounted to Rs. 23,424,637/-. (2009/10 - Rs. 3,750,000/-) Company has not incurred any amount as Termination benefits or Post Employment benefits on account of the key management personnel during the year. Company has not provided loans, advances or other credit facilities in the names of key management personnel as at 31.03.2011. In addition to the above the Company has not provided any benefits and facilities to key management personnel during the year.
34.3
There are no related party transactions those require specified disclosure in accordance with the continuing listing requirements of Colombo Stock Exchange.
102

35. COMMITMENT AND CONTINGENCIES
SLAASMB Case The Judgment to CA (Writ) 323/2007 filed against SLAASMB (Sri Lanka Accounting and Auditing Standard Monitoring Board) was delivered in favor of the petitioner, Touchwood Investments PLC on the 25th of January 2010. SLAASMB has filed for leave to appeal the Judgment given by the Court of Appeal in the Supreme Court on the 8th of March 2010 (SC SPL Leave to Appeal No 42/10) Appeal No.42/10. This case was last taken up for hearing on the 18th of July 2011 before a three Judge Bench. Oral submissions were made by the Eminent Lawyers of the respective parties and at the end of the hearing the Bench requested both parties to tender their written submissions within six weeks. The next hearing was fixed for the 2nd of December 2011. Minimum Reserve Price for Agarwood Company promotes Agarwood Trees and has agreed a minimum reserve price of Rs. 36 mn (Thai Bath 9.9 mn) on behalf of Touchwood Ltd. Volume Guarantee There are no material capital commitments and contingent liabilities outstanding as at the Balance Sheet date other than volume back guarantees given by the company as disclosed in Note No. 24.1.
36.
EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

No circumstances have arisen since the balance sheet date which would require adjustments to, or disclosure in the financial statements.
103
Investor Information
SHARE DISTRIBUTION
SHAREHOLDING AS AT 31ST MARCH 2011 From 1 1,001 10,001 100,001 Over 1,000,000 To 1,000 10,00 100,000 1,000,000 No of Holders 3,071 2,845 782 59 05 6,762 No of Shares 1,632,187 11,024,174 20,646,743 14,143,764 23,823,532 71,270,400 % 2.29 15.47 28.97 19.85 33.43 100.00
CATEGORIES OF SHAREHOLDERS
Local Individuals Local Institutions Foreign Individuals Foreign Institutions 6,530 194 29 9 6,762 54,452,966 9,495,402 1,561,540 5,760,492 71,270,400 76.40 13.32 2.19 8.08 100.00
DIRECTORS SHAREHOLDING AS AT 31ST MARCH 2011

Mr. R A Maloney Mrs. S J Maloney Mr. S P A Koralage Mr. C Abeygunawardene Mr. R Crowley (Alternate Director to Mr. R A Maloney) Mr. P Herath (Alternate Director to Mr. S P A Koralage) Mr. J Olaboduwa (Alternate Director to Mr. C Abeygunawardene) 11,664,000 6,409,600 496,000 -Nil- Nil- Nil- Nil-
SHARE PRICES FOR THE YEAR

As at 31/03/2011 Market price per share Highest during the year Lowest during the year As at end of the year Rs. 141.25 (21.04.10) Rs. 21.50 (16.07.10) Rs. 23.50 Rs. 165.00 Rs. 49.25 Rs. 104.75 As at 31/03/2010
104
20 Largest Shareholders
No. of Shares 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Mr. R A Maloney Mrs. S J Maloney Touchwood Limited HSBC International Nominees Ltd-SSBT-Deustche Bank Seylan Bank PLC/Jayantha Dewage Pan Asia Banking Corporations PLC/Nuwara Eliya Property Developers (Pvt) Ltd Pan Asia Banking Corporations PLC/Mr. S Gobinath Mellon Bank N A Acadian Frontier Markets Equity Fund Mr. S S Abhayawickrama Mr. S P A Koralage Prime Homes International Multiform Chemicals Limited Mr. M T T Al-Nakib Merchant Bank of Sri Lanka Limited/Union Investments Ltd Pan Asia Banking Corporation PLC/Mr. Ravindra Erle Rambukwelle Mr. T L M Imtiaz Gulf East Finance Limited Pan Asia Banking Corporation PLC/Mr. A S R Silva Mr. R Gautam Mr. C K Sangakkara Sub Total Others Grand Total 11,664,000 6,409,600 2,528,000 1,889,500 1,332,432 894,280 695,000 644,000 531,200 496,000 425,500 420,000 400,000 400,000 384,600 378,700 375,000 358,600 330,500 310,000 30,866,912 40,403,488 71,270,400 % 16.366 8.993 3.547 2.651 1.870 1.255 0.975 0.904 0.745 0.696 0.597 0.589 0.561 0.561 0.540 0.531 0.526 0.503 0.464 0.435 43.310 56.690 100.000
105
Notice of Meeting
NOTICE IS HEREBY GIVEN that the Twelvth Annual General Meeting of the Company will be held on Firday, 30th September, 2011 at 9.30 a.m. at the Albatross, Waters Edge, 316, Ethul Kotte Road, Battaramulla for the following purposes. 1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March 2011 with the Report of the Auditors thereon. To re-elect as a Director, Mr. Swamy Pandith Asitha Koralage who retires by rotation in terms of Article 91 of the Articles of Association of the Company. To re-elect as a Director, Mr. L L Kulatunga, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. As Mr L L Kulatunga, is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see note 4 below) 4. To re-elect as a Director, Mr. Aloysius Ralph Perera, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. As Mr. Aloysius Ralph Perera, is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see note 5 below) 5. To re-appoint as auditors M/s, KPMG Ford Rhodes Thornton & Company at a remuneration to be fixed by the Directors. NOTES: 1. A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A proxy need not be a member of the Company. 2. The completed Form of Proxy should be deposited at the registered office of the Company, Level 2, NO. 10, Prince Alfred Tower, Alfred House Gardens Colombo 03 not later than 9.30 a.m. 28th September, 2011. A Form of Proxy accompanies this Notice. Special Notice was received by the Company from a shareholder of the Company giving Notice of intention to move the following Resolution at the above Annual General Meeting: Resolved that Mr. L L Kulatunga, who is over 70 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act. No. 07 of 2007 shall not apply to the said Director. 5. Special Notice was received by the Company from a shareholder of the Company giving Notice of intention to move the following Resolution at the above Annual General Meeting: Resolved that Mr. Aloysius Ralph Perera, who is over 70 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act. No. 07 of 2007 shall not apply to the said Director.
2.
3. 4.
3.
BY ORDER OF THE BOARD TOUCHWOOD INVESTMENTS PLC
Sgd. Illegibly. CORPORATE ADVISORY SERVICES (PVT) LTD Secretaries 15th August 2011
106
Notes
107
Form of Proxy
I/We of being a member/members of the above named Company hereby appoint of .. whom failing Roscoe Anthony Maloney Swarna Maloney Swamy Pandith Asitha Koralage Channa Abeygunawardene Liyanage Laksaman Kulatunga Aloysius Ralph Perera of Colombo of Colombo of Colombo of Colombo of Colombo of Colombo or failing him or failing her or failing him or failing him or failing him or failing him
Mr./Mrs./Miss. of ... as my/our proxy to represent me/us and vote on my/our behalf at the 12th Annual General Meeting of the Company to be held on 30th September 2011, at 9.30 a.m. and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting. FOR 1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March 2011 with the Report of the Auditors thereon. 2. To re-elect as a Director, Mr. Swamy Pandith Asitha Koralage who retires by rotation in terms of Article 91 of the Articles of Association of the Company. 3. To re-elect as a Director, Mr. L L Kulatunga, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. 4. To re-elect as a Director, Mr. Aloysius Ralph Perera, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. 5. To re-appoint as auditors M/s, KPMG Ford Rhodes Thornton & Company at a remuneration to be fixed by the Directors. AGAINST
Signed this day of . 2011.
.. Signature
NOTES: 1. A proxy need not be a member of the Company. 2. If you wish your proxy to speak at the Meeting you should insert the words and to speak immediately before the words and Vote in the place indicated with an asterix (*) and initial such insertion 3. Instruction as to completion appear on the reverse hereof.
108
INSTRUCTIONS AS TO COMPLETION 1. Please return the completed Form of Proxy after filing in legibly your full name and address, signing on the space provided and filing in the date of signature. 2. The completed Form of Proxy should be deposited at the registered office of the Company, Level 2, NO. 10, Prince Alfred Tower, Alfred House Gardens Colombo 03 not less than 48 hours before the time appointed for the holding of the Meeting.

Tochwood 78

Загружено:

Сведения о документе

Исходное описание:

Оригинальное название

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Tochwood 78

Загружено:

Авторское право:

Доступные форматы

OUR VISION

To help stop the destruction of our rainforests

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

National Quality Circle Award

of Tree Buffer Stock

downstream processing facilities

by the Chartered Institute of Accountants

Planted 150,000 trees

Five Year Financial Summary

623,616 (199,144) 2,890,362 Rs.

89,088 (194,813) 1,958,526 Rs. 104.75 229.75 -

89,088 (25,645) 1,452,250 Rs. 50.50 182.36 -

89,088 (11,724) 1,171,518 Rs. 90.25 153.87 -

89,088 26,075 1,011,942 Rs. 56.00 122.03 0.50

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

The Touchwood Plantations

Climate Average annual temperature : 22 - 33 C

Land Extent Acres 108

300 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C

Mahogany & Vanilla

300 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 22 - 33 C

Mahogany & Vanilla

300 m Annual rainfall : 2200 mm - 2900 mm Average annual temperature : 24 - 34 C

Lower Ley Grow

500 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 24 - 34 C

250 m Annual rainfall : 1500 mm - 2500 mm Average annual temperature : 18 - 34 C

Sandalwood & Teak

1000 m Annual rainfall : 2000mm - 2500mm Average annual temperature : 18 - 34 C

1000 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 18 - 34 C

1000 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 23 - 34 C

900 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 25 - 34 C

1000 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 25 - 34 C

950 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 25 - 34 C

950 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 26 - 37 C

150 m Annual rainfall : 1900 mm - 2400 mm Average annual temperature : 27C

1000 m Annual rainfall : 2000 mm - 2500 mm Average annual temperature : 30 - 37 C

110 m Annual rainfall : 1200 mm - 1800 mm

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

If a tree dies, plant another in its place.

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

Sgd. Roscoe A. Maloney Chairman 15th August 2011

Deputy Chairmans Statement

The need of the hour is sustainable business

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

Deputy Chairmans Statement

The power of the Touchwood proposition

Strategy of value addition

Sgd. Asitha Koralage Deputy Chairman 15th August 2011

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

Chief Executive Officers Review

TOUCHWOOD INVESTMENTS PLC

ANNUAL REPORT 2010/11

Chief Executive Officers Review

Sgd. Channa Abeygunawardene Chief Executive Officer 15th August 2011

Ryan Crowley Alternate Director

Janath Olaboduwa Alternate Director