Annual Audited Financial Statements as of 31st March 2025

Tea Smallholder Factories PLC

We have audited the financial statements of Tea Smallholder Factories PLC (the Company), which comprise the Statement of Financial Position as at 31 March 2025, and the, Income Statement, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows for the year then ended, and notes to the financial statements, including material accounting policy information.

In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Company as at 31 March 2025 and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements of the current period. These matters were addressed in the context of the audit of the financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

(Contd.../2)

(Contd.../3)

Other information included in the Company's 2024/2025 Annual Report

Other information consists of the information included in the Annual Report, other than the financial statements and our auditor's report thereon. The Management is responsible for the other information.

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

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

Responsibilities of management and Those Charged with Governance for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

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

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

  (Contd.../4)

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

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

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

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

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

Report on other legal and regulatory requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor's report is 2097.

27 May 2025

Colombo

Figures in brackets indicate deductions.

The Accounting Policies and Notes as set out on pages 11 to 46 form an integral part of these financial statements.

Figures in brackets indicate deductions.

The Accounting Policies and Notes as set out on pages 11 to 46 form an integral part of these financial statements.

I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007.

Sisira Pushpakumara Head of Finance

The Board of Directors is responsible for these financial statements.

P. H. S. Uluwaduge Anusha S. Perera

Chairman Executive Director

The Accounting Policies and Notes as set out on pages 11 to 46 form an integral part of these financial statements.

27 May 2025

Colombo

As at 31st March

The Accounting Policies and Notes as set out on pages 11 to 46 form an integral part of these financial statements.

Cash and cash equivalents in the statement of financial position comprise cash at banks and in hand and short-term deposits with a maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.

Figures in brackets indicate deductions.

The Accounting Policies and Notes as set out on pages 11 to 46 form an integral part of these financial statements.

1. Corporate Information

   Basis of Preparation And Material Accounting Policies

2. Basis of preparation

3. Summary of material accounting policies

4. Changes in Accounting Standards

   Business, Operations And Management

5. Operating segment information

6. Financial risk management objectives and policies

7. Fair value measurements and disclosures

8. Financial instruments and related policies

   Notes To Income Statement, Statement Of Comprehensive Income And Statement Of Financial Position

9. Revenue

10. Other income

11. Management Fees

12. Finance Income and Finance Costs

13. Profit before tax

14. Earnings per share

15. Dividend per share

16. Taxes

17. Property, plant and equipment

18. Right of use Assets

19. Investment property

20. Intangible assets

21. Other non-current financial assets

22. Other non-current assets

23. Inventories

24. Trade and other receivables

25. Other current assets

26. Cash in hand and at Bank

27. Stated Capital

28. Revaluation Reserve

29. Revenue Reserves

30. Employee Benefit Liabilities

31. Other Deferred Liabilities

32. Trade and other payables

33. Related party transactions

34. Other current liabilities

35. Bank overdraft

    Other Disclosures

36. Contingent liabilities

37. Capital and other commitments

38. Assets pledged as security

39. Events after the reporting period

For the year ended 31st March

1. Corporate Information

   Reporting Entity

   Tea Smallholder Factories PLC is a public limited liability Company incorporated and domiciled in Sri Lanka, under the Companies Act No. 17 of 1982 (The Company was re-registered under the Companies Act No. 07 of 2007) in terms of the provisions of the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act No. 23 of 1987.

   The registered office and principal place of business of the company is located at No. 186, Vauxhall Street, Colombo 02. Factories are situated in the districts of Galle, Ratnapura and Nuwara Eliya. Ordinary shares of the Company are listed on the Colombo Stock Exchange.

   Approval of Financial Statements

   The financial statements for the year ended 31 March 2025 were authorized for issue by the Board of Directors on 27th May 2025.

   Principal Activities and Nature of Operations

   The principal activity of the Company is processing green leaf and sale of processed black tea.

   There were no significant changes in the nature of the principal activities of the company during the financial year under review.

   Responsibility for financial statements

   The responsibility of the Board of Directors in relation to the financial statements is set out in the Statement of Directors' Responsibility report in the Annual report.

   Holding Company

   As at 31st March 2025, the parent company of the entity was John Keells Holdings PLC, which manages a portfolio of holdings consisting of a range of diverse business operations that together constitute the John Keells Group, and provides function-based services to its subsidiaries and associates. On 3rd April 2025, Udapussellawa Plantations PLC acquired 11,276,839 ordinary voting shares in Tea Smallholder Factories PLC which is the stake of John Keells Holdings PLC, representing approximately 37.59% of the total issued ordinary shares of the company, at a consideration of Rs. 35.00 per share. In accordance with the requirements of the Takeovers and Mergers Code of 1995 (as amended in 2003), Udapussellawa Plantations PLC has subsequently made a mandatory offer to acquire the remaining 18,723,161 ordinary voting shares, representing 62.41% of the issued share capital of Tea Smallholder Factories PLC.

   BASIS OF PREPARATION AND OTHER MATERIAL ACCOUNTING POLICIES
2. Basis of Preparation

   The financial statements have been prepared on an accrual basis and under the historical cost convention except for investment properties, land and buildings and plant and machinery that have been measured at fair value.

   Statement of Compliance

   The financial statements which comprise the income statement, statement of comprehensive income, statement of financial position, statement of changes in equity and the statement of cash flow, together with the accounting policies and notes (the "financial statements") have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS / LKAS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the requirement of the Companies Act No. 7 of 2007.

   Presentation and Functional Currency

   The financial statements are presented in Sri Lankan Rupees, the Company's functional and presentation currency, which is the primary economic environment in which the Company operates.

   Comparative Information

   Except when a standard permits or requires otherwise, comparative information is disclosed in respect of the previous period. Where the presentation or classification of items in the Financial Statements are amended, comparative amounts are reclassified unless it is impractical.

   NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

   For the year ended 31st March

3. Summary of Material Accounting Policies

   Summary of material accounting policies have been disclosed along with the relevant individual notes in the subsequent pages of the financial statements. Those accounting policies presented with each note, have been applied consistently by the Company.

   Other Material Accounting Policies Not Covered with Individual Notes to the Financial Statements

   Following accounting policies which have been applied consistently and are considered to be significant but not covered in any other sections.

   Going Concern

   The Company has prepared the financial statements for the year ended 31 March 2025 on the basis that it will continue to operate as a going concern.

   Based on available information, the management has assessed prevailing macroeconomic conditions and its effect on the Company in determining the going concern basis for preparation of financial statements. The management has formed judgment that the Company has adequate resources to continue in operational existence for the foreseeable future driven by the continuous operationalisation of risk mitigation initiatives and monitoring of business continuity and response plans at each business unit level along with the financial strength of the Company.

   In determining the above, significant management judgement, estimates and assumptions, the impact of the macroeconomic uncertainties, including exchange rate volatilities, supply chain disruptions and interest rate volatilities have been considered as of the reporting date and specific considerations have been disclosed under the notes, as relevant.

   Current versus Non-Current Classification

   The Company presents assets and liabilities in the statement of financial position based on current and non-current classification. An asset is classified as a current assets when it is:

   ³ Expected to be realised or intended to be sold or consumed in the normal operating cycle

   ³ Held primarily for the purpose of trading

   ³ Expected to be realised within twelve months after the reporting period, or

   ³ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

   All other assets are classified as non-current assets. A liability is classified as a current liability when:

   ³ It is expected to be settled in the normal operating cycle

   ³ It is held primary for the purpose of trading

   ³ It is due to be settled within twelve months after the reporting period, or

   ³ It does not have a right at the reporting date to defer the settlement of the liability for at least twelve months after the reporting period.

   The Company classifies all other liabilities as non-current liabilities.

   Deferred tax assets and liabilities are classified as non-current assets and liabilities accordingly.

   1. Significant Accounting Judgements, Estimates and Assumptions

      The preparation of the financial statements of the Company require the management to make judgments, estimates and assumptions, which may affect the amounts of income, expenditure, assets, liabilities and the disclosure of contingent liabilities, at the end of the reporting period.

      Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. In the process of applying the Company's accounting policies, management has made various judgements. Those which management has assessed to have the most significant effect on the amounts recognised in the financial statements have been discussed in the individual notes of the related financial statement line items.

      NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

      For the year ended 31st March

      1. Significant Accounting Judgements, Estimates and Assumptions (Continued)

         The line items which have most significant effect on accounting, judgements, estimate and assumptions are as follows;

         1. Going concern Note 3

         2. Valuation of property, plant and

            equipment and investment property Note 17 and Note 19

         3. Impairment of goodwill Note 20

         4. Taxes Note 16

         5. Employee benefit liability Note 30

         6. Provision for expected credit

      losses of trade receivables Note 6.1.3

4. Amendments to Existing Accounting Standards
   1. Changes in accounting standards

      The following amendments and improvements do not expect to have a significant impact on the Company's financial statements.

      ³ Amendments to LKAS 1: Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants

      ³ Amendments to SLFRS 16: Lease Liability in a Sale and Leaseback

      ³ Amendments to LKAS 7 and SLFRS 7 : Supplier Finance Arrangements

      ³ Amendments to LKAS 12 : International Tax Reform - Pillar Two Model Rules

   2. Standards Issued but not yet Effective

      The following amendments and improvements are not expected to have a significant impact on the Company's financial statements.

      ³ Amendments to SLFRS 21: Lack of Exchangeability

      BUSINESS, OPERATIONS AND MANAGEMENT
5. Operating Segment Information
   1. Accounting Policy

      The segments are determined based on the Company's geographical spread of operations. The geographical analysis of turnover and profits are based on location of customers and assets respectively.

      Segment information has been prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the Company.

      No operating segments have been aggregated to form the above reportable operating segments. An individual segment manager is determined for each operating segment and the results are regularly reviewed by the Chief Executive Officer. The Chief Executive Officer monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss which in certain respects, as explained in the operating segments information, is measured differently from operating profit or loss in the financial statements.

      Transfer prices between operating segments are carried out in the ordinary course of business.

      NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

      For the year ended 31st March

   2. Reporting Segment Information

      Segment Revenue Revenue from contracts with customers		2025 Rs. 1,875,253,026	2024 Rs. 1,828,241,179	2025 Rs. 532,453	2024 Rs. 278,730,683	2025 Rs. 921,318,696	2024 Rs. 948,988,024	2025 Rs. 2,797,104,175	2024 Rs. 3,055,959,886
      								2,797,104,175	3,055,959,886
      Segment Results Revenue Expenditure Depreciation of Property, Plant and Equipment Amortisation of Intangible Assets Gratuity Charge and Related Costs		(1,835,578,110) (51,835,500) (150,000) (4,260,418)	(1,821,943,399) (50,834,940) (200,000) (5,318,524)	- - - -	(319,544,802) (8,914,380) (50,000) (990,838)	(853,285,683) (14,316,241) (37,500) (2,573,455)	(871,262,735) (12,947,188) (50,000) (2,917,228)	(2,688,863,793) (66,151,740) (187,500) (6,833,873)	(3,012,750,936) (72,696,508) (300,000) (9,226,590)
      Segment Gross Profit / (Loss)		(16,571,002)	(50,055,684)	532,453	(50,769,337)	51,105,817	61,810,873	35,067,269	(39,014,147)
      Other Income Change in fair value of Investment Property Finance Income Finance Cost Unallocated Expenses Management Fees								151,695,597 7,940,319 6,583,374 (7,482,230) (141,055,587) (20,826,467)	159,988,955 42,214,000 7,663,326 (22,074,270) (145,760,562) (22,704,607)
      Profit/ (Loss) Before Tax								31,922,275	(19,687,307)
      Segment Assets Allocated Assets -Non - Current Assets		957,449,072	933,685,154	-	-	275,282,569	261,015,699	1,232,731,641	1,194,700,853
      	Property, Plant & Equipment
      	Depreciation of Property, Plant and Equipment	(208,553,545)	(181,886,309)	-	-	(68,284,519)	(58,582,091)	(276,838,064)	(240,468,399)
      	Intangible Assets	150,000	1,000,000	-	-	37,500	250,000	187,500	1,250,000
      	Amortisation of Intangible Assets	(150,000)	(888,095)	-	-	(37,500)	(222,024)	(187,500)	(1,110,119)
      Current Assets		314,850,566	268,478,48	-	-	164,721,315	140,999,434	479,571,881	409,477,920
      		1,063,746,093	1,020,389,237	-	-	371,719,366	343,461,018	1,435,465,459	1,363,850,255
      Unallocated Assets Non - Current Assets								884,591,759 (32,810,341) 26,518,923	858,022,759 (33,038,420) 31,612,282
      Cost Depreciation / Amortisation Current Assets
      Total Assets								2,313,765,800	2,220,446,874

      Geographical Segment Galle Ratnapura N'Eliya Total

      5.2.1

      14

      5.2.2

      NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

      For the year ended 31st March

      5.2 Reporting Segment Information (Continued)

      	2025 Rs.	2024 Rs.	2025 Rs.	2024 Rs.	2025 Rs.	2024 Rs.	2025 Rs.	2024 Rs.
      Segment Liabilities Allocated Liabilities
      Non Current Liabilities Current Liabilities	17,336,170 118,632,526	16,404,155 83,284,259	- -		13,021,653 54,547,090	12,174,935 47,854,435	30,357,823 173,179,616	28,579,091 131,138,694
      	135,968,696	99,688,414	-		67,568,742	60,029,371	203,537,438	159,717,785
      Unallocated Liabilities
      Non Current Liabilities							333,155,493	318,474,787
      Current Liabilities							64,237,305	68,923,175
      							397,392,798	387,397,963
      Total Liabilities							600,930,236	547,115,746
      Segment Capital Expenditure Allocated Capital Expenditure Unallocated Capital Expenditure	24,647,365	50,803,496	-	22,503,632	23,242,190	19,233,818	47,889,555 20,502,500	92,540,946 2,935,461
      							68,392,055	95,476,407

      Galle Ratnapura N'Eliya Total

      5.2.3

      15

      5.2.4

      NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

      For the year ended 31st March

6. Financial Risk Management Objectives and Policies

   The Company has loans and other receivables, trade and other receivables, and cash and short term deposits that arise directly from its operations and the company's principal financial liabilities comprise of bank overdraft, and trade and other payables. The main purpose of these financial liabilities is to finance the Company's operations. The Company is exposed to market risk, credit risk and liquidity risk.

   Trade and other receivables

   The Company considers a financial asset including trade and receivable as indicating impairment when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to provide impairment indications when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

   1. Credit Risk

      Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions.

      The Company trades only with recognised, creditworthy third parties. It is the company's policy that all clients who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and as a result the Company's exposure to bad debts is not significant.

      With regard to the credit risk arising from the other financial assets of the Company, such as cash and cash equivalents, short term investments and loans to Executives, the Company's exposure to credit risk arises from default of the counterparty. The Company manages its operations to avoid any excessive concentration of counterparty risk and the company takes all reasonable steps to ensure the counterparties fulfill their obligations.

      The Company's exposure to credit risk is influenced by the individual characteristics of each customer. The individual receivable balances were re-assessed, specific provisions were made wherever necessary, existing practice on the provisioning of trade receivables were re-visited and adjusted to reflect the different rearrangement of homogeneous groups. Receivable balances are monitored on an ongoing basis to minimise bad debt risk and to ensure default rates are kept very low, whilst the improved operating environment resulted in improved collections during the financial year although there could be stresses in the ensuing year on account of the macroeconomic uncertainty and related impacts on account of elevated inflation and interest rates and the possible impact on consumer discretionary spend.

      1. Credit Risk Exposure

         As at 31 March 2025
         Non current financial assets	Cash in hand and at bank	Trade and other receivables	Investments	Total	% of Allocation
         Rs.	Rs.	Rs.	Rs.	Rs.
         5,552,857	-	-	-	5,552,857	7%
         -	-	74,137,505	-	74,137,505	88%
         -	-	-	-	-	0%
         -	4,641,493	-	-	4,641,493	6%
         5,552,857	4,641,493	74,137,505	-	84,331,855	100%

         The maximum risk positions of financial assets which are generally subject to credit risk are equal to their carrying amounts. The following table shows the maximum risk positions.

         Notes

         Loans to Executives 6.1.2

         Trade and other receivables 6.1.3

         Short term investments 6.1.4

         Cash in hand and at bank 6.1.4

         Total credit risk exposure

         NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

         For the year ended 31st March

         As at 31 March 2024
         Non current financial assets	Cash in hand and at bank	Trade and other receivables	Investments	Total	% of Allocation
         Rs.	Rs.	Rs.	Rs.	Rs.
         9,439,343	-	-	-	9,439,343	10%
         -	-	74,989,783	-	74,989,783	76%
         -	-	-	-	-	0%
         -	14,026,267	-	-	14,026,267	14%
         9,439,343	14,026,267	74,989,783	-	98,455,393	100%

         1. Credit Risk Exposure (Continued)

            Notes

            Loans to Executives 6.1.2

            Trade and other receivables 6.1.3

            Short term investments 6.1.4

            Cash in hand and at bank 6.1.4

            Total credit risk exposure
         2. Loans to Executives

            Loans to Executive portfolio is made up of vehicle loans which are given to staff at Assistant Manager level and above. The Company has obtained the necessary promissory notes as collateral for the loans granted.

         3. Trade and Other Receivables

            As at 31st March		2025 Rs.	2024 Rs.
            Neither past due nor impaired		68,650,649	67,934,682
            Past due	0-30 days	5,281,750	6,121,439
            	31-60 days	205,106	699,552
            	61-90 days	-	170,955
            	91-180 days	-	63,155
            	> 180 days	2,827,089	2,323,970
            Gross carrying value		76,964,594	77,313,753
            Less: impairment provision Collectively assessed impairment provision		(2,827,089)	(2,323,970)
            Total		74,137,505	74,989,783

            The Company has obtained customer deposits and promissory notes from major customers by reviewing their past performance and credit worthiness, as collateral. The requirement for an impairment is analysed at each reporting date on an individual basis for major customers and uses a provision matrix to calculate Expected Credit Loss (ECL) for the balance. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns.

            The provision matrix was initially based on the Company's historical observed default rates. The Company calibrates the matrix to adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.

            The Company considers a financial asset including trade and receivable in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

         4. Cash and Cash Equivalent and Short Term Investments

         In order to mitigate concentration, settlement and operational risks related to cash and cash equivalents, the Company limits the maximum cash amount that can be deposited with a single counterparty. In addition, the Company maintains an authorised list of acceptable cash counterparties based on current ratings and economic outlook, taking into account analysis of fundamentals and market indicators.

         NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

         For the year ended 31st March

   2. Liquidity Risk

      The Company's policy is to hold cash and undrawn committed facilities at a level sufficient to ensure that the Company has available funds to meet its medium term capital and funding obligations and to meet any unforeseen obligations and opportunities. The Company holds cash and undrawn committed facilities to enable the Company to manage its liquidity risk.

      The Company monitors its risk to a shortage of funds using a daily cash management process. This process considers the maturity of both the Company's financial investments and financial assets (e.g. accounts receivable, other financial assets) and projected cash flows from operations.

      The Company's objective is to maintain a balance between continuity of funding and flexibility through the use of multiple sources of funding including short and long term bank loans, overdrafts and finance leases over a broad spread of maturities.

      6.2.1 Net (Debt) / Cash	2025 Rs.	2024 Rs.
      Short term investments	-	-
      Cash in hand and at bank	4,641,493	14,026,267
      Total liquid assets	4,641,493	14,026,267
      Bank overdraft	20,612,388	24,256,346
      Total liabilities	20,612,388	24,256,346
      Net (Debt) / Cash	(15,970,895)	(10,230,079)

      The Company has obtained banking facilities to the value of Rs. 250 million, which comprise of an overdraft facility of Rs. 150 million from Hatton National Bank PLC, and an overdraft facility of Rs.100 million from Deutsche Bank. From the total limit, the outstanding as at 31 March 2025 was Rs. 20.6 Mn. Hence, an amount of Rs. 229.39 million is available for utilisation to finance any net debt.

      6.2.2 Liquidity Risk Management

      The Company has implemented a mixed approach that combines elements of the cash flow matching approach and the liquid assets approach. The Company matched cash outflows in each time bucket against the combination of contractual cash inflows plus other inflows that can be generated through the repurchase agreement, or other secured borrowings.

      The Company continued to place emphasis on ensuring that cash and undrawn committed facilities are sufficient to meet the short, medium and long-term funding requirements, unforeseen obligations as well as unanticipated opportunities.

      The daily cash management processes include active cash flow forecasts and matching the duration and profiles of assets and liabilities, thereby ensuring a prudent balance between liquidity and earnings.

      Maturity Analysis

      The table below summarises the maturity profile of the company's financial liabilities at 31 March 2025 based on contractual undiscounted payments.

      	Below 3 months	Between 3-6 months	Between 6-12 months
      	Rs.	Rs.	Rs.
      Amounts due to related parties	6,105,873	-	-
      Bank overdraft	20,612,388	-	-
      Trade and Other Payables	205,883,059	-	-
      Other Current Liabilities	4,815,599	-	-
      	237,416,919	-	-

      NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)

      For the year ended 31st March

   3. Market Risk

      Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate as a result of changes in market prices.

      Market prices comprise four types of risk:

      • Interest rate risk

      • Currency risk

      • Commodity price risk

      • Equity price risk

      The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

   4. Sensitivity Analysis

      The sensitivity analysis will only be applicable to the interest rate risk.

      Interest Rate Risk

      Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates.

      In 2024, the Central Bank of Sri Lanka (CBSL) continued its accommodative monetary policy stance to support economic recovery. Following rate cuts in July and November, CBSL introduced a single policy rate mechanism in November 2024. The Overnight Policy Rate (OPR) was set at 7.75%, replacing the previous dual-rate system. This move aimed to streamline monetary policy operations and further reduce market interest rates.The company's strategy of maintaining a balanced mix of fixed and variable-rate borrowings has been effective in managing interest rate volatility.

7. Fair Value Measurements and Disclosures

   Fair value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are only, disclosed are reflected in this note. Aside from this note, additional fair value related disclosures, including the valuation methods, significant estimates and assumptions are also provided in:

   Property, plant and equipment under revaluation model Note 7.2, 17.3 and 17.4 Investment properties Note 7.2 and 19.3

   Financial instruments (including those carried at amortised cost) Note 8

   1. Accounting Policy

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or

• In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.