Diesel & Motor Engineering PLC

Code of Best Practice on Corporate Governance


The table below presents the requirements laid down by the Code of Best Practice on Corporate Governance published jointly by the Securities & Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka (Code) and the Company’s compliance with the requirements of the Code.


Section

Requirement

Compliance with the Code by the Company

Section 1 :

 

A.

DIRECTORS

A.1

THE BOARD

 

 

Every public company should be headed by an effective Board, which should direct, lead and control the company

 

A.1.1 

 

The Board should meet regularly, at least once in every quarter

Board of Directors met 6 times during the financial year, and at least once in every quarter. Attendance of 95% was maintained on average. Recent financial and non-financial information was disseminated to Directors prior to commencement of each Board meeting to effectively executive Board responsibilities. Composition of the Board and attendance at Board meetings are available on page 49.

A.1.2

 

Board should be responsible for matters including:

 

 

Ensuring the formulation and implementation of a sound business strategy

The Board provides stewardship, vision and strategic direction to theGroup and fosters a culture of responsibility and accountability across the Group. A stakeholder centric approach is adopted in strategy formulation.

A review of business, marketing, financial and other strategies and their implementation takes place during the Board meetings. The Board also meets Heads of Business Units at least once a month and deliberates and provides direction on matters relating to strategyformulation.

 

Ensuring that the CEO and the Management Team possess the skills, experience, and knowledge to implement strategy

The Directors are from diverse backgrounds and bring a wide range of experience and competencies that facilitates the effective discharging of Board responsibilities.

The Board ensures that the Chairman/Managing Director, CEO, Executive Directors and the Management team possess the skills to implement the overall strategy.

The Board approves all appointments to the Group Management Committee (GMC), which consists of the senior management. The Board takes into consideration the skills and experience of the members prior to their appointments in order to ensure the members suitability to hold the position in the GMC as well as his/her regular position in the managerial capacity of the company.

A brief resume of each Director including skills and experience is available in the Directors’ profiles on pages from 26 to 27.

 

Ensuring the adoption of an effective CEO and key management personnel succession strategy

Succession planning is given due recognition. Effective succession planning is a criterion in the performance appraisals of the key management personnel. The Board, with the assistance of the Nomination Committee, reviews succession plans available for succession of key management personnel.

 

Ensuring effective systems to secure integrity of information, internal controls, business continuity and risk management

The Board identifies significant risks on an ongoing basis and ensure implementation of appropriate procedure to evaluate and manage the identified risks.

Measures taken towards an effective internal control system given under D.2.1 of this table and the Risk Management framework are set out in the Risk Management Report on page 56.

 

Ensuring compliance with laws, regulations and ethical standard

The Board ensures the compliance with laws, regulations and standards on each and every area business operations. The internal auditors continuously monitor and report to the Audit Committee on their findings.
The “Enterprise Governance” presented from pages 41 to 50 discusses DIMO’s compliance status in detail.

 

Ensuring all stakeholder interests are considered in corporate decisions

The Board has initiated a stakeholder engagement programmes by which the company identifies the material stakeholder issues. The corporate strategy developed by the Board ensures all material aspects identified, have been addressed adequately.

The Annual Report extensively covers our interactions with stakeholders. Please refer pages from 34 to 38, for details of stakeholder engagement.

 

Recognising sustainable business development in Corporate strategy, decisions and activities

The Board recognises the importance of including principles of sustainability in Corporate strategy, decisions and activities. The value creation model set out in pages from 30 to 31 of the Annual Report 2016/17 shows the inclusiveness of stakeholders and the environment in the value creation process. Further, please refer the “Impact Report” from pages 95 to 111 for more information on the Company’s activities with regard to sustainability.

 

Ensuring that the Company’s values and standards are set with emphasis on adopting appropriate accounting policies and fostering compliance with financial regulations

The Code of Business Ethics requires compliance with laws, regulations and corporate policies at all times. These ensure that prescribed accounting policies, accounting standards (SLFRS/LKAS) and other regulations are adhered to.

Refer the Independent Auditor’s Report, which affirms that the Company’s Financial Statements are in line with Sri Lanka Accounting Standards, given on page 121.

 

Fulfilling such other Board functions as are vital, given the scale, nature and complexity of the business concerned

During the year, the Board was committed in fulfilling their obligations towards all stakeholders in line with laws, regulations and governance practices of the Group.

A.1.3 

 

Obligation by the Board to act collectively and individually by the Directors and in accordance with the laws of the Country and to have an agreed procedure to obtain independent advice at the Company’s expense

.

The regulatory framework adopted by the Company provides the framework for conformance, and identifies what is expected to be followed by the Board, upholding the values of ethical and good business practices ensuring confidentiality and ethical dealing. Any Director may obtain independent professional advice that may be required in discharging his/ her responsibilities effectively, at the Company’s expense.

The regulatory framework with mandatory compliance is depicted in the Conformance Framework presented on page 42.

A.1.4

 

Need for the Directors have access and services of the Company Secretary and the removal of Company Secretary is a matter for the Board.

Members of the Board have unrestricted accesses to the advice and services of the Company Secretary. The Company Secretary advises the Board and ensures the Board procedures are followed up and compliance with relevant rules, regulations and other statutes and keeping Board minutes and relevant records of the Company. 

The appointment and removal of the Company Secretary rests with the Board.

A.1.5 

 

Need for Directors to bring independent judgement to bear on issues pertaining to strategy, performance, resources and standards of business conduct.

The Board consisted of senior professionals in their respective fields and use their independent judgement upon the matters relating to strategy, performance, resources and business conduct.

A. 1.6

 

Need for every Director to dedicate adequate time and effort in relation to  matters of the Board and the Company and the need todedicate sufficient time to review Board papers, call for additional information and clarification prior to the meeting and following up on issues consequent to the meeting.

The Chairman, Non-Executive and Executive Directors are committed to discharging their duties as Directors of the Company and ensuring  that adequate time and attention is given to make their contribution effective. The Non-Executive Directors may have follow up meetings with the Chairman, Executive Directors or members of the Group Management Committee to follow up on matters discussed at Board Meetings and provide their expertise.

The Board papers and the agenda received by the Directors ahead of Board Meetings, enabling the Directors to review the papers and obtain clarifications ahead of the meetings. The papers contain financial and non-financial information. The regular Board papers include Financial Statements, narratives on variances, working capital related reports, reports on compliance with statutory requirements, capital expenditure reports, staff appointments, bank facilities & utilization and any other report as required.

A. 1.7

 

Need for every Director to receive training when he/ she is first appointed to the Board and subsequently as necessary.The Board should review and agree the training and development needs of the Directors.
.

New Directors were provided an induction on Company’s business, its strategy, risks, processes, statutory requirements and governance framework.

Directors are briefed on changes in laws and regulations, tax laws and accounting standards from time to time either during Board meetings or at specially convened sessions.

During the year, all the Executive Directors were provided external training covering various topics in relation to the role of the Board and the leadership.

A.2

CHAIRMAN AND CHIEF EXECUTIVE OFFICER (CEO)

 

 

There are two key tasks at the top of every public Company – conducting of the business of the Board, and facilitating executive responsibility for management of the Company’s business. There should be a clear division of responsibilities at the head of the Company, which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision.

 

A.2.1 

 

Need to justify and highlight the decision to combine the posts of Chairman and CEO

.

The post of Chairman and Managing Director are combined. Mr. A.G. Pandithage was appointed as CEO with effect from. 01.04.2012. The functions of Chairman /Managing Director and CEO was vested with the same person up to 31.03.2012. The appointment of a CEO with effect from 01.04.2012 will enable sharing of responsibilities of the Chief Executive function.

The presence and involvement of the Senior Independent Director and other Independent Directors ensure that no single individual enjoys unfettered powers of decision-making and provides the basis for prevalence of independent judgment over standards of business conduct. The presence of a Senior Independent Director adds more emphasis to transparency in governance affairs.

The Audit, Nomination, Remuneration Committees and Related Party Transactions Review Committee are headed by Non-Executive Independent Directors.

A.3

CHAIRMAN’S ROLE 

 

 

The Chairman’s role in preserving good Corporate Governance is crucial. As the person responsible for running the Board, the Chairman should preserve order and facilitate the effective discharge of Board functions.

 

A. 3.1

 

Responsibility of the Chairman to conduct Board proceedings in a proper manner and ensure that the Board is in complete control of the Company’s affairs.

Board meetings are conducted in an atmosphere that encourages healthy debate by all members of the Board. The Chairman ensures that there is effective participation from all Directors, that their individual contribution and concerns are objectively assessed prior to making key decisions. The Chairman ensures that all the Non-Executive Directors and Executive Directors are provided with an opportunity to present their view on matters discussed and that both Executive and Non-Executive Directors have an opportunity for effective participation. He also ensures that the Board is in complete control of the Company’s affairs and that decisions made by the Board are implemented.

Board members are free to suggest the inclusion of items on the agenda of Board meetings and carry out their duties in the interest of the Company without any undue influence from other parties. The Board members are encouraged to take advantage of a variety of expertise available in the Board in the areas such as finance, marketing, law and engineering in making decisions for the benefit of the Company.

The Chairman and the Senior Independent Director satisfy themselves that the information available to the Board is sufficient to make an informed assessment of the company’s affairs as well as to discharge their duties to all stakeholders.

The composition of the Board and attendance details of Directors at Board meetings and Board Committee meetings are available in Conformance Report presented in page 49 and pages from 51 to 54.

A.4

FINANCIAL ACUMEN

 

 

The Board should ensure the availability of financial acumen and knowledge to offer guidance on matters of finance.

The Board enjoys the services of four qualifiedaccountants who provide the requisite financial acumen and knowledge on matters of finance. In addition, the Audit Committee has the services of another qualified Accountant who serves as an Independent Consultant.

A.5 

 

BOARD BALANCE

 

 

 

It is preferable for the Board to have a balance of Executive and Non-Executive Directors such that no individual or small group of individuals can dominate the Board’s decision-taking.

 

A.5.1 

 

The need to have at least two Non-Executive Directors or such number of None-Executive Directors equivalent to one third of total number of Directors whichever is higher.

Four of thirteen Directors as at March 31, 2017 were Non-Executive Directors and three of them were Independent.

A.5.2

 

The need to have two or one third of the Non-Executive Directors appointed to the Board, whichever is higher, to be “Independent”

 

From June 01, 2016 to March 31, 2017, three out of the four Non-Executive Directors were ‘Independent’

The names of Independent Non-Executive Directors are as follows.
1. Mr. R. Seevaratnam
2. Dr. H. Cabral
3. Mr. A. D. B. Talwatte

A.5.3

 

Need for Independent Director to be free of any business interest or any other relationship that would impair his/ her judgement.

The Independent Directors fulfil all of the criteria set by this section except the number of years they have been serving on the Board. Mr. R. Seevaratnam and Dr. H. Cabral have exceeded their tenures of nine years and the Board has determined that the independence of above Non-Executive Directors have not been impaired despite the service period exceeding nine years.  A special disclosure in this regard is available in the “Annul Report of the Board of Directors” on pages from 114 to 116.

Related party transactions and Directors interest in contracts are disclosed on pages from 163 to 164 and 117 respectively.

A.5.4

 

Responsibility of each Non-Executive Director to submit signed and dated declaration annually on his/ her independence or non-independence

The Non-Executive Directors have submitted the requisite declarations, which were used to determine their Independence.

A.5.5

 

Need for the Board to determine the independence or non-independence of each non-Executive Director annually based on the declarationmade and information available to the Board.

The Board has made an annual determination as to the independence or non-independence of each Non- Executive Director based on a declaration made by them and as per criteria set out by the Colombo Stock Exchange Listing Rules.

The special declaration on the determination of independence of Independent Non-Executive Directors, is presented on pages from 114 to 116.

The names of Independent Non-Executive Directors are
given on page 49.

A.5.6 

 

Need to appoint Non-Executive Director or Independent Director as an Alternative Director

No alternative directors were appointed during the year

A.5.7

 

Need to appoint a Senior Independent Director from amongst the Independent Non-Executive Directors, if the positions of Chairman and CEO are held by the same person.

Though there is no requirement to appoint a Senior Independent Director as the role of Chairman and CEO are distinct.

Mr. R. Seevaratnam functions as the Senior Independent Director. The Senior Independent Director presides at Board meetings in the absence of the Chairman.

A.5.8

 

Need for Senior Independent Director to have confidential discussions with other Directors whomay have concerns that have not been considered by the Board.

The Senior Independent Director is available for confidential discussions, should there be any concerns regarding governance or issues that may adversely affect the Company, inadequately addressed by the Board.

A.5.9  

 

Need for the Chairman to have meetings exclusively with Non-Executive Directors at least once in a year.

Chairman meets with Non-Executive Directors, without the presence of Executive Directors at least once a year. In addition, the Chairman consults the Independent Directors to obtain their views on matters of importance, as and when the need arises.

A.5.10

 

Need to record the Directors’ concerns in the Board minutes which have not been resolved unanimously.

The Board minutes are prepared by the Company Secretary. In the event of a matter not being unanimously adopted at a Board meeting, the concerns
expressed are recorded in the meeting minutes, at the request of the Director concerned.

Minutes of the Board Meetings are circulated to all Directors and adopted at a subsequent Board Meeting.

A.6

SUPPLY OF INFORMATION

 

 

The Board should be provided with timely information in a form and of a quality appropriate to enable it to discharge its duties.

 

A.6.1 

 

Obligation of the management to provide appropriate and timely information to the Board and responsibility of the Chairman to ensure that all matters arising at Board meetings are briefed to all Directors.

A sophisticated management information system is in place and it provides relevant and current information. All Board Members including Non-Executive Directors receive information on the operations and performance of the Company on a monthly basis. This routine helps to eliminate information asymmetry between executive Directors and Non-Executive Directors.

The Chairman ensures that the background is set for discussions at Board Meetings by introducing the subject of discussion, if the Board members were not previously aware of the matter at hand.

A.6.2

 

Requirement to provide the minutes, agenda, and relevant papers at least seven (7) days prior to the meeting.

The Directors are provided with comprehensive data on financial and non-financial information prior to Board meetings in addition to the agenda of the meeting and the minutes of the previous meeting.
Additional information may be requested by any member of the Board as and when required. Directors may also seek any information from the management team on matters discussed at Board meetings that requires follow up.

A.7 

APPOINTMENTS TO THE BOARD

 

 

There should be a formal and transparent procedure for the appointment of new Directors to the Board.

 

A.7.1 

 

Need to establish a Nomination Committee to make recommendations on new appointments to the Board.

The Board appoints Directors to the Company, Subsidiary Companies and members to the Group Management Committee based on the recommendations of the Nomination Committee.

The composition of the Nomination Committee as at March 31, 2017 is as follows.

  • Dr. H. Cabral (Chairman)
  • Mr. A. R. Pandithage
  • Mr. A. M. Pandithage
  • Mr. R. Seevaratnam
  • Mr. A. D. B. Talwatte


The Report of the Nomination Committee is available on page 54.

A.7.2

 

Need to assess the composition of the Board annually by the Nomination Committee or the Board as a whole

The Committee’s main role is to nominate suitable candidates as and when vacancies occur on the Board. The Committee is responsible for succession planning at Board and Senior Management level and in ensuring smooth management transitions. It reviews the size and structure of the Board on a continuing basis and constantly reviews the balance of skills, knowledge and experience of the Board of Directors. The Committee also reviews the independence of Directors including actual, potential or perceived conflicts of interest.

A.7.3 

 

Obligation for the Board to disclose details of newly appointed Directors to the shareholders.

During the year, following new appointments were made to the Board.

  • Mr. A. D. B. Talwatte
  • Mr. M. V. Bandara
  • Mr. S. R. W. M. C. Ranawana
  • Mr. P.  K. W. Mahendra

 

All new appointments were informed to shareholders with sufficient details through a notification to the Colombo Stock Exchange.

A.8

RE-ELECTION

 

 

All Directors should be required to submit themselves for re-election at regular intervals and at least once in every three years.

 

A.8.1 

 

Need for the Non-Executive Directors to be appointed subject to re-election and be subject to provisions of the Companies Act relating to removal of a Director.

Except for the Managing Director, all other Directors retire by rotation and shall offer themselves for re-election at the AGM. As per the Article of Association the Managing Director, is not required to make himself available for re-election.

A.8.2

 

Obligation for Directors including the Chairman to be subject to election  at the first available opportunity after their appointment and thereafter at the intervals of not more than three years.

The Company’s Articles of Association provides that any Director appointed by the Board shall hold office until the next Annual General Meeting (AGM), and then will seek re-appointment by the Shareholders at the said AGM.

Based on the Articles and the current composition of the Board, a Director excluding the Managing Director shall seek re-election every three years.

The names of the Directors coming up for re-election at the AGM 2017 are given in the Notice of Meeting of the Annual Report 2016/17.

A.9

APPRAISAL OF BOARD PERFORMANCE

 

 

Boards should periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

 

A.9.1 

 

Need for the Board to appraise itself annuallyon its performance.
.

The effectiveness of the Board is vital to the success of the Group. The Board undertakes a process that appraises its performance in discharging its key responsibilities.
The methodology of evaluation involves each Board member completing a checklist and providing a rating on each item covered in the checklist involving areas of appraisal. The appraisal covers areas such as;

  • its contribution towards developing, implementing and monitoring of
    strategy,
  • communication with stakeholders,
  • processes involving the Board,
  •  review of its own performance evaluation process and
  •  other areas related to discharging its responsibilities

A.9.2

 

Need for the Board to undertake a self-evaluation of its own performance.

 

The Board carries out a performance evaluation of the Board and of its Committees. The methodology followed for evaluation of Board performance is given in A.9.1 Performance evaluation of Board Committees is done by way of a discussion.

A.9.3

 

Need for the Board to state in the Annual Report how such performance evaluation is conducted

.

The performance of the Board was reviewed by circulating a questionnaireamong the Directors.

A.10

DISCLOSURE OF INFORMATION IN RESPECT OF DIRECTORS

 

 

Shareholders should be kept advised of relevant details in respect of Directors.

 

A.10.1

 

Need to set out details of each Director in the Annual Report.

Refer Directors' profiles, on pages from 26 to 27, Composition of the Board on page 49.

 

 

Name, qualifications, brief profile.

Available in the Board of Directors' profiles on pages from 26 to 27.

 

 

The nature of his expertise in relevant functional areas;

Available in the Board of Directors' profiles on pages from 26 to 27.

 

 

Immediate family and/or material business relationships with other Directors of the Company;

Mr. A.R.Pandithage, Mr. A.G.Pandithage and Mr. A.M. Pandithage fall within the definition of “close family members” of the Code.

 

 

Whether Executive, non-executive and/or Independent Director

Available in the Board of Directors' profiles on pages from 26 to 27.

 

 

Names of listed companies in Sri Lanka in which the Director concerned serves as a Director;

Available in the Board of Directors' profiles on pages from 26 to 27.

 

 

Names of other companies in which the Director concerned serves as a Director where such companies are within the group.

Available in the Board of Directors' profiles on pages from 26 to 27.

 

 

Number/percentage of Board meetings of the Company attended during the year;

Refer “Composition of the Board and Board Committees and Attendance at Meetings for 2016/17” on page 49.

 

 

Number of Board seats held by each Director in listed and unlisted companies in the capacity of Executive or Non-Executive.

Total No of Board Seats held by each Director in listed Companies(Other than DIMO PLC, "Company"), in the capacity of

Total No of Board Seats held by each Director in Un-listed Companies in the capacity of

Name of
the Director

Executive Director

Non-Executive Director

Executive Director

Non-Executive Director

A.R. Pandithage

-

-

3

1

A.G. Pandithage

-

-

3

-

A.N. Algama

-

-

-

-

S.C. Algama

-

-

3

-

Dr H. Cabral

-

6

4

-

B.C.S.A.P.Gooneratne

-

1

2

-

A.M. Pandithage

13

-

148

9

R.Seevaratnam

-

11

-

10

R.C.Weerawardane

-

-

2

-

A. D. B. Talwatte

-

5

4

3

C. Ranawana

-

-

1

-

V. Bandara

-

-

1

-

W. Pushpawela

-

-

1

-

 

 

Names of Board Committees in which the Director serves as Chairman or a member; and

Refer” Committee Reports” on pages from 51 to 54.

 

 

Number/ percentage of committee meetings attended during the year.

Refer” Committee Reports” on pages from 51 to 54.

A.11

APPRAISAL OF CHIEF EXECUTIVE OFFICER (CEO)

 

 

The Board should be required, at least annually, to assess the performance of the CEO.

 

A.11.1 

 

Need for the Board to set reasonable financial and non-financial targets which should be achieved by the CEO during the year.

At the commencement of every financial year, the Board in consultation with the Chairman/Managing Director, CEO and Executive Directors agree on the financial and non-financial targets, based on which the performance of the CEO are evaluated.

A.11.2 

 

Need for the Board to evaluate the performance of CEO at the end of each fiscal year.

Whilst the performance evaluation of the Chairman/ Managing Director is done by the Non- Executive Directors led by the Senior Independent Director, the performance appraisal of the CEO and Executive Directors will be carried out by the Non- Executive Directors in consultation with the Chairman/Managing Director.


B

DIRECTORS’ REMUNERATION

B.1 

REMUNERATION PROCEDURE

 

 

Companies should establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his own remuneration.

 

B.1.1 

 

Need for the Board of Directors to set up a Remuneration Committee to make recommendation on Company’s framework of remunerating Executive Directors.

.

The Remuneration Committee has been appointed by the Board with terms of reference and is responsible for determining the remuneration policy and the remuneration of the Chairman/Managing Director, Chief Executive Officer, Executive Directors and Senior Management.

Refer “Report of the Remuneration Committee” on page 52 for the function of the Remuneration Committee during the year 2016/17.

B.1.2 

 

Need for the Remuneration Committee to consist of Non-Executive Directors only.
.

The Remuneration Committee was consisted of Non-Executive Directors and the Chairman of the Remuneration Committee is an Independent Non-Executive Director, who is appointed by the Board.

During the year 2016/17, the Remuneration Committee was consisted of three Independent Non-Executive Directors and one Non-Executive Director and the composition of the Remuneration Committee meets the requirements of the Colombo Stock Exchange Listing Rules.

B.1.3

 

Need to list the Chairman and the members of the Remuneration Committee in the Annual Report.

Names of the Chairman, members of the Remuneration Committee and committee attendance at meetings are available in the “Report of the Remuneration Committee” on page 52.

B.1.4 

 

Need for the Board as a whole to determine the remuneration of the Non-Executive Directors including the members of the Remuneration Committee.
.

The Board of Directors determines the remuneration of Non- Executive Directors. The Non- Executive Directors do not participate in any discussion that involves fixing their remuneration.

B.1.5

 

Need for the Remuneration Committee to consult Chairman and/ or CEO about its proposals relating to the remuneration of other Executive Directors and have access to professional advice.

The remuneration of the Executive Directors is recommended by the Remuneration Committee in consultation with the Chairman/Managing Director. No Director is involved in deciding his own remuneration.
The Committee is entitled to obtain professional advice at the Company’s expense in discharging their responsibilities.

B.2

THE LEVEL AND MAKE UP OF REMUNERATION 

 

 

Levels of remuneration of both Executive and Non-Executive Directors should be sufficient to attract and retain the Directors needed to run the Company successfully. A proportion of Executive Directors’ remuneration should be structured to link rewards to corporate and individual performance.

 

 

 

 

B.2.1 

 

Requirement for the Remuneration Committee to provide competitive packages needed to attract, retain and motivate Executive Directors.

The Company’s remuneration policy aims to attract and retain high calibre executives by ensuring that their rewards are competitive and linked to both individual and business performance. Whilst recognising the market demands and the contribution of the executives to the overall performance, the Company believes that the remuneration policy should at the same time be in congruence with shareholder interests.

B.2.2 

 

Need for the  Remuneration Committee to judge position levels of remuneration of the company relative to  peer companies.

The Remuneration Committee in deciding the remuneration of the Directors takes into consideration the level of remuneration paid by peer companies. By linking the remuneration levels to business and individual performance, the Committee ensures that any increase in the variable part of the remuneration corresponds to better performance. When required, the Remuneration Committee uses remuneration surveys to ascertain market levels of remuneration.

B.2.3 

 

Need for the Remuneration Committee to be sensitive to remuneration and employment conditions in determining annual salary increments.

Same criteria and measures adopted in B.2.2 are used for determination of remuneration of the senior management team, across the Group.

B.2.4 

 

Need for the performance related elements of remuneration of Executive Directors to be designed and tailored to align their interests with those of the Company and main stakeholders.

Remuneration of Executive Directors consists of a fixed element as well as a variable element. The variable part (incentive scheme) is based on the performance of the individual as well as the Company

B.2.5 

 

Need to avoid offering Executive share options at a discount.

There was no share option scheme in operation during the year under review

B.2.6 

 

Requirement of the Remuneration Committee to follow the provisions set out in Schedule E in designing schemes of performance related remuneration.

The guideline provided by Schedule E has been followed in determining Directors remuneration.

B.2.7

 

Requirement for the Remuneration Committee to consider compensation commitments of the Directors in an event of an early termination.

The compensation commitments of the Executive Directors are guided by their contracts of employment. This requirement is not applicable to Non-Executive Directors

B.2.8

 

Requirement for the Remuneration Committee to tailor their approach in early termination cases if the initial contract does not explicitly provide for compensation commitments.

The Board is committed to acting fairly and in accordance with laws of the country, in the event of a termination. There was no termination of services of any Director during the year under review.

B.2.9

 

Requirement for the level of remuneration of Non-Executive Directors to reflect the time commitment and responsibilities of their role and need to exclude offering share options unless the approval of the shareholders is received.

Time commitments and responsibilities of their role have beenconsidered in determining remuneration levels of Non- Executive Directors. The Company did not have a share options scheme in operation during the year under review.

B.3

DISCLOSURE OF REMUNERATION

 

 

The Company’s Annual Report should contain a Statement of Remuneration Policy and details of remuneration of the Board as a whole and a specimen of a remuneration committee report followed by schedule D

 

B.3.1

 

Requirement for the Annual Report to set out the following.

  • names of the Directors comprising the Remuneration Committee
  • statement of remuneration policy
  • aggregate remuneration paid to Executive and Non-Executive Directors

The names of the members of the Remuneration Committee are given in “Report of the Remuneration Committee” on page 52.

The Remuneration Policy is available in “Report of the Remuneration Committee” on page 52.

Total Directors’ emoluments are disclosed in Note 4.5 to the Financial Statements.

 

 


C

RELATIONS WITH SHAREHOLDERS

C.1

CONSTRUCTIVE USE OF THE ANNUAL GENERAL MEETING (AGM) AND CONDUCT OF GENERAL MEETINGS

 

 

Boards should use the AGM to communicate with shareholders and should encourage their participation.

 

C.1.1

 

Need to count all proxy votes and indicate the level of proxies lodged on each resolution for and against of such resolution.

The Company has in place a mechanism to count all proxy votes to indicate to the Chairman the level of proxies lodged on each resolution and the number of votes for and against such resolution.

C.1.2

 

Requirement to propose separate resolution at the AGM for each substantial separateissue and in particular resolutions to the adoption of annual report and accounts.

The Company proposes a separate resolution at the AGM on each substantial separate issue, including the adoption of the Financial Statements.

C.1.3 

 

Requirement for the Chairmen of the Audit Committee, Remuneration Committee and Nomination Committee be available at the AGM.

The Annual General Meeting provides a forum for shareholders to raise any queries. The Chairmen of the Audit, Remuneration and Nomination Committees are usually present at the Annual General Meeting

C.1.4 

 

Obligation to send the Notice of AGM and related papers to the shareholders prior to the meeting as determined by  statute.

The Notice of Meeting and related documents are dispatched to the shareholders 15 working days prior to the AGM, as per Section 135 of the Companies Act No.07 of 2007

C.1.5

 

Need to circulate summary of the proceduresgoverning voting at General Meetings along with the Notice of Meeting.

The Notice of Meeting outlines the procedure relating to voting at the Annual General Meeting. Every shareholder is entitled to one vote per share at a poll.

C.2

COMMUNICATION WITH SHAREHOLDERS

 

 

The board should implement effective communication with Shareholders

 

C. 2. 1

 

Need to have a channel to disseminatetimely information to all shareholders.

The Company uses many channels to reach shareholders in order to disseminate timely information. These include the Annual General Meeting, the Annual Report, Quarterly Financial Statements, Corporate Disclosures to the CSE and the Corporate Website.

C. 2 .2

 

Need to disclose the policy and methodology for communication with shareholders.

The Company’s policy pertaining to the communication with shareholders involves the sharing of all financial and non-financial information as per the applicable statutory and regulatory requirements and best practices adopted by the Company. The methodology of communication with shareholders is multi-faceted to ensure the accuracy of information disseminated and the timeliness of dissemination.

C. 2.3

 

Obligation to disclose how such methodology has been implemented.

The implementation of the policy and the methodology is done through the adoption of the above mentioned channels of communication.

C. 2. 4

 

Need to disclose the contact person for such communication.

The contact person for shareholder communication is the Company Secretary.

C. 2. 5

 

Need to have a process to make all Directors aware of major issues and concerns of shareholders.

Major issues and concerns of shareholders, if any, are discussed at Board Meetings. There were no such concerns expressed by shareholders that warranted consideration at a Board Meeting.

C .2. 6

 

Need to appoint a contact person in relation to shareholders’ matters.

The Contact Person in relation to all matters pertaining to the Shareholders is the Company Secretary

C. 2. 7 

 

Need for the Board to formulate a process to respond shareholder matters.

Appropriate responses formulated and actions taken to address shareholder concerns by the Board and the Management are communicated to the shareholders by the Company Secretary. The most suitable and expeditious method of communication would be determined by the Company Secretary.

C.3 

MAJOR AND MATERIAL TRANSACTIONS 

 

 

Further to compliance with the requirements under the Companies Act, Securities and Exchange Commission law and Colombo Stock Exchange regulations; as applicable, Directors should disclose to shareholders all proposed material transactions, which if entered into, would materially alter/vary the Company’s net assets base or in the case of a company with subsidiaries, the consolidated group net asset base.

 

C.3.1

 

Requirement to disclose major related party transactions.

There was no transaction during the year that fell within the definition of a major transaction defined by Section 185 of the Companies Act No. 07 of 2007. There were also no transactions during the year under review that would suggest a substantial alteration inthe nature of the business carried out by the Company.


D

ACCOUNTABILITY AND AUDIT

D.1

FINANCIAL REPORTING

 

 

The Board should present a balanced and understandable assessment of the Company’s financial position, performance and prospects.

 

D.1.1 

 

Obligation for the Board to present interim reports, price sensitive public reports, reports to regulators and statutory information requirements.

In preparing annual and quarterly Financial Statements, the Company complies with the requirements of the;
• Companies Act No. 07 of 2007,
• Sri Lanka Accounting Standards and
• Listing Rules of the Colombo Stock Exchange.
The annual and interim Financial Statements were published within the time periods prescribed by the Listing Rules of the Colombo Stock Exchange.
The compliance with all other statutory and regulatory requirements is disclosed in the “Enterprise Governance” presented on pages from 41 to 50.

D.1.2 

 

Need to include the declaration by the Directors in the “Directors’ Report”

Please refer “Annual Report of the Board of Directors” on pages from 114 to 116 and “Board of Directors’ Statement on Internal Controls” on page 118 for respective declarations. 

D.1.3

 

Requirement to set out the responsibilities of the Board in preparation and presentation of Financial Statements, Auditors’ reporting responsibilities and a report/ statement on internal controls.

Please refer “Board of Directors’ Statement on Internal Controls” on page 118 and “Statement of Directors’ Responsibilities for Financial Statements” on page 119 for respective statements. 

D.1.4

 

Need to include “Management Discussion & Analysis” in the Annual Report.

The Board endeavours to present a balanced and an objective assessment of the Company’s position, performance and prospects.

Information required by this section is included in several sections of the Annual Report 2016/17

D.1.5

 

Need for the Directors to report on the going concern of the business.

The information on the Board’s determination of the entity as a going concern is included in “Annual Report of the Board of Directors” on pages from 114 to 116.

D.1.6 

 

The need to summon an Extraordinary General Meeting in the event where the net assets of the Company fall below 50% of the shareholders’ funds.

This situation did not arise during the financial year under review and the likelihood of such situation arising is remote.

D.1.7

 

Requirement to disclose related party transactions in the Annual Report.

There is an approved process of identifying related parties, related party transactions and ensuring that such transactions are treated at “arm’s-length”. Further, self-declarations were obtained from the Directors in relation to the above.

The Company has established a “Related Party Transactions Review Committee” in 2015 to review related party transactions.

The details of Related Party Transactions are given in “Directors’ Interest in Contracts with the Company” on page 117 and “Section 5 – Other Disclosures” on pages from 163 to 164.

D.2

INTERNAL CONTROL

 

 

The Board should have a process of risk management and a sound system of internal control to safeguard shareholders' investments and the company's assets.

 

D.2.1 

 

Responsibility of the Board to review the risks faced by the Company and the effectiveness of the system of internal controls.

The Board has the overall responsibility for maintaining the systems of internal control of the Company and for monitoring their effectiveness, which has been delegated to the Audit Committee, whilst the implementation of internal control systems is the responsibility of the Group Management Committee. The Group’s systems of internal control are designed to manage rather than eliminate the risk of failure in achieving the business objectives. It can also provide a reasonable assurance against material financial misstatement or loss.

The Audit Committee is responsible for reviewing the financial reporting system and Financial Statements, to be published, including compliance with relevant accounting standards, laws and company policies.

The adequacy and effectiveness of the internal control system is reviewed by the Audit Committee with the Group Internal Auditor. During the Audit Committee meetings, Internal Auditors are invited to present their internal audit findings.

The Group Management Committee is expected to implement an effective system of internal control that addresses the following:

  • Safeguarding of assets
  • Maintaining proper accounting records
  • Providing reliable financial information
  • Identifying and managing business risks
  • Compliance with legislation and regulation
  • Early detection of instances of non- compliance
  • Identification and adoption of best practices

The details of Company’s Internal Control system is given in “Board of Directors’ Statement on Internal Control” on page 118 and Risk Management procedures are given in “Risk Management” on pages from 56 to 61.

D.2.2 

 

Need to have an Internal Audit function.

The Company has outsourced the internal audit function, which has enhanced the independence required by the function. The Group’s Internal Auditor is an employee of the Company who overlooks the internal audit function.

The internal audit plan is agreed with the Internal Auditors at the beginning of each financial year by the Audit Committee. However, the Internal Auditors are allowed the freedom to carry out any additional tasks they consider necessary.

The Audit Committee met the Internal Auditors at regular intervals during the financial year to discuss the internal audit findings and to discuss effectiveness of internal controls and identify the levels of risk
carried by the areas reviewed by the Internal Auditors. The Audit Committee also reviewed the fees paid to Internal Auditors.

D.2.3

 

Need for the Audit Committee to review the process and effectiveness of risk management and internal controls.

The role played by the Audit Committee in the Risk Management process is given in theReport of the Audit Committee and the Risk Management Report on page 51 and page 56 respectively.

D.2.4

 

Need for Directors to maintain sound system of internal controls and the contents of the Statement of internal controls.

The role of the Board and Audit Committee on implementation and maintenance of a sound system of internal controls are explained in the Annual Report

D.3

AUDIT COMMITTEE 

 

 

The Board should establish formal and transparent arrangements for considering how they should select and apply accounting policies, financial reporting and internal control principles and maintaining an appropriate relationship with the Company’s Auditors.

 

D.3.1 

 

Need for the Audit committee to be comprised of two Independent Non-Executive Directors or exclusively Non-Executive Directors majority of whom are independent, whichever is higher.

The Audit Committee consist of three Independent Non-Executive Directors. Further, the Company has obtained the service of an independent consultant who provides valuable insights to the Audit Committee.

The composition and attendance to the meetings of the Audit Committee is available in “Report of the Audit Committee” on page 51.

D.3.2 

 

Need for the Audit Committee to review the scope and results of the audit and its effectiveness, independence and the objectivity of the Auditors.

The main purpose is to assist the Board in the effective discharge of its responsibilities on financial reporting, risk management and corporate control. The Audit Committee assists the Board in monitoring compliance with applicable laws and other regulatory requirements.

The Audit Committee makes recommendations with regard to appointments and if require the removal of Independent Auditors. The Committee also evaluates the performance of Independent Auditors, reviews the terms of engagement and fees of the Auditors, for the audit. The Committee also reviewed fees paid to Independent Auditors on account of audit related services and non-audit services. 

Refer “Report of the Audit committee” presented on page 51 for further details. 

D.3.3

 

Need for the Audit Committee to have written terms of reference.

Terms of Reference of the Committee clearly sets out its responsibilities and authority.
The Board has also considered the Code of Best Practice of The Institute of Chartered Accountants of Sri Lanka in defining the terms of reference for the Audit Committee.

D.3.4

DISCLOSURES

 

 

Need to disclose the names of the Directors who are members in the Audit Committee.

The names of the members of the Audit Committee, Committee meetings held and the attendance of members are available in “Report of the Audit Committee” on page 51.

The basis of determination of the independence of Auditors is given under the response to D.3.2. The Chairman/Managing Director, Chief Executive Officer and the Director/Chief Financial Officer attend Audit Committee meetings unless otherwise determined by the Audit Committee. Any member of the Board may attend the Committee meetings by invitation.

The “Report of the Audit Committee” is available on page 51.

D.4

CODE OF BUSINESS CONDUCT & ETHICS 

 

 

Companies must adopt a Code of Business Conduct and Ethics for Directors, and Key Management personnel and must promptly disclose any waivers of the Code for Directors or others.

 

D.4.1

 

Need to disclose the availabilityof Code of Business Conduct and ethics for Directors and the members of the Key Management Personnel.

The Company has a Code of Ethics applicable to Directors and employees of the Company. The areas covered in the Code of Ethics include proprietary information, conflict of interest, benefits from thirdparties, accurate books of account, usage of company property for personal use, illegal acquisition of competitor information, insider trading, protection of environment & natural resources and gender equity. Compliance with laws and regulations is a strict requirement for Directors and all employees.

There were no reported cases of non-compliance to, Code of Business Ethics by any Director/ Key management personnel.

D.4.2

 

Obligation for the Chairman to affirm that he/ she is not aware of any violation of the Code of Business Conduct and Ethics.

Please refer the Chairman’s Message on pages from 9 to 11.

D.5

CORPORATE GOVERNANCE DISCLOSURES

 

 

Directors should be required to disclose the extent to which the Company adheres to established principles and practices of good Corporate Governance.

 

D.5.1

 

Need for the Directors to include a Corporate Governance Report in the Annual Report.

The “Enterprise Governance” (from pages 41 to 50) includes the conformance aspects relating to Enterprise Governance. The contents of this table deals with the extent to which established principles of good Corporate Governance have been adhered to and the requirements of the Code of Best Practices on Corporate Governance jointly issued by the SEC and ICASL.

The Company has implemented the regulations of the Section 7.10 of the Listing Rules of Colombo Stock Exchange on Corporate Governance. Refer pages from 47 to 48.


Section 2 :

 

SHAREHOLDERS

E

INSTITUTIONAL INVESTORS

E.1

SHAREHOLDER VOTING

 

 

Institutional shareholders have a responsibility to make considered use of their votes and should be encouraged to ensure their voting intentions are translated into practice.

 

E.1.1

 

Need to conduct a regular and structured dialogue with the shareholders.

.

The Annual General Meeting provides the forum for shareholders to express their views. The Chairman ensures that any views expressed by investors to him personally or at General Meetings are discussed with the Board. The Directors consider it important to understand the views of shareholders and, in particular, any issues which concern them.

E.2

EVALUATION OF GOVERNANCE DISCLOSURES

 

 

Need to encourage the institutional investors to give due weight torelevant governance arrangements.

The Annual Report and this table contain the Company’s governance arrangements. Institutional Investors are at liberty to provide any feedback on the governance arrangements.


F

OTHER  INVESTORS

F.1 

INVESTING/ DIVESTING DECISION 

 

 

Individual shareholders, investing directly in shares of companies should be encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions.

The Company’s communications with the shareholders, including the Annual Report, provides information that enables shareholders to make
informed judgments or to seek advice on their investment decisions. The extensive nature of the information given would facilitate the shareholders in carrying out adequate analysis when making their decisions.

F.2

SHAREHOLDER VOTING

 

 

Need to encourage individual shareholders to participate in General Meetings and exercise their voting rights.

The shareholders are encouraged to participate at General Meetings and cast their votes. Instructions with regard to appointing a proxy and the manner in which a Proxy Form should be completed are available in the Proxy Form circulated with the Annual Report


G

SUSTAINABILITY REPORTING

 

 

Sustainability is a business approach that creates long term stakeholder value by embracing opportunities and managing risks derived from economic, environmental and social developments and their potential implications and impacts on the business activities of the entity. Sustainability reporting is the practice of recognizing, measuring, disclosing and being accountable to internal and external stakeholders for organizational performance towards the goals of sustainable development in the context of overall business activities and strategy of the entity and be directed to the target stakeholders, usually, shareholders, employees, consumers, society and government.

Sustainability reporting is the practice of recognizing, measuring, disclosing and being accountable to internal and external stakeholders for organizational performance towards the goals of sustainable development in the context of the overall business activities and strategy of the entity and be directed to the target stakeholders, usually, shareholders, employees, consumers, society and Government.

G.1.1

 

Reporting on Economic sustainability

Please refer “Economic Impact” from pages 96 to 97.

G.1.2

 

Reporting on the Environment

Please refer "Environmental Impact" from pages 98 to 105.

G.1.3

 

Reporting on Labour Practices

Please refer "Human Capital" from pages 75 to 79.

G.1.4

 

Reporting on Society

Please refer "Social Impact" from pages 106 to 109.

G.1.5

 

Reporting on Product Responsibility

Please refer "Relationship Capital - Customers" from pages 68 to 71.

G.1.6

 

Reporting on stakeholder identification, engagement and effective communication.

Please refer "Stakeholder Engagement" from pages 34 to 38.

G.1.7

 

Formalizing sustainable reporting and disclosure as a part of the Company’s reporting process.

The Impact Report from pages 95 to 111 covers key aspects of sustainability and stakeholder engagement. The Annual Report 2016/17, together with the GRI Content Index and key information relating to sustainability available on the Company’s website is prepared “In accordance” – GRI Standards .

An independent assurance statement on non-financial information reported is available on pages from 175 to 177.