Hayleys PLC

Highlights 2013/14

Mr. L.R.V. Waidyaratne, appointed as a member of the Board after the 2011/12 Annual General Meeting was re-elected to the Board as a Director.

Mr. H.R.S Kariyawasan, Mr. M.R. Zaheed and Dr. H. Cabral, re-elected to the Board as Directors at the 2012/13 Annual General Meeting who retired by rotation.

Mr. M.H. Jamaldeen, appointed as an Independent Non-Executive Director to the Board.

Mr. G.A. Dandeniya and Ms. D.S. Amerasinghe, appointed to the Hayleys Group Management Committee.

Mr. R.P. Pathirana, a member of the Board since 2011 resigned during the year.

Mr. M.M.M. De Silva, Mr. G.K. Seneviratne, Mr. S.P. Dissanayake, ceased to be members of the Hayleys Group Management Committee subsequent to their retirement.

Mr. G.M.P. De Silva, resigned from the Hayleys Group Management Committee.

Hayleys has a policy of complying with established best practices in Corporate Governance. The Board has adopted core values and Group standards which set out the conduct of staff in their dealings with shareholders, colleagues, suppliers and other stakeholders of the Group which ensures positive workplace management, marketplace responsibility, environmental stewardship, community engagement and sustained financial performance. This involves the maintenance of;

an efficient organisational structure,
systems for internal control and risk management,
transparent internal and external reporting.

The Hayleys Governance Structure can be graphically shown as follows:

Internal Governance Structure & Assurance

Internal governance encompasses the system of policies, processes and rules created by the Hayleys Board of Directors for the business to follow. It includes the reasons for which the company operates and the roles various stakeholders play in pursuing and achieving those goals. Hayleys internal governance structure and assurance framework is depicted in the following diagram.

Internal Governance Structure

Hayleys Internal Governance Structure is established and overseen by the Board of Directors and designed to allow for effective and efficient decision-making and to meet corporate governance standards. The Board of Directors has delegated authority to its Committees on specific matters which are set out in written terms of reference in line with evolving best practice and the highest standards of corporate governance.

Group strategies are subjected to a comprehensive annual review by the Board and are discussed further as necessary during the year.

The Group Management Committee has been delegated authority to formulate strategies in respect of business units, and implement them within the policy framework established by the Board.

The sectors are required to align their strategies towards the achievement of the Group and Sector/Company Key Performance Indicators (KPIs). The annual budgeting process assists this and documents Sector strategies and short term objectives.

The achievement of targets through implementation of strategies formulated, current performance and the short-term outlook are reviewed at sector review meetings which are held monthly. Further, focused discussion takes place at monthly Group Management Committee meetings.

The Board in understanding current business performance strives to ensure there is transparency on significant risk exposures. It encourages a culture where there is open debate and discussion on the risks faced in achieving business objectives and on new projects and key investment initiatives.

In providing strategic direction, the Board will obtain and review all strategic options and initiatives under consideration. This will comprise an analysis of the options, resource constraints and related risk exposures to facilitate informed decision making.

Hayleys Group Management Committee (HGMC)
In keeping with the authority delegated to HGMC by the Hayleys Board, HGMC members are responsible for developing strategies and action plans in respect of the sectors and/or business units they manage. The members in charge of service units are responsible for formulation of policies and strategies in respect of these units. These are subject to approval by the Board.

Strategies in respect of sectors are presented in the annual budget planning process and are discussed and approved by the HGMC before submission to the Hayleys Board for approval.

All capital expenditure of business sectors are required to be approved by the Boards of the respective companies.

Companies falling within each sector are required to hold quarterly meetings at which all matters requiring the approval of the Boards of those companies will be tabled and considered.

The Responsibilities of the HGMC

Recruitment, remuneration and discipline of all personnel
Training and succession planning
Negotiations with trade unions and manual and clerical personnel
Approval of expenditure
Supervision of financial authority
Maintenance of safety and ethical standards
Management of risk and following implicit and explicit guidelines set by the Group
Protection and maintenance of assets
Providing support to the Board in pursuing Hayleys Group objectives and standards

While Group Companies are subject to coverage by the Audit Committees, HGMC members are responsible to review risk management systems and internal control systems designed to protect assets, ensure proper records are maintained and information produced is reliable.

The members are also responsible for the recruitment, training and retention of senior management staff and ensuring succession for key functions. The Chairman and HGMC, in consultation with the Head of Group HR, have oversight for ensuring that succession plans are in place for all sectors.

The Group Management Committee meets monthly and reviews the actual financial performance against respective budgets and forecasts.

Copies of minutes of the Group Management Committee meetings and of other Review meetings are sent to all Directors including the Non-Executive Directors.

Internal Communication

Functional Clusters
The established Finance, Information Technology, Corporate Communications, & HR Clusters bring together representatives from the different parts of the Group. These Clusters serve as forums to communicate relevant matters, identify areas of special interest and concern, discuss these and share best practices.

All Financial Controllers of sectors are required to report in writing to the Group Financial Controller, on a quarterly basis, bringing to his notice any significant risk or concern regarding business activities of their sector and the financial statements submitted by them. This reporting may be more frequent if circumstances warrant it. These are subject to active discussion at the CFO Forum which takes place every 6 weeks so that matters are debated among the CFOs of the Group.

CEO’s Forum
The CEO’s Forum chaired by the Chairman & Chief Executive is held quarterly. This forum brings together management staff of all companies, enabling dissemination of information and sharing of best practices within the Group. Guest speakers are also invited to make presentations on topical issues.

Assurance

Components of assurance ensure that the objectives of Corporate Governance are achieved and once achieved, they are used to realise the intended values.

Senior Independent Director
Since the role of Chairman and Chief Executive is combined, the appointment of the Senior Independent Director mitigates the risk of an over-concentration of decision making powers in one person. The Senior Independent Director is responsible for:

Setting the Company’s values and standards and ensuring that its obligations to shareholders and others are understood and met
Upholding high ethical standards of integrity and probity.
Supporting executives in their leadership of the business, whilst monitoring their conduct.
Promoting high standards of corporate governance and compliance with the provisions of the Combined Code whenever possible
Chair meetings with the other Non-Executive Directors (without the Chairman being present) encouraging open dialogue, particularly regarding the Chairman’s performance.
Be available to shareholders in case they have concerns which cannot, or should not, be addressed by the Chairman or Executive Directors.
Act on the results of any performance evaluation of the Chairman.
Maintain sufficient contact with major shareholders, when requested, to understand their issues and concerns thereby assisting the Board to develop a balanced understanding.

Internal Audit & Control
The Board is responsible for the Groups’ internal control and its effectiveness. Internal control is established with emphasis placed on safeguarding assets, making available accurate and timely information and imposing greater discipline on decision making. It covers all controls, including financial, operational and compliance control and risk management. It is important to state, that any system can ensure only reasonable, and not absolute, assurance that errors and irregularities are prevented or detected within a reasonable time.

The Groups’ Management Audit & System Review Department (MA&SRD) plays a significant role in assessing the effectiveness and successful implementation of existing controls, strengthening these and establishing new controls where necessary. The MA&SRD’s reports are made available to the Chairman & Chief Executive and the Chairman of the Audit Committee.

The Group also obtains the services of independent professional accounting firms other than the statutory auditors to carry out internal audits and reviews to supplement the work done by the MA&SRD.

The Board has reviewed the effectiveness of the system of financial controls for the period up to the date of signing accounts.

Information Technology IT Governance
IT Governance at Hayleys continues to play a vital role in the way Information Technology related services are managed and controlled. It establishes standards that underpin Hayleys overall Vision for IT.

At Hayleys, IT governance is controlled on multiple fronts: firstly, the ‘Structural Component’ that pertains to Hayleys IT activities to support goals of the business and people who manage those activities. Secondly the ‘Processes Component’ that defines IT decision-making processes as well as policies that measure and control the way IT is carried out at Hayleys.

With the introduction of the ‘SAP Transformation Programme’ and sectors gradually coming on-board with SAP Business Systems - Hayleys is in the process of setting-up a SAP Governance Team (SGT) that will include both business and IT stakeholders from individual sectors.

The Hayleys IT Forum meets on a monthly basis. This provides an ideal platform for all IT representatives across Hayleys to meet and discuss common issues and share best practices across Hayleys Group.

Hayleys Preferred Supplier Programme (PSP) has been in operation successfully since last year. Through PSP, Hayleys has centralised the purchasing of hardware and negotiated rates with suppliers that provides the Group price advantage due to larger forecasted volumes.

Hayleys IT policies and procedures are reviewed at regular intervals to ensure that the changing needs of technology and business are aligned.

IT Value and Alignment
Investments for IT projects and systems within Hayleys are made after careful consideration of their suitability for related projects.

Cost Benefit Analysis is undertaken to ascertain aspects such as cost savings, improved customer satisfaction, timely information availability and balance between cost of investment and scale of operations. All significant IT related investments at Hayleys are put through a stringent assessment criterion and approved by the Sector Heads as well as the Group CIO for completeness and accountability

Hayleys believes that business alignment with Information Technology is paramount to increase the value of IT.

IT Risk Management
The Risks associated with Information Technology at Hayleys are continually assessed as part of the Enterprise Risk Management Process.

The use of licensed software, closer monitoring of internet usage, compliance based email archival and other IT related operations (for compliance with the Hayleys ‘IT User Policy’) and the use of antivirus, firewall servers/software etc, are some of the critical practices deployed.

Hayleys through its Website Vulnerability Assessment Programme (WVAP) is in the process of testing each and every customer facing site to ensure that all vulnerabilities presented are addressed and resolved.

Business Critical Information is backed up or replicated at regular intervals and kept in secure offsite locations to meet statutory and other relevant compliances. In addition, Hayleys Business Critical Systems are duplicated (through Hayleys Disaster Recovery Programme) as a necessary cover for catastrophic failures.

External Audit
The external auditors of the holding company and all other local companies within the Group are Ernst & Young. They also provide non-assurance services to the Group. The restrictions provided in terms of rulings issued by CSE and other commitments were taken into consideration when entering engagements with the Group auditor.

The knowledge and experience of the Audit Committees ensure effective usage of the expertise of the auditors, while maintaining independence, in order to derive transparent Financial Statements. The Group maintains independence from financial and non-financial interests between auditors and re-assesses the same on a regular basis. The auditors certify this on an annual basis.

The fees paid for audit and non-audit services are separately disclosed in the Notes to the Financial Statements.

Code of Business Principles
For more than 135 years, Hayleys has demonstrated a commitment to doing business with integrity. It has expanded into new businesses and built a record of sustained growth, with diverse businesses in twelve different sectors of enterprise.

The Hayleys Way is an ethical roadmap that exists to guide the expectations of integrity of every employee of the Hayleys Group.

Principles & Scope
1. The Hayleys Group is committed to conducting its business operations with honesty, integrity and with respect to the rights and interests of all stakeholders.
2. All Hayleys companies and employees are required to comply with the laws and regulations of countries in which it operates.
3. Every employee shall be responsible for implementation of and compliance with the Code in his/her environment.

The statement provides guidelines by which the Hayleys Group conducts its businesses and operations in all the countries we operate in, within the following parameters

Whistleblower Policy
Hayleys Group is committed to the highest standards of ethical, moral and legal conduct in operating its businesses. In line with this commitment, the Whistleblower Policy exists to provide a mechanism for employees to raise concerns where the interests of the organisation are at risk and is expected to provide an assurance that employees raising such concerns will be protected from reprisals and victimisation. This Policy applies to all individuals working at all levels within Hayleys Group.

Principlse & Scope
This Whistleblower Policy is intended to cover concerns raised by staff on the following matters.

External Governance Structure
As a responsible corporate body, the Group adheres to regulations, codes and best practices promulgated by different governing bodies.

Companies Act No. 7 of 2007
Code of Best Practice on Corporate Governance issued jointly by the CA Sri Lanka and the Securities and Exchange Commission of Sri Lanka
Listing Rules of the Colombo Stock Exchange
Inland Revenue Act No. 10 of 2006 and subsequent amendmentsExchange Control Act
Customs Ordinance

Section A
This section covers Hayleys extent of adherence to the requirements of the Code of Best Practice on Corporate Governance issued by the CA Sri Lanka and the Securities and Exchange Commission of Sri Lanka. It reflects Hayleys’ governance in the following six fundamental aspects.

Directors
Directors’ Remuneration
Relations with Shareholders
Accountability and Audit
Institutional Investors
Other Investors
Sustainability

Corporate Governance Principles

ICASL & SEC Code Reference

Compliance Status

Hayleys Extent of Adoption

A. Directors

A.1 The Board

Hayleys PLC is headed by an effective Board of Directors which consists of professionals and business leaders drawn from different backgrounds and their profiles are given in the Stewardship/Board of Directors. The Board of Directors of Hayleys PLC is responsible for governance of all companies which Hayleys actively manages.

1. Board meetings

A.1.1

Compliant

The Board meets monthly to review the performance of the Company and its subsidiaries and take strategic decisions relating to Group’s direction and other matters.

Remuneration Committee and Nominations Committee also meet as required.

Special Board meetings are held as necessary. These meetings enhance shareholder value and all stakeholder interests are considered in corporate decisions.

2. Responsibilities of the Board

A.1.2

Compliant

The Board of Directors formulates, implements and communicates business policy and strategy to assure sustained growth, and monitors its implementation. It ensures the Chief Executive and management team possess the skills, experience and knowledge to implement the strategy effectively, with proper succession arrangements in place.
The Board ensures effective systems to secure integrity of information, internal controls and risk management, compliance with laws and regulations and ethical standards. The Board recognises sustainable business development in corporate strategy, decisions and activities. The Board ensures all stakeholder interests are considered in corporate decisions and values and standards are set with emphasis on adopting appropriate accounting policies and fostering compliance with financial regulations.

3. Compliance with laws and seeking independent professional advice

A 1.3

Compliant

The Board collectively, and Directors individually, act in accordance with the laws and regulations of Sri Lanka as applicable to the Group. The Directors are permitted to obtain independent professional advice when required at the expense of Hayleys and will be coordinated through Hayleys Group Services (Pv) Ltd. as and when it is necessary.

During the year professional advice was obtained on various matters including following:

Actuarial valuation of the retirement benefits; and
Accounting, legal and tax aspects.

4. Company Secretary

A.1.4

Compliant

All Directors have access to the advice and services of the Company Secretary as necessary. The Company Secretary keeps the Board informed of new laws and revisions, regulations and requirements coming into effect which are relevant to them as individual Directors and collectively to the Board. Any question of the removal of the Company Secretary is a matter of the Board as a whole.

5. Independent judgment of Directors

A.1.5

Compliant

All Directors bring independent judgment to the scrutiny of decisions taken by the Board on issues of strategy, performance, resources and business conduct and none of the Non-Executive Directors has held executive positions in the Group in the recent past.

6. Dedication of adequate time and effort by the Directors

A.1.6

Compliant

The Chairman and members of the Board dedicate adequate time and effort to fulfil the duties as Directors of Hayleys PLC to ensure that the duties and responsibilities owed to Hayleys PLC are satisfactorily discharged. In addition to attending Board meetings, they attend Sub-Committees and ensure that they allocate adequate time and effort to fulfil the duties as members of such Board Sub-Committees.

Directors dedicate sufficient time before a meeting to review Board papers and call for additional information and clarification, and to follow up on issues consequent to the meeting.

7. Training for new and existing Directors

A.1.7

Compliant

Every new Director and existing Directors are provided training on general aspects of directorship and matters specific to the industry as necessary. Every Director recognises the need for continuous training and an expansion of the knowledge and skills required to effectively perform their duties as required.

A. 2 Chairman and Chief Executive

The Code requires a clear division of responsibilities between conducting of the business of the Board, and facilitating executive responsibility for management of the business. Though the functions of Chairman and Chief Executive are vested in one, the management structure established within the Group ensures this does not compromise the effective practice of Corporate Governance in the Group.

8. Justification and highlighting the combining of the posts of Chairman and Chief Executive

A.2.1

Compliant

Though the functions of Chairman and Chief Executive are vested in one person, the management structure established within the Group ensures this does not compromise the effective practice of Corporate Governance in the Group. The Executive Directors and HGMC members are responsible for the businesses conducted by the Group and effectively function as CEOs of these businesses.

Dr. H. Cabral, PC , Non-Executive Director functioned as Senior Independent Director through the year and ensuring governance within the Board is preserved and stakeholder concerns are addressed.

A 3. Chairman’s Role

The Chairman is responsible for effective conduct of meetings of the Board; he preserves order and facilitates discharge of Board functions and implementation of decisions taken.

9. Role of the Chairman

A.3.1

Compliant

The Chairman is responsible for the efficient conduct of Board meetings and ensures, inter alia, that

The effective participation of both Executive and Non-Executive Directors is secured.
All Directors are encouraged to make an effective contribution for the benefit of the Company
A balance of power between Executive and Non-Executive Directors is maintained
The views of Directors on issues under consideration are ascertained; and
The Board is in complete control of the Company’s affairs and alert to its obligations to all shareholders and other stakeholders.

The Chairman maintains close contact with all Directors and, where necessary, holds meetings with Non-Executive Directors without Executive Directors being present.

A 4. Financial Acumen

The Code requires the Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

10. Availability of sufficient financial acumen and knowledge

A.4.1

Compliant

The Board of Directors have experience in all sectors where Hayleys is operating coupled with their academic background and also possess financial acumen and knowledge together with having significant business acumen leading private and public enterprises.

There are four Chartered/Management Accountants on the Board and they are as follows:

Sarath Ganegoda
Mangala Goonatilleke
Rajitha Kariyawasan
M.H. Jamaldeen

A. 5 Board Balance

The Code requires the Board to have a balance of Executive and Non-Executive Directors so that no individual or small group of individuals can dominate the Board’s decision-making.

11. Presence of Non-Executive Directors (NEDs)

A.5.1

Deviated from the Code

According to the Code , Non-Executive Directors should comprise a majority of the Board since, Chairman and Chief Executive is the same person.

Five out of twelve Directors are Non-Executive Directors.

Even though, Executive Directors comprise a majority of the Board, both Non-Executive and Executive Directors make sure that no individual or small group of individual can dominate the Board’s decision-making.

12. Independent Non-Executive Directors

A.5.2

Compliant

Three out of Five Non-Executive Directors are Independent Directors.

13. Independence of Non- Executive Directors

A.5.3

Compliant

All Independent Non-Executive Directors are independent of management and free of any business or other relationship that could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgment.

14. Annual Declaration

A.5.4

Compliant

Each Non-Executive Director submits a declaration of independence/ non independence in a prescribed format.

15. Determination of independence of the Directors

A.5.5.

Compliant

The Board has determined the independence of Directors based on the declarations submitted by the Non-Executive Directors as to their independence, as a fair representation and will continue to evaluate their independence on this basis annually.

The Board being of opinion that Mr. M. H. Jamaldeen has the capability to conduct himself in an independent and impartial manner on matters deliberated by the Board. Therefore, the Board is of the opinion that his independence will not be affected by his spouse, Mrs. I. Jamaldeen being an Alternate Director of The Kingsbury PLC.

Independent Non-executive Directors are;

Dr. H. Cabral, PC
M. D. S. Goonatilleke
R. P. Pathirana (resigned w.e.f. 31.01.2014)
M. H. Jamaldeen (appointed w.e.f. 07.02.2014)

16. Alternate Director

A.5.6

Compliant

During the year Ms. Shyamalie Weerasooriya was appointed as an Alternate Director to Mr. K. D. D. Perera who is a Non-Executive Director.

17. Senior Independent Director

A.5.7

Compliant

Since the Chairman and Chief Executive is the same person, Dr. H. Cabral, PC who is an Independent Non-Executive Director function as the Senior Independent Director.

18. Confidential discussions with Senior Independent Director

A.5.8

Compliant

Senior Independent Director is available for confidential discussions with other Directors who may have concerns which pertain to significant issues that are detrimental to the Group.

19. Chairman’s meetings with Non-Executive Directors

A.5.9

Compliant

Chairman meets with Non-Executive Directors only, without the Executive Directors being present whenever necessary ( more than once a year).

20. Recording of concerns in Board minutes

A.5.9

Compliant

Concerns raised by the Directors which cannot be unanimously resolved, if any, are recorded in the Board minutes with adequate details.

A.6 Supply of Information

The Code requires the Board should be provided with timely information in a form and of an appropriate quality enabling them to discharge their duties.

21. Management’s obligation to provide appropriate and timely information to the Board.

A.6.1

Compliant

Directors are provided with monthly reports on performance, minutes of review meetings and such other reports and documents as necessary. The Chairman ensures all Directors are adequately briefed on issues arising at meetings.

The minutes, agenda and papers required for Board meeting are provided in advance to facilitate its effective conduct.

22. Adequate time for effective conduct of the Board meetings.

A.6.2

Compliant

The minutes, agenda and papers required for Board meeting are provided in advance to facilitate its effective conduct.

A.7 Appointments to the Board

The Code requires having a formal and transparent procedure for the appointment of new Directors to the Board.

23. Nomination Committee

A.7.1

Compliant

Nomination Committee makes recommendations to the Board on all new Board appointments. Nomination Committee of Hayleys PLC consists of the following Directors:

Nomination Committee

Chairman: A.M. Pandithage

Name of Member

K.D.D. Perera

W. D. N. H. Perera

Dr. H. Cabral, PC

The Board believes it is appropriate for the Chairman & Chief Executive to chair this Committee and that the composition of the Committee ensures its balance.

24. Assessment of Board-Composition by the Nomination Committee

A.7.2

Compliant

The Nomination Committee annually assesses Board-composition to ascertain whether the combined knowledge and experience of the Board matches the strategic demands facing the Company. The findings of such assessment are taken into account when new Board appointments are considered.

25. Dislosure of required details of new Directors to shareholders.

A.7.3

Compliant

Following details of new Directors are disclosed on their appointment to the Colombo Stock Exchange, selected newspapers and in the Annual Report,

A brief re'sume' of the Director;
The nature of his expertise in relevant functional areas;
The names of companies in which the Director holds directorships or memberships in Board Committees; and
Whether such Director can be considered ‘independent’.

A.8 Re-election

The Code requires all Directors should be required to submit themselves for re-election at regular intervals at least once in every three years.

26. Appointments of Non-Executive Diretors, Chief Executive and Directors in the Board

A.8.1

A.8.2

Compliant

The provisions of the Company’s Articles require a Director appointed by the Board to hold office until the next Annual General Meeting and seek re-appointment by the shareholders at that meeting.

The Articles call for one-third of the Directors in office to retire at each Annual General Meeting. The Directors who retire are those who have served for the longest period after their appointment /re-appointment. Retiring Directors are generally eligible for re-election.

The names of Directors submitted for election or re-election are accompanied by a re'sume' to enable shareholders to make an informed decision on their election.

The provisions of the Articles of the Company do not require the Director who is the Chief Executive to retire by rotation.

A.9 Appraisal of Board Performance

The Code requires the Board to periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

27. Annual performance evaluation of the Board and its Committees

A.9.1

A.9.2

Compliant

The Chairman and Remuneration Committee evaluates the performance of the Executive Directors .

The Board undertakes an annual self evaluation of its own performance and of it Committees and the Board evaluated its performance and effectiveness in the current year.

28. Disclosure of performance evaluation criteria

A.9.3

Compliant

Board evaluates its performance according to following guidelines.

Strategies developed and implemented.
Board image.
Compliance with laws and regulations.
Quality of participation in the meetings.
Effectiveness of systems and procedures.

A.10 Disclosure of information in respect of Directors

The Code requires the shareholders should be kept advised of relevant details in respect of Directors.

29. Details in respect of Directors

A.10.1

Compliant

The following information in relation to Directors is disclosed.

Name, qualifications and brief profile

The nature of his expertise

Related party transactions

Status of Executive/ Non-Executive

Status of Independence/ Non-Independence

Names of listed companies each Director serves as a Director.

Number of meetings (The Board and Committees)held and attendance

Names of Committees in which the Director serves as the Chairman or a member .

A.11 Appraisal of Chief Executive

The Code requires the Board to assess the performance of the Chief Executive

30. Setting Annual targets and appraisal of the performance of the Chief Executive by the Board.

A.11.1

A.11.2

Compliant

Prior to the commencement of each financial year the Board in consultation with the CEO, set reasonable financial and non-financial targets which are in line with short, medium and long-term objectives of Hayleys, achievement of which should be ensured by the Chief Executive. A monthly performance evaluation is carried out at which actual performance is compared to the budget. The Chief Executive is responsible to provide the Board with explanations for any adverse variances together with actions to be taken.

B. Directors’ Remuneration

B.1 Remuneration Procedure

The Code requires establishing a formal and transparent procedure for developing policy on executive remuneration and for fixing remuneration packages of individual Directors and no Director is involved in deciding his own remuneration.

31. Establishment of the Remuneration Committee

B.1.1

Compliant

The Remuneration Committee decides on the remuneration of the Chairman/Chief Executive and the Executive Directors and sets guidelines for the remuneration of the management staff within the Group. Please refer Remuneration Committee Report for the terms of reference for Remuneration Committee.

32. Composition of the Remuneration Committee

B.1.2

Compliant

The Remuneration Committee consists of Non-Executive Directors and the Chairman of this Committee appointed by the Board is the Senior Independent Director Dr. H. Cabral, PC.

33. Chairman and the members of the Remuneration Committee

B.1.3

Compliant

The Remuneration Committee consists of the following Non-Executive Directors.

Dr. H. Cabral, PC - Chairman

Name of Member
K.D.D. Perera
W.D.N.H. Perera
M.D.S. Goonatilleke
R.P. Pathirana (resigned w.e.f. 31.01.2014)
M. H. Jamaldeen (appointed w.e.f 21.04.2014)

34. Determination of remuneration of Non-Executive Directors

B.1.4

Compliant

The Board as a whole determines the remuneration of the Non-Executive Directors. The Non-ExecutiveDirectors receive a fee for being a Director of the Board and additional fee for being a member of a Committee. They do not receive any performance related/ incentive payments.

35. Consultation of the Chairman and access to professional advice.

B.1.5

Compliant

Remuneration Committee consults the Chairman about its proposal relating to the remuneration of other Executive Directors and has access to professional advice from within and outside Hayleys PLC, in discharging its responsibilities.

B.2 The Level and make up of remuneration

The Code requires the levels of remuneration of Directors should be sufficient to attract and retain the Directors. The proportion of remuneration of Executive Directors should be linked to corporate and individual performance.

36. Executive Director’s remuneration package

B.2.1

Compliant

The Remuneration Committee provides the packages needed to attract, retain and motivate Executive Directors of the quality required.

37. Comparisons of remuneration with other companies

B.2.2

Compliant

The Remuneration Committee ensures that the remuneration of executives of each level of management is competitive and is in line with their performance. Surveys are conducted as and when necessary to ensure that the remuneration is competitive with those of comparable companies.

38. Comparisons of remuneration with other companies in the Group.

B.2.3

Compliant

The Remuneration Committee reviews data concerning executive pay among the Group companies.

39. Performance related elements of remuneration of Executive Directors

B.2.4

Compliant

A performance based incentive has been determined by the remuneration committee to ensure that the total earnings of the executives are aligned with the achievement of objectives and budgets of the Group companies.

40. Executive share options

B.2.5

N/A

Presently the Group does not have an Executive Share Option Scheme.

41. Executive Directors’ remuneration

B.2.6

Complaint

The Remuneration Committee follows the provisions set out in Schedule D of the Code as required.

42. Early termination of Executive Directors

B.2.7

B.2.8

N/A

No special early termination clauses are included in the contract of employment of Executive Directors that would entitle them to extra compensation. However, any such compensation would be determined by the Board of Directors.

43. Levels of remuneration for Non-Executive Directors

B.2.9

Compliant

Remuneration for Non-Executive Directors reflect the time commitment and responsibilities of their role, taking into consideration market practices.

Non-Executive Directors are not included in share options as there is no scheme in existence.

B.3 Disclosure of Remuneration.

The Code requires the Company’s Annual Report to contain a Statement of Remuneration policy and details of remuneration of the Board as a whole.

44. Disclosure of Remuneration

B.3.1

Compliant

Please refer section B.1.3 above for the members in the Remuneration Committee and the Remuneration Committee Report for the remuneration policy.

C Relations with Shareholders

C.1 Constructive use of the Annual General Meeting (AGM) and conduct of General Meetings

The Code requires the Board to use the AGM to communicate with shareholders and should encourage their participation.

45. Use of proxy votes

C.1.1

Compliant

Hayleys PLC has in place an effective mechanism to count all proxies lodged on each resolution, and the balance for and against the resolution, after it has been dealt with on a show of hand, except where a poll is called.

46. Separate resolution for all separate issues at the AGM

C.1.2

Compliant

Hayleys PLC proposes a separate resolution at the AGM on each substantial issue.

The adoption of the Annual Report of the Board of Directors and the Financial Statements is considered as a separate resolution.

47. Availability of all Board Sub Committee Chairmen

C1.3

Compliant

The Chairman of Hayleys PLC ensures that Chairmen of the Audit, Remuneration and Nomination Committees are available to answer questions at the AGM.

48. Adequate notice of the AGM

C.1.4

Compliant

A copy of the Annual Report including Financial Statements, Notice of Meeting and the Form of Proxy are sent to shareholders 15 working days prior to the date of the AGM as required by the Statute in order to provide the opportunity for all shareholders to attend the AGM.

49. Procedures of voting at General Meeting

C.1.5

Compliant

A summary of the procedures governing voting at General Meeting is circulated to shareholders with every notice of the General Meeting.

C.2 Communication with shareholders

The Code requires the Board should implement effective communication with shareholders.

50. Channel to reach all shareholders of the Company.

C.2.1

Compliant

The main mode of communication between the Company and the shareholders is the Annual General Meeting. Shareholders are provided with the information prior to the Annual General Meeting.

Following are posted on Hayleys website (www.hayleys.com).

Hayleys PLC Annual Report
Stock information
Stock exchange announcements

Comments and suggestions can be sent through info@cau.hayleys.com

51. Policy methodology for communication with shareholders.

C.2.2

Compliant

An open door policy is in place, which enables shareholders to keep in constant touch, visit and obtain information from the Company Secretaries and engage in dialogue.

52. Implementation of the policy and methodology for communication with shareholders.

C.2.3

Compliant

Please refer “ Stakeholder Engagement” for details of the policy and methodology for communication with shareholders.

53. Contact person for communication

C.2.4

C.2.6

Compliant

Details of contact persons are disclosed in the inner back cover of the Annual Report.

54. Process to make Directors aware of major issues and concerns of shareholders.

C.2.5

Compliant

The Company Secretary maintains a record of all correspondence received.

All major issues and concerns of shareholders are referred to the Board of Directors with the views of the management.

56. The process for responding to shareholders matters

C.2.7

Compliant

For major issues, the Company Secretary responds to the particular shareholder after referring to the Hayleys Board of Directors, and for other issues the Company Secretary directly responds to shareholders.

C.3 Major Transactions

The Code requires the Directors to disclose to shareholders all proposed corporate transactions, which if entered into, would materially alter the Hayleys PLC net assets and the consolidated group net asset base.

57. Disclosure on ‘major transactions’.

C.2.1

Compliant

During the year, there were no major transactions as defined by Section 185 of the Companies Act No. 07 of 2007 which materially affect the net asset base of Hayleys PLC or consolidated group net asset base.

Transactions, if any, which materially affect the net asset base of Hayleys PLC, will be disclosed in the quarterly and annual Financial Statements.

D. Accountability and Audit

D.1 Financial Reporting

The Code requires the Board to present a balanced and understandable assessment of Hayleys PLC’s financial position, performance and prospects.

58. Board’s responsibility for statutory and regulatory reporting

D.1.1

Compliant

The Board has recognised the responsibility to present regulatory and statutory reporting in a balanced and understandable manner.

When preparing quarterly and annual Financial Statements, Hayleys complied with the requirements of the Companies Act No. 07 of 2007 and prepared and presented them in accordance with Sri Lanka Accounting Standards. Hayleys PLC has also complied with the reporting requirements prescribed by the Colombo Stock Exchange.

59. Directors’ Report in the Annual Report

D1.2

Compliant

The Annual Report of the Board of Directors covers all areas of this section.

60. Statement of Directors’ and Auditor’s responsibility for the Financial Statements

D1.3

Compliant

Please refer “Statement of Directors’ Responsibilities”. Auditor’s responsibility is given in the “Independent Auditors’ Report “ .

61. Management Discussion Analysis

D.1.4

Compliant

Please refer “Management Review and Preview”.

62. Declaration by the Board on the going concern of the Business

D.1.5

Compliant

Please refer “Annual Report of the Board of Directors” and the
”Statement of Directors’ Responsibilities”

63. Summon an EGM to notify serious loss of capital

D.1.6

Not Applicable

Reason for such an EGM has not arisen as yet but would be complied with if such situation arises.

64. Disclosure of related party transactions

D.1.7

Compliant

The Directors have instituted an effective and comprehensive system of internal control for identifying, recording and disclosing related party transactions.

All related party transactions, as defined in Sri Lanka Accounting Standard - ( LKAS 24 ) on ' Related Party Transactionsare' are disclosed in note…. to Financial Statements.

D.2 Internal Control

The Code requires the Board to maintain a sound system of internal control to safeguard shareholders’ investments and the Hayleys assets.

65. Annual review of the effectiveness of Group’s system of internal controls

D.2.1

Compliant

The Board is responsible for the Group’s internal control and its effectiveness. Internal control is established with emphasis placed on safeguarding assets, making available accurate and timely information and imposing greater discipline on decision-making. It covers all controls, including financial, operational and compliance control and risk management. It is important to state, however that any system can ensure only reasonable, and not absolute, assurance that errors and irregularities are prevented or detected within a reasonable time.

The Group’s Management Audit & System Review Department (MA & SRD) plays a significant role in assessing the effectiveness and successful implementation of existing controls and strengthening these and establishing new controls where necessary. The MA & SRD’s reports are made available to the Chairman & Chief Executive and the Chairman of the Audit Committee.

The Group also obtains the services of independent professional accounting firms other than the statutory auditors to carry out internal audits and reviews to supplement the work done by the MA & SRD.

The Board has reviewed the effectiveness of the system of financial controls for the period up to the date of signing the accounts.

There is a direct channel between the Head of MA & SRD and the Chairman of the Audit Committee without the interference of any Directors or Executives.

66. Internal audit function

D.2.2

Compliant

Group’s Management Audit & System Review Department (MA & SRD) is responsible for internal audit function.

67. Review of the process and effectiveness of risk management and internal controls.

D.2.3

Compliant

The Audit Committee reviews internal control issues and risk management measures identified by Group’s Management Audit & System Review Department (MA & SRD) and evaluates the adequacy and effectiveness of the risk management and internal control systems including financial reporting.

68. Directors responsibility of maintaining of a sound internal control system.

D.2.4

Compliant

Please refer statement of Directors' Responsibilities.

D.3 Audit Committee

The Code requires the Board to 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 External Auditors.

69. Composition of the Audit Committee

D.3.1

Compliant

Audit Committee consists of;
Chairman: M.D.S Goonatilleke

Name of Member
W.D.N.H. Perera
Dr. H. Cabral. PC
R.P. Pathirana(resigned w.e.f. 31.01.2014)
M H Jamaldeen (appointed w.e.f. 21.04.2014)

Hayleys Group Services ( Pvt) Ltd, serves as the its Secretary. The Chairman & Chief Executive and Group CFO are invited to attend Meetings, and other Executive Directors attend meetings as required. The inputs of the statutory auditors are obtained where necessary.

The Audit Committee helps the Group achieve a balance between conformance and performance.

70. Duties of the Audit Committee

D.3.2

Compliant

The Audit Committee keeps under review the scope and results of the audit and its effectiveness, and the independence and objectivity of the auditors. Review of nature and extent of non-audit services provided by the Auditors to seek balance objectivity and independence.

71. Terms of Reference of the Audit Committee

D.3.3

Compliant

The Terms of Reference of the Audit Committee have been agreed to by the Board. This addresses the purpose of the Committee, its duties and responsibilities including the scope and functions of the Committee.

72. Disclosures of the Audit Committee

D.3.4

Compliant

Names of the members of the Audit Committee are disclosed in the Section on “ Audit Committee Report” and the disclosure of the independence of the Auditors is given under section on “ External Audits” in the “Audit Committee Report”.

D.4 Code of Business Conduct and Ethics

The Code requires Hayleys PLC to adopt a Code of Business Conduct and Ethics for Directors, and members of Senior Management Team and must promptly disclose any waivers of the Code for Directors or others.

73. Disclosure of Code of Business Conduct and Ethics.

D.4.1

Compliant

Hayleys has developed “ The Hayleys Way”- The Ethical Road Map for Code of Conduct for its employees including key management personnel.

74. Affirmation of the Code of Business Conduct and Ethics

D.4.2

Compliant

Refer the Chairman and Chief Executive’s Message

D.5 Corporate Governance Disclosures

The Code requires the Directors to disclose the extent to which Hayleys PLC adheres to established principles and practices of good Corporate Governance.

75. Disclosure of Corporate Governance

D.5.1

Compliant

This report sets out the manner and extent to which Hayleys PLC has complied with the principles and provisions of the Code.

Shareholders

E. Institutional Investors

E.1 Shareholder Voting

The Code requires Institutional Shareholders to make considered use of their votes and encouraged to ensure their voting intentions are translated to practice.

76. Communication with shareholders

E.1.1

Compliant

There are regular meetings with shareholders (based on their requests) on matters which are relevant and of concern to the general membership. Voting of the shareholders is critical in carrying out a resolution at the AGM. The Chairman ensures the views of the shareholders are communicated to the Board as a whole.

Shareholders are provided with Quarterly Financial Statements and the Annual Report, which the Group considers as its principal communication with them and other stakeholders. These reports are also made available on the Group’s website and are provided to the Colombo Stock Exchange.

Any information that the Board considered as price sensitive is disseminated to the shareholders as necessary.

Shareholders may bring up concerns they have, either with the Chairman & Chief Executive or the Group’s Secretarial Department as appropriate.

Discussions are held with Institutional Investors, involving the Chairman, and other Executive Directors where necessary. This process is supported by the Strategic Business Development Unit and the Corporate Affairs Unit. During these meetings, the Directors ensure protection of share price sensitive information that has not been made available to the Company’s shareholders.

E.2 Evaluation of Governance Disclosures

The Code requires the Institutional investors to give due weight to all relevant factors drawn to their attention.

77. Due weight by Institutional Investors.

E.2.1

Compliant

The Institutional Investors are encouraged to give due weight to all relevant matters including the Board structure and composition.

F. Other Investors

F.1 Investing/Divesting Decision

78. Individual shareholders

F.1.1

Compliant

Individual investors are encouraged to carry out adequate analysis or seek independent advice in investing or divesting decisions.

F.2 Shareholder Voting

79. Individual shareholders voting

F.2.1

Compliant

Individual shareholders are encouraged to participate in General Meetings of companies and exercise their voting rights.

G. Sustainability Reporting

The Code requires the Company to adopt the following principles in Sustainability Reporting to ensure the maintenance of policies and procedures to develop a sustainable business environment and to make disclosure on Sustainability.

G.1 Principles of sustainability reporting

80. Economic sustainability

G.1.1

Compliant

Please refer GRI Content Index.

81. The environment

G.1.2

Compliant

Please refer GRI Content Index.

82. Labour practice

G.1.3

Compliant

Please refer GRI Content Index.

83. Society

G.1.4

Compliant

Please refer GRI Content Index.

84. Product responsibility

G.1.5

Compliant

Please refer GRI Content Index.

85. Stakeholder identification, engagement and effective communication

G.1.6

Compliant

Please refer GRI Content Index.

86. Sustainable reporting and disclosure

G.1.7

Compliant

Please refer GRI Content Index.

Section B
This section covers Hayleys’ extent of adherence to requirements of the Continuing Listing Requirements Section 7.10 on Corporate Governance Rules for Listed Companies issued by the Colombo Stock Exchange. This reflects Hayleys’ level of conformance to CSE’s Listing Rules which comprises of the following fundamental principles.

Non-Executive Directors
Independent Directors
Disclosures relating to Directors
Remuneration Committee
Audit Committee

CSE Rule Reference	Corporate Governance Principles	Compliance Status	Hayleys Extent of Adoption
7.10.1(a)	Non-Executive Directors	Compliant	Five out of twelve Directors are Non-Executive Directors.
7.10.2(a)	Independent Directors	Compliant	Three out of five Non-Executive Directors are Independent.
7.10.2(b)	Independent Directors	Compliant	All NEDs have submitted their confirmations on Independence as per criteria set by Hayleys PLC, which is in line with regulatory requirements.
7.10.3(a)	Disclosure relating to Directors	Compliant	The Board assessed the independence declared by Directors and determined the Directors who are independent. The Board is of the opinion that Mr. M.H. Jamaldeen has the capability to conduct himself in an impartial manner on matters deliberated by the Board. The Board is therefore of the opinion that his independence will not be affected by his spouse, Mrs. I. Jamaldeen being an Alternate Director of the Kingsbury PLC.
7.10.3(b)	Disclosure relating to Directors	Compliant	The Board has determined that all Non-Executive Directors except for Mr. K.D.D. Perera and Mr. W.D.N.H. Perera satisfy criteria for ‘independence’ set out in the Listing Rules.
7.10.3(c)	Disclosure relating to Directors	Compliant	Please refer Board of Directors for a brief re'sume' of each Director.
7.10.3(d)	Disclosure relating to Directors	Compliant	Disclosed the appointments of new Directors to the Colombo Stock Exchange when it is disclosed to the public. Brief resumes of the Directors appointed during the year have been provided to the Colombo Stock Exchange.
7.10.5(a)	Composition of Remuneration Committee	Compliant	The Remuneration Committee comprises of three Non-Executive Independent Directors and two Non-Executive Directors.
7.10.5(b)	Functions of Remuneration Committee	Compliant	Please refer the Remuneration Committee Report for function of the Remuneration Committee.
7.10.5(c)	Disclosure in the Annual Report relating to Remuneration Committee	Compliant	Names of Remuneration Committee members are given in the Report of the Remuneration Committee. Remuneration paid to Directors is given in Note 10 to the Financial Statements.
7.10.6(a)	Composition of Audit Committee	Compliant	The Audit Committee comprises of three Non-Executive Independent Directors and one Non-Executive Director. The Chairman of the Audit Committee is an Independent Non-Executive Director. The Chief Executive and Chief Financial Officer attend meetings by invitation. Two members including the Chairman of the Audit Committee are members of professional accounting bodies.
7.10.6(b)	Audit Committee Functions	Compliant	Please refer the Audit Committee Report for details of the Audit Committee.
7.10.6 (c)	Disclosure in the Annual Report relating to Audit Committee	Compliant	The names of Audit Committee members and the Report of the Audit Committee is given . The basis of determination of the independence of the auditor is also given in the Audit Committee Report.

Board and the Committee Attendance
The number of meetings of the Board and Board Committees and individual attendance by members is as follows:

Name	Directorship Status	Board	Audit Committee
Mr. A.M. Pandithage (Chairman & Chief Executive)	Executive	14/14	N/A
Mr. K.D.D. Perera (Deputy Chairman)	Non-Executive	7/14	N/A
Mr. M.R. Zaheed	Executive	11/14	N/A
Mr. W.D.N.H. Perera	Non-Executive	9/14	2/9
Mr. S.C. Ganegoda	Executive	14/14	N/A
Mr. H.S.R. Kariyawasan	Executive	13/14	N/A
Dr. H. Cabral, PC	Independent Non-Executive	12/14	8/9
Dr. K.I.M. Ranasoma	Executive	13/14	N/A
Mr. L.T. Samarawickrama	Executive	11/14	N/A
Mr. R.P. Pathirana (resigned w.e.f. 31st January 2014)	Independent Non-Executive	9/11	5/8
Mr. M.D.S. Goonatilleke	Independent Non-Executive	11/14	9/9
Mr. L.R.V. Waidyaratne (appointed w.e.f. 1st April 2013)	Executive	12/14	N/A
Mr. M.H. Jamaldeen (appointed w.e.f. 7th February 2014)	Independent Non-Executive	3/3	N/A
Ms. D.S.N. Weerasooriya (Alternate Director to K.D.D. Perera)	Alternate Director to Mr. K.D.D. Perera	5/6	N/A