1.1 Domicile and legal form

Sunshine Holdings PLC (the Company) is a public limited liability company incorporated and domiciled in Sri Lanka. The ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka. The registered office and principle place of business of the Company is located at No. 60, Dharmapala Mawatha, Colombo 3.

Total staff strength of the Company and the Group on 31 March 2022 was as follow:

Group 2,998 (31 March 2021 – 3,130)

Company 24 (31 March 2021 – 21)

The Registrar General of Companies on 28 January 2022 issued the certificate of Amalgamation in terms of Section 244 (1) (a) of the Companies Act No. 07 of 2007 to amalgamate with Sunshine Holdings PLC in accordance with the provisions of part VIII of the Companies Act No. 07 of 2007 with Sunshine Holdings PLC as the surviving entity.

1.2 Consolidated and separate Financial Statements

The Consolidated Financial Statements of Sunshine Holdings PLC as at and for the year ended 31 March 2022 comprise the financial information of Company and its subsidiaries (together referred to as “the Group” and encompass the Company and its subsidiaries (together referred to as the “Group”). The subsidiaries are listed in Note 1.4.

Sunshine Holdings PLC does not have an identifiable parent of its own. The Financial Statements of all Companies in the Group are prepared for a common financial year, which ends on 31 March.

Presentation of Financial Statements

The separate Financial Statements of the Company consists of the following:

– Financial performance of the amalgamated entity (Sunshine Holdings PLC and Sunshine Energy (Pvt) Ltd) for the year ended 31 March 2022, 31 March 2021 (restated) as if the amalgamation occurred as at 1 April 2021 and 31 March 2021 as previously reported for better presentation and purposes of comparability. The Consolidated Financial performance and financial position did not require restatement given that the Group structure existed even prior to amalgamation.

– Cash flows of the amalgamated entity (Sunshine Holdings PLC and Sunshine Energy (Pvt) Ltd.) for the year ended 31 March 2022, 31 March 2021 (restated) as if the amalgamation occurred as at 1 April 2021 and 31 March 2021 as previously reported for better presentation and purposes of comparability. The Consolidated cash flows did not require restatement given that the Group structure existed even prior to amalgamation.

1.3 Parent Entity and Ultimate Parent Entity

Sunshine Holdings PLC does not have an identifiable parent of its own. The Company is the ultimate parent of the Group companies.

1.4 Principal business activities, nature of operations of the Group and ownership by the Company in its subsidiaries and associates

The Group Structure is given on page 64.

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

Refer Note 24 for the changes in the group structure during the year.

2.1 Statement of compliance

These Consolidated Financial Statements of the Group and the Separated Financial Statements of the Company have been prepared and presented in accordance with the Sri Lanka Accounting Standards (SLFRS’s and LKAS’s) laid down by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the requirements of the Companies Act No. 07 of 2007.

The Board of Directors is responsible for the preparation and presentation of the Financial Statements of the Company and its Subsidiaries as per provisions of Companies Act No. 07 of 2007 and the Sri Lanka Accounting Standards (SLFRSs/LKASs).

The Board of Directors acknowledges this responsibility as set out in the “Statement of Directors” Responsibility for Financial Statements“, “Annual Report of the Board of Directors” and in the statement appearing with the Statement of Financial Position of this Annual Report.

The Financial Statements were authorised for issue by the Directors on 27 May 2022.

These Financial Statements, except for information on cash flows have been prepared following the accrual basis of accounting. Details of the Group’s significant accounting policies followed during the year are given on Note 10 to 46 on pages 75 to 172.

These Financial Statements include the following components:

• a Statement of Income and Statement of Profit or Loss and Other Comprehensive Income providing information on the financial performance of the Group and the Company for the year under review; (Refer pages 54 and 55).
• a Statement of Financial Position providing information on the financial position of the Group and Company as at the year end; (Refer page 56).
• a Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Group and Company; (Refer pages 58 and 59).
• a Statement of Cash Flows providing information to the users, on the ability of the Group and Company to generate cash and cash equivalents and the needs of the entity to utilise those cash flows; (Refer pages 62 to 63).
• Notes to the Financial Statements comprising accounting policies and other explanatory information. (Refer pages 65 to 179).

2.2 Materiality and Aggregation

Each item which is similar in nature is presented separately if material. Items of dissimilar nature or function are presented separately unless they are immaterial as permitted by the Sri Lanka Accounting Standard LKAS 1 – Presentation of Financial Statements.

2.3 Going concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. The assessment took into consideration the existing and potential implications of COVID-19 pandemic on the business operation, current economic crisis, deficit in foreign currency reserves, country down grade and performance of the Group. Furthermore, based on the information available, and the assessment of profit projections, the Management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the Financial Statements continue to be prepared on a going concern basis. Refer Note 48 for the Directors assessment on going concern.

2.4 Offsetting

Financial assets and financial liabilities are offset and the net amount is reported in the SOFP, only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the Income Statement, unless required or permitted by an Accounting Standard or Interpretation (issued by the IFRS Interpretations Committee and Standard Interpretations Committee) and as specifically disclosed in the Significant Accounting Policies of the Group.

2.5 Comparative information

Comparative information including quantitative, narrative and descriptive information is disclosed in respect of the previous period in the Financial Statements in order to enhance the understanding of the current period’s Financial Statements and to enhance the inter period comparability.

The presentation and classification of the Financial Statements of the previous year are amended, where relevant for better presentation and to be comparable with those of the current year.

These Financial Statements are presented in Sri Lankan Rupees (LKR), which is the Group’s functional currency, except for the foreign subsidiary whose functional currency is different as it operates in a different economic environment.

In preparing these Consolidated Financial Statements, management has made judgements and estimates that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.

Coronavirus (COVID-19) pandemic and economic conditions

The COVID-19 pandemic and its effect on the global economy have impacted the customers, operations and performance of the Group. The outbreak necessitated the governments to respond at unprecedented levels to protect the health of the population, local economy and livelihoods. In addition to the pandemic the current economic conditions and projected economic factors, have significantly increased the estimation uncertainty in the preparation of these Financial Statements including, the extent and duration of the disruption to businesses, expected economic downturn, and subsequent recovery.

The significant accounting estimates impacted by these forecasts and associated uncertainties are predominantly related to expected credit losses, fair value measurement, and the assessment of the recoverable amount of non-financial assets. The impact of the COVID-19 pandemic on each of these estimates is discussed further in the relevant notes of these Financial Statements.

(a) Judgements

Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the Financial Statements is included in the following Notes:

• Note 10 – revenue recognition: whether revenue is recognised over time or at a point in time;
• Note 24 – consolidation: whether the Group has the control over an investee
•  Note 25 – equity-accounted investees: whether the Group has significant influence over an investee
• Note 34.3 – lease term: whether the Group is reasonably certain to exercise extension options.

(b) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties at 31 March 2022 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following Notes:

• Note 35 – measurement of defined benefit obligations: key actuarial assumptions;
• Note 14 – recognition of current tax expense;
• Note 27 – recognition of deferred tax assets: availability of future taxable profit against which deductible temporary differences and tax losses carried forward can be utilised;
• Note 22 – determining the fair value of biological assets on the basis of significant unobservable inputs;
• Note 44 – recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources;
• Note 6.3 – impairment of financial and non financial assets;
• Note 23 – determining the fair value of Investment Properties on the basis of significant unobservable inputs;
• Note 24 – assessment of recoverability of goodwill assigned to CGUs;
• Note 48 – potential impact of prevailing economic conditions and COVID-19 on financial reporting.

These Financial Statements have been prepared on the historical cost basis and applied consistently which no adjustments being made for inflationary factors affecting the Financial Statements except for the following material items in the Statement of Financial Position.

Apart from the general accounting policies set out below, the specific accounting policies pertaining to each item in the Financial Statements have been presented within the respective Notes to the Financial Statements. These significant accounting policies have been applied consistently to all periods presented in the Financial Statements of the Group, unless otherwise indicated. The accounting policies have been consistently applied by the Group entities where applicable and deviations if any have been disclosed accordingly. Further the changes in accounting policies due to adoption of new standards and interpretations or adoption of new accounting policies have been presented in Note 7 to the Financial Statements. The Group has not early adopted any other standard, interpretation or amendment that has been issued but not yet effective. Refer Note 8.

6.1   Basis of consolidation

Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group.

From 1 April 2020, in determining whether a particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option to apply a “concentration test” that permits a simplified assessment of whether an acquired set of activities and assets is not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss.

Any contingent consideration is measured at fair value at the date of acquisition. If an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group “controls” an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The Financial Statements of subsidiaries are included in the Consolidated Financial Statements from the date on which control commences until the date on which control ceases.

Non-controlling interests

NCI are measured initially at their proportionate share of the acquiree's identifiable net assets at the date of acquisition.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Loss of control

When the Group loses control over a subsidiary, it derecognises the assets and liabilities of the subsidiary, and any related NCI and other components of equity. Any resulting gain or loss is recognised in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

Transactions eliminated on consolidation

Intra-group balances and transactions. and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Accounting period

The Financial Statements of all entities in the Group have a common financial year which ends on 31 March.

6.2 Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated into the respective functional currencies of Group companies at the exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rate at the reporting date. Non-monetary assets and liabilities that are measured at fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined. Non-monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of the transaction. Foreign currency differences are generally recognised in profit or loss and presented within finance costs.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated at the exchange rates at the reporting date. The income and expenses of foreign operations are translated at the exchange rates at the dates of the transactions. Foreign currency differences are recognised in OCI and accumulated in the translation reserve, except to the extent that the translation difference is allocated to NCI.

6.3   Impairment of Assets

6.3.1 Financial instruments and contract assets

The Group/Company recognises loss allowances for ECLs on financial assets measured at amortised cost.

Loss allowances for trade receivables is always measured at an amount equal to lifetime Expected Credit Loss (ECL).

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group 's historical experience and informed credit assessment and including forward-looking information.

The Group/Company assumes that the credit risk on a financial asset has increased significantly if it is more than
90 days past due.

The Group/Company considers a financial asset to be in default when:

• the debtors is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any held); or
• the financial asset is more than 90 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-months ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

Credit-impaired financial assets

At each reporting date, the Group/Company assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

• significant financial difficulty of the borrower or issuer;
• a breach of contract;
• it is probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.

Presentation of allowance for ECL in the Statement of Financial Position

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.

For debt securities at FVOCI, the loss allowance is charged to profit or loss and is recognised in OCI.

Write-off

For individual customers, the Group has a policy of writing off the gross carrying amount as approved by the Board of Directors based on historical experience of recoveries of similar assets. For corporate customers, the Group individually makes an assessment with respect to the timing and amount of write-off based on whether there is a reasonable expectation of recovery. The Group expects no significant recovery from the amount written off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due. Evidence of impairment included a significant or prolonged decline in its fair value below its cost.

6.3.2 Non-financial assets

At each reporting date, the Group/Company reviews the carrying amounts of its non-financial assets (other than biological assets, investment property, inventories and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. Goodwill is tested annually for impairment. For impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CG Us. Goodwill arising from a business combination is allocated to CG Us or groups of CG Us that are expected to benefit from the synergies of the combination. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

7.1 Application of new Significant Accounting Policies

Merger Accounting for Common Control Combination

The Group adopted the Statement of Recommended Practice (SORP) for Merger Accounting for Common Control Combinations approved by the Council of the Institute of Chartered Accountants of Sri Lanka on 19 December 2012, on merger accounting for common control combinations for annual periods beginning on or after 1 April 2020. The SORP is applicable for Consolidated Financial Statements. Due to the absence of clear guidance of accounting for amalgamation in the separate Financial Statements, the Group adopted the SORP for Merger Accounting for Common Control Combinations, in preparing the separate Financial Statements of the Company.

Consolidated Financial Statements/Separate Financial Statements

The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling parties’ perspective. The assets and liabilities of the acquired entity or business should be recorded at the book values as stated in the Financial Statements of the controlling party.

No amount is recognised as consideration for goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party or parties“ interests; and

Comparative amounts in the Financial Statements are presented using the principles as set out above as if the entities or businesses had been combined at the previous balance sheet date unless the combining entities or businesses first came under common control at a later date.

The Consolidated Income Statement includes the results of each of the combining entities or businesses from the earliest date presented (i.e. including the comparative period) or since the date when the combining entities or businesses first came under the control of the controlling party or parties, where this is a shorter period, regardless of the date of the common control combination. The Consolidated Income Statement also takes into account the profit or loss attributable to the minority interest recorded in the Consolidated Financial Statements of the controlling party.

Expenditure incurred in relation to a common control combination that is to be accounted for by using merger accounting is recognised as an expense in the period in which it is incurred. Such expenditure includes professional fees, registration fees, costs of furnishing information to shareholders, and salaries and other expenses involved in achieving the common control combination.

Consolidation is performed in accordance with LKAS 27. The principal consolidation entries are as follows:

1. the effects of all transactions between the combining entities or businesses, whether occurring before or after the common control combination, are eliminated; and
2. since the combined entity will present one set of Consolidated Financial Statements, a uniform set of accounting policies is adopted which may result in adjustments to the assets, liabilities and equity of the combining entities or businesses.

A number of interpretations and amendments to standards are effective for annual period beginning on or after 1 January 2022 and earlier application is permitted. However, the Group has not early adopted the new or amended standards in preparing these Consolidated Financial Statements.

The following amended standards and interpretations are not expected to have a significant impact on the Group’s Financial Statements.

• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to LKAS 12)
• Onerous Contracts – Cost of Fulfilling a Contract (Amendments to LKAS 37).
• COVID-19 – Related Rent Concessions beyond 30 June 2021 (Amendment to SLFRS 16).
• Annual Improvements to IFRS Standards 2018 – 2020.
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to LKAS 16).
• Reference to Conceptual Framework (Amendments to SLFRS 3).
• Classification of Liabilities as Current or Non-current (Amendments to LKAS 1).
• Disclosure of Accounting Policies (Amendments to LKAS 1 and SLFRS Practice Statement 2).
• Definition of Accounting Estimates (Amendments to LKAS 8).

9.1 Basis for segmentation

The Group has the following seven strategic divisions, which are reportable segments. These divisions offer different products and services, and are managed separately based on the Group’s management and internal reporting structure.

Segment performance is evaluated based on operating profits or losses which are measured differently from operating profits or losses in the Consolidated Financial Statements. Income taxes are managed on a group basis and are not allocated to operating segments.

The Group’s Management Committee reviews internal management reports from each division at least monthly.

Information about reportable segments

Information related to each reportable segment is set out below. Segment profit (loss) before tax is used to measure performance because management believes that this information is the most relevant in evaluating the results of the respective segments relative to other entities that operate in the same industries.

As the post-tax profit of the power generation segment is insignificant to the Group, the disposal has not been identified and classified as a discontinued operation separately in the consolidated income statement.

9.2 Operating segments

Reconciliations of information on reportable segments to SLFRS measures

9.3 Geographic information

Consumer Goods segment is managed on a worldwide basis, but operate manufacturing facilities and sales offices primarily
in Sri Lanka.

The geographic information analyses the Group’s revenue and assets by the Company’s country of domicile and other countries.
In presenting the geographic information, segment revenue has been based on the geographic location of customers and segment assets were based on the geographic location of the assets.

A. Revenue streams

The Group generates revenue primarily from investment, healthcare, plantation, consumer goods, energy and other sectors.

B. Disaggregation of revenue from contracts with customers

In the following table, revenue from contacts with customers is disaggregated by primary geographical market, major products and service lines and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with the Group’s reportable segments (see Note 9).

C. Contract balances

These refer to the Group's rights to consideration for work completed but not billed at the reporting date. There were no contract balances as at the reporting date.

D. Performance obligations and revenue recognition policies

Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when it transfers control over a good or service to a customer at a point in a time or over the time as appropriate.

The following table provides information about the nature and timing of the satisfaction of performance obligation in contacts with customers, including significant payment terms and related revenue recognition policies.

Following  Coronavirus "COVID-19" outbreak in Sri Lanka the business operations and activities of the Group were temporarily interrupted. The operating segments of the of the Group being Healthcare, Agri business, Consumer goods and Energy which are considered under essential items, the potential impact of  COVID-19 has been and expected to be minimal based on the internal assessment carried out by the Management. The Management is monitoring the implications of the current economic conditions on the business operations of the Group.

11.1 Income from Telco Rebate of the Company, represents the rebate received from telecommunication institutes for the data usage.

11.2 The gain/(loss) on fair value of trees and live stock in Watawala Plantation PLC., a subsidiary of the Company, represents the unrealised gain from valuation of live stock and trees/timber at the reporting date.

11.3 Sundry income mainly includes commission income received from foreign suppliers for securing contracts with government to Sunshine Healthcare Lanka Limited amounting to Rs. 114 Mn. (2021 – Rs. 109 Mn.).

Directors’ emoluments are included in compensation of Key Management Personnel Note 41.1.A.

12.1 Staff costs

13.1 The exchange gains and losses have significantly increased due to the continuous devaluation of rupee during the
financial year.

14.1 Amount recognised in profit or loss

Tax expense on continuing operations excludes the Group’s share of the tax expenses of equity-accounted investee of Rs. Nil (2021 – Rs. Nil), which has been included in “share of profit of equity-accounted investee, net of tax”.

14.1.a Current Taxes

Company

In terms of the Inland Revenue Act No. 24 of 2017 and subsequent gazette notifications thereto, the Company is liable for income tax at 24% (2021 – 24%) on its taxable income. Refer Note 27.

Dividend income of the Company is liable for tax at 14%.

Watawala Tea Australia Pty Ltd. was liable for Income Tax at 30% as per the Tax regulation in Australia.

Watawala Dairy Limited

Watawala Dairy Limited enjoys a tax exemption period of five years from the year in which the enterprise commences to make profits or any year of assessment not later than two years reckoned from the date of commencement of commercial operations whichever is earlier, under Section 17 (2) of the Board of Investment of Sri Lanka Law No. 4 of 1978 and in accordance with the provisions of the Inland Revenue Act No. 10 of 2006.

After the expiration of the tax exemption period, the profit and income of the Company shall be charged at the rate of twenty percent (20%) for any year of assessment immediately succeeding the last date of the tax exemption period during which the profit and income of the entity is exempted from income tax.

14.2 Amount recognised in OCI

14.3 Amounts recognised directly in equity

There were no items recognised directly in equity during the year ended 31 March 2022.

14.4 Reconciliation between accounting profit and taxable profit

14.5 Tax losses carried forward

Management has presented the performance measure adjusted EBITDA because it monitors this performance measure at a consolidated level and it believes that this measure is relevant to an understanding of the Group's financial performance. Adjusted EBITDA is calculated by adjusting profit from continuing operations to exclude the impact of taxation, net financier costs, depreciation, amortisation, impairment losses/reversals related to goodwill, intangible assets, property, plant and equipment and the premeasurement of disposal groups and share of profit of equity-accounted investees.

Adjusted EBITDA is not a defined performance measure in SLFRS. The Group's definition of adjusted EBITDA may not be comparable with similarly titled performance measures and disclosers by other entities.

Reconciliation of adjusted EBITDA to profit from continuing operations – Group

There is no significant impact to EBITDA due to COVID-19 outbreak.

16.1 Basic Earnings Per Share

The earnings per share is computed on the profit attributable to ordinary shareholders after tax and non-controlling interest divided by the weighted average number of ordinary shares during the year.

16.1.1 Weighted average number of shares

* The denominator for the purposes of calculating both basic and diluted earnings per share has been adjusted to reflect the share split made in 2021 as disclosed in Note 33.1.A.

16.2 Diluted Earnings Per Share

There was no dilution of ordinary shares outstanding at any time during the year. Therefore, diluted earnings per share is the same as basic earning per share as shown in Note 16.1.

The Board of Directors of the Company has declared a final dividend of Rs. 0.50 per share (2021 – final dividend of Rs. 0.50 per share) for the financial year ended 31 March 2022.

* Final dividend, subject to shareholders’ approval, includes the amounts to be paid for 43,311,320 ordinary shares allotted on 30 May 2022.

Compliance with Sections 56 and 57 of Companies Act No. 07 of 2007

As required by Section 56 of the Companies Act No. 07 of 2007, the Board of Directors of the Company satisfied the solvency test in accordance with Section 57, prior to declaring the final dividend. A statement of solvency duly completed and signed by the Directors on 27 May 2022 has been audited by Messrs KPMG.

17.1 Dividend paid during the year

Financial Assets

Recognition and initial measurement

Trade receivables and debt securities issued are initially recognised when they are originated. All other financial assets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

Classification and subsequent measurement of financial assets

On initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI (Fair value through OCI) –
debt investment; FVOCI – equity investment; or FVTPL (Fair value through profit or loss).

Financial assets are not reclassified subsequent to their initial recognition unless the Group changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL:

• it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
• its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment's fair value in OCI. This election is made on an investment-by-investment basis.

All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets – Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to Management.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group's continuing recognition of the assets.

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. “Interest” is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument.

Financial assets – Subsequent measurement and gains and losses

Non-derivative financial liabilities

The Group initially recognises debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities (including liabilities designated at fair value through profit or loss) are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group has the following non-derivative financial liabilities: trade and other payables and bank overdrafts.

Such financial liabilities are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method.

Derecognition

(a) Financial assets

The Group derecognised a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group entered into transactions whereby it transfers assets recognised in its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets. In these cases, the transferred assets were not derecognised.

(b) Financial liabilities

The Group derecognised a financial liability when its contractual obligations are discharged or cancelled, or expire. The Group also derecognised a financial liability when its terms are modified and the cash flows of the modified liability were substantially different, in which case a new financial liability based on the modified terms was recognised at fair value.

On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) was recognised in profit or loss.

Offsetting

Financial assets and financial liabilities were offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Classification of financial assets and financial liabilities

The following table provides a reconciliation between line item in the statement of financial position and categories of
financial instruments.

19.1 Reconciliation of carrying amount

a. Group

Cost

Accumulated depreciation

• Assets in estates that are held under leasehold right to use have been taken into books of the Group retrospective from 18 June 1992. For this purpose, the Board of Directors of Watawala Plantation PLC is decided at its meeting on 8 March 1995 that those assets would be taken at their book value as they appeared in the books of the JEDB/SLSPC, on the date immediately preceding the date of formation of Watawala Plantation PLC.
• The assets shown above includes assets vested in the Watawala Plantation PLC and Hatton Plantation PLC the subsidiaries of the Company, by gazetted notification on the date of formation of the subsidiary (18 June 1992) and all the investments made in the fixed assets by subsidiary since its formation.
• Investment by the Group on mature and immature plantations are shown separately under biological assets – mature/immature plantations.
• The transfer of immature plantation to mature plantations commences at the time the plantation is ready for commercial harvesting.
• As described in Note 24.4, the Group has acquired the Subsidiaries namely Daintee Limited and Akbar Pharmaceuticals (Pvt) Ltd. during the year. The net book value of the property, plant and equipment acquired through business combination amounted to Rs. 1,796 Mn.
• Land and building classified as investment properties in the respective entity level and classified as PPE at consolidated level are carried at revalued amounts.

b. Company

Cost

Accumulated depreciation

19.2 Title restriction on property, plant and equipment

There are no restrictions that existed on the title of the property, plant and equipment of the Group as at the reporting date.

19.3 Acquisition of property, plant and equipment during the year

During the financial year, the Group acquired property, plant and equipment to the aggregate value of Rs. 919 Mn.
(2021 – Rs. 552 Mn.).

19.4 Capitalisation of borrowing costs

There is no capitalisation of borrowing cost relating to the acquisition of property, plant and equipment by the Group during the year (2021 - Nil).

19.5 Amount of contractual commitments for the acquisition of property,
plant and equipment

The commitments for the acquisition of property, plant and equipment as at the reporting date has been disclosed in Note 43. (2021: Nil).

19.6 The details of freehold land and buildings which are stated at valuation – Group

Details of Group’s land, building and other properties stated at valuation are indicated below;

The land and buildings were revalued as at 31 March 2022, by Mr S Sivaskantha, BSc.Est,Mgt & Val (SL), Diploma in Valuation, a professional valuer in Sri Lanka. The fair value is determined based on an open market value using existing use basis.

19.7 Measurement of fair values

Fair value hierarchy

The fair value of property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Group's investment property portfolio every 3 years.

The fair value measurement of all of the investment properties has been categorised as a Level 3 fair value based on the inputs to the valuation techniques used.

The valuer has considered the potential impact of COVID-19 in his report when arriving at the market rate.

Valuation techniques and significant unobservable inputs

The table below sets out the significant unobservable inputs used in measuring land and building categorised as Level 3 in the fair value hierarchy as at 31 March 2022.

Method of valuation – Market Comparable method

Comparison method for valuation of land considers the selling price of a similar property within a reasonably recent period of time in determining the fair value of the property being revalued. This involves evaluation of recent active market prices of similar assets making appropriate adjustments for differences in size, nature, location, condition of specific property.

19.8 Impairment of property, plant and equipment

The Board of Directors has assessed the potential impairment loss of property, plant and equipment as at 31 March 2022. Based on the assessment, no impairment provision is required to be made in the Financial Statements as at the reporting date in respect of property, plant and equipment.

19.9 Property, plant and equipment pledged as security

None of the property, plant and equipment have been pledged as securities as at the reporting date.

19.10 Temporarily idle property, plant and equipment

There are no temporarily idle property, plant and equipment as at the reporting date.

19.11 Compensation from third parties for items of property, plant and equipment

There were no compensation received/receivable from third parties for items of property, plant and equipment that were impaired, lost or given up.

20.1 Reconciliation of carrying amount – Group

20.1.1 Brand acquisition

The Group has recognised the brand "HEALTHGUARD" upon the acquisition of Healthguard Pharmacy Limited, on 19 December 2010 and the brand has been valued by an independent valuer, Quasar Capital Advisors (Pvt) Ltd. The value of the brand is tested
for impairment on every reporting date. The Board of Directors has decided to amortise the brand for 20 years beginning from the year 2014/15.

The Group's Subsidiaries namely Lina Manufacturing (Pvt) Ltd. and Lina Spiro (Pvt) Ltd. engaged in the development of new medicines and the cost incurred for the development of such new medicinal products have been capitalised during the year.

20.1.2 Reconciliation of carrying amount – Company

Assessment of impairment of intangible assets

The Board of Directors has assessed the potential impairment loss of intangible assets as at 31 March 2022. Based on the assessment, no impairment provision is required to be made in the Financial Statements as at the reporting date.

Title restriction on intangible assets

There are no restrictions that existed on the title of the intangible assets of the Company/Group as at the reporting date.

Intangible assets pledged as security

None of the Intangible assets have been pledged as security as at the reporting date.

Acquisition of intangible assets during the year

During the financial year, the Group acquired intangible assets to the aggregate value of Rs. 309 Mn. (2021 – Rs. 140 Mn.).

Amount of contractual commitments for the acquisition of intangible assets

The contractual commitments for the acquisition of intangible assets as at the reporting date has been disclosed in Note 43 .

Fully amortised intangible assets in use

Intangible assets include fully amortised computer software which are in use in the normal business activities to the gross carrying value of Rs. 2.2 Mn. (2021 – Rs. 33 Mn.).

Leasehold right to land of JEDB/SLSPC estates

The lease of JEDB/SLSPC estates handed over to the subsidiary, Watawala Plantation PLC for the period of 53 years are all executed. The leasehold rights to the land on all these estates are taken in to the books of the subsidiary as at 18 June 1992 immediately after formation of the subsidiary Watawla Plantation PLC in terms of a ruling obtained from the Urgent Issue Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka. The bare land are revalued at the value established for this land by valuation specialists, D R Wickramasinghe, just prior to the formation of the subsidiary.

The leasehold rights to land is recorded in accordance with the Statement of Recommended Practice for the Right-to-Use of land on lease which was approved by the Council of the Institute of Chartered Accountants of Sri Lanka on 19 December 2012. Corresponding liability is shown as a lease payable to JEDB/SLSPC.

The cost of areas coming into bearing are transferred to mature plantations and depreciated over their useful lives as follows:

Timber plantation

Timber plantation is measured at fair value on initial recognition and at the end of each reporting period at fair value less cost to sell which includes all the cost that would be necessary to sell the assets including transportation costs.

Gain or loss arising on initial recognition of timber plantations at fair value less costs to sell and from the change in fair values
less costs of plantations at each reporting date are included in the Statement of Profit or Loss for the period in which they arise.
All costs incurred in maintaining the assets are included in Statement of Profit or Loss in the year in which they are incurred.

22.1 Biological assets – Bearer

Investments in biological assets – plantations since the formation of the Company have been classified as shown above and includes bearer biological assets comprising mainly tea and palm plantations. Bearer biological assets together with any unmanaged biological assets are stated at cost.

The requirement of recognition of bearer biological assets at its fair value less cost to sell under LKAS 41 was superseded by
the ruling issued on 2 March 2012, by the Institute of Chartered Accountants of Sri Lanka. Accordingly, Watawala Plantations PLC, a subsidiary of the Company has elected to measure the bearer biological assets at cost using LKAS 16 - ”Property, Plant and Equipment”.

22.2 Biological assets – Consumables

– Expected rate of return p.a. 20.83 (2021 – 14%)

– Maturity for harvesting - 25 years (2021 – 25 years)

Immature consumer biological assets comprising trees under 5 years old are carried at cost less accumulated impairment losses.

22.2.1 Change in effective shareholding of watawala dairy ltd.

On 12 May 2021, an investment agreement was signed between Watawala Plantations PLC, Watawala Dairy Ltd. and SBI Ven Holdings Pte. Ltd. for the capital infusion of USD 2,000,000 to Watawala Dairy Ltd. by issuing of 34,629,311 new shares of Watawala Dairy Ltd. Further, Watawala Plantations PLC will infuse Rs. 296 Mn. by converting inter-company loan due from Watawala Dairy Ltd. As a result of these transactions, effective shareholding of the Company in Watawala Dairy Ltd. was reduced from 37% to 33%.

22.2.2 Measurement of fair values

The valuation of consumable biological assets was carried by Mr Weerasinghe Chadrasena, an independent Incorporated Valuation Surveyor, using Discounted Cash Flows (DCF) methods. The Valuation Report dated 31 March 20212has been prepared based on the physically verified timber statistics provided by the Group.

The future cash flows are determined by reference to current timber prices.

(a) The fair value measurements for the timber have been categorised as Level 3 fair values based on the inputs to the valuation techniques used. The fair value measurements of livestock have been categorised as Level 2 fair values based on observable market sales data.

(b) Level 3 fair values

The following table shows a breakdown of the total gains (losses) recognised in respect of Level 3 fair values (Timber).

(c) Valuation techniques and significant unobservable inputs

Following table shows the valuation techniques used in measuring Level 3 fair value of consumable biological assets as well as the significant unobservable inputs used for the valuation as at 31 March 2022.

22.2.3 Sensitivity analysis

The financial impact on the value appearing in the Statement of Financial Position due to change of selling price and variation
of discount rate is given below.

Sensitivity variation sales price (using 1.0% estimated variation)

Simulations made for the timber show that a rise or decrease by 10% of the estimated future selling price has the following effect on the net present value of biological assets:

Sensitivity variation discount rate (using 1.0% variation)

Simulations made for the timber trees show that a rise or decrease by 1.0% of the discount rate has the following effect on the net present value of biological assets:

22.3 Biological assets

As at 31 March 2022 livestock comprised 1,811 cattle (2021 – 1,632 cattle).

22.3.1 Valuation techniques and significant unobservable inputs

22.3.2 Sensitivity analysis

The fair value measurements of livestock have been categorised as Level 3 fair value based on assumptions used.

Sensitivity variation sales price (using 10% estimated variation)

Simulations made for livestock show that an increase or decrease by 10% of the estimated future selling price has the following effect on the fair value of biological assets:

Sensitivity variation cost (using 10% variation)

Simulations made for livestock show that an increase or decrease by 10% of the estimated future cost has the following effect on the fair value of biological assets:

Sensitivity variation discount rate (using 1.0% variation)

Simulations made for livestock show that an increase or decrease by 1% of the estimated future discount rate has the following effect on the fair value of biological assets:

Sensitivity Variation on yield (using 1.0% variation)

LKAS 41 – Ammended-Valuation of growing crops on bearer plants

The amendment became effective for the period beginning on or after 1 January 2016.The growing crops on bearer plants should be fair valued and recognised in the financial statements.

The volume of produce growing on bearer plants are measured considering the estimated crop of the last harvesting cycle of the year as follows:

Tea – Three days crop (50% of 6 days cycle),

Oil palm – Five days crop(50% of 10 days cycle)

Produce that grows on mature bearer plantations are measured at fair value less cost to sell. The value of the unharvested green leaves is measured using the Tea commissioner's formula for bought leaf and the value of unharvested fresh fruit bunches (FFB) of Oil Palm is measured using the actual price used to purchase FFB from out growers.

Risk management strategy related to agricultural activities

Regulatory and environmental risks

The Group is subject to laws and regulations in various countries in which it operates. The Group has established environmental policies and procedures aimed at compliance with local environmental and other laws.

Supply and demand risk

The Group is exposed to risks arising from fluctuations in the price and sales volume. When possible, the Group manages this risk by aligning its harvest volume to market supply and demand. Management performs regular industry trend analyses for projected harvest volumes and pricing.

Climate and other risks

The Group's plantations are exposed to the risk of damage from climatic changes, diseases, forest fires and other natural forces. The Group has extensive processes in place aimed at monitoring and mitigating those risks, including regular forest health inspections and industry pest and disease surveys.

23.1 Reconciliation of carrying amount

23.1.1 Investment property as at 1 April 2020 comprises a commercial property that is leased to Abans Electricals PLC . This Lease contains an initial period of 3-5 years from 2018 to 2023. Subsequent renewals were negotiated with the lessee and no contingent rents are charged.

23.1.2 Details of land and building under Investment Property

Lands and buildings were revalued as at 31 March 2022, by Mr S Sivaskantha, B.Sc.Est, Mgt & Val (SL), Diploma in Valuation,
a professional valuer in Sri Lanka. The fair value is determined based on an open market value using existing use basis.

23.2 Measurement of fair values

Fair value hierarchy

The fair value of investment property was determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The independent valuers provide the fair value of the Group's investment property portfolio every 3 years.

The fair value measurement of all of the investment properties has been categorised as a Level 3 fair value based on the inputs to the valuation techniques used.

Valuation techniques and significant unobservable inputs

The table below sets out the significant unobservable inputs used in measuring land and building categorised as Level 3 in the fair value hierarchy as at 31 March 2022.

23.3 Income from Investment Property

23.4 Acquisition through Business combination

The Group has acquired the Subsidiaries namely Daintee Limited and Akbar Pharmaceuticals (Pvt) Limited during the year 2020/21. The fair value of the Investment properties acquired through business combination amounted to Rs. 60 Mn.

24.1 Group's Indirect Holdings

24.2 Change in NCI

24.2.1 On 20 May 2021, Watawala Planations PLC has disposed 11.11% stake of Watawala Dairy Limited for the consideration of USD 2 Mn. As a result of this transactions Group’s effective shareholding of the WATA has dropped to 33% from 37.12%. The carrying amount of Watawala Dairy Limited’s net assets in the Group Consolidated Financial Statements on the date of the disposal was Rs. 2,154,236,586.

24.2.2 Acquisition of  NCI

Acquisition of  30% holding in Sunshine Energy (Pvt) Ltd.

On 27 September 2021, the Company has acquired the remaining stake of 30% in Sunshine Energy (Private) Limited from SBI Ven Holdings Pte Limited for the purchase consideration of Rs. 400 million. As a result of this transaction effective shareholdings of Sunshine Energy (Private) Limited has increased from 70% to 100%.

The carrying amount of consolidated net assets of the Sunshine Energy Group on the date of the acqusition was Rs. 913,770,218.

24.3 Disposal of a subsidiary

On 7 April 2021, Sunshine Energy (Private) Limited, a subsidiary of the Company, has disposed its subsidiary Waltrim Energy Ltd. Refer Note 24.3.1. and 42. On 9 September 2021, Sunshine Energy (Private) Limited, a subsidiary of the Company, has disposed its subsidiary Sky Solar (Private) Limited.

The gain on disposal of the subsidiary is recorded as part of profit for the period in the Income Statement.

The effects of disposal of subsidiary is as follows:

24.3.1

The profit from the above discontinued operation attributable to the equity holders of the company and NCI as follows:

Cash flows from/used in discontinued operation:

Effect on disposal on the financial position of the Group:

24.4 Disposal of investment in associates

On 11 January 2022, Sunshine Holdings PLC, has disposed its 20% investment in associate company, Strategic Business Innovator (Private) Limited. subsidiary Sky Solar (Private) Limited.

24.5 Amalgamation of a Subsidiary

The Company has completed the process of obtaining the legal clearance from the registrar of Companies for the amalgamation of Sunshine Energy (Private) Limited, a fully owned subsidiary with the Company. The Amalgamation Certificate has been obtained on 28 January 2022 and accordingly, the operations of the Sunshine Energy (Private) Limited amalgamated with the Company.

Sunshine Healthcare Lanka Limited has completed the process of obtaining the legal clearance from the registrar of Companies for the amalgamation of Akbar Pharmaceuticals (Pvt) Ltd., a fully owned subsidiary with the Company. The Amalgamation Certificate has been obtained on 30 December 2021 and accordingly, the operations of the Akbar Pharmaceuticals (Pvt) Ltd. amalgamated with the Company.

24.6 Assessment of Impairment of Subsidiaries

The Board of Directors has assessed the potential impairment loss of investment in subsidiaries as at 31 March 2022. Based on the assessment, except for Sunshine Packaging Lanka Limited, no impairment provision was required to be made in the Financial Statements as at the reporting date.

The Board of Directors of Sunshine Packaging Lanka Limited, fully owned subsidiary of Sunshine Holdings PLC, decided to discontinue the manufacture and sell metal cans and allied products for the food canning industry with effect from 31 August 2017. Subsequent to the discontinue the operation, the Company is engaged in renting out premises and earn rental income. However, considering the net asset position and future cash flows of the subsidiary the Board has decided to make a provision for probable impairment of investment of Rs. 177.6 Mn. during the prior years.

The Board of Directors of the Company carried out an internal assessment of the potential implications of prevailing economic conditions and COVID-19 outbreak on its subsidiaries and are of the view that there is no additional provision for impairment needed against its investments in subsidiaries as at reporting date.

24.7 Goodwill

On August 31, 2020, Sunshine Consumer Lanka Ltd (formerly known as ”Watawala Tea Ceylon Ltd”), a Subsidiary of the Company, acquired 100% of the issued share capital of Daintee Limited, obtaining control of Daintee Limited for cash consideration of 1,623 million and contingent consideration of 73 million. Daintee Limited is engaged in the manufacturing of confectionery products and qualifies as a business as defined in SLFRS 3. Daintee limited was acquired to enable Sunshine Group to expand its operations in FMCG sector.

Further on January 25, 2021, Sunshine Healthcare Lanka Limited (“SHL”), which is a 100% fully owned subsidiary of the Company, acquired 100% of the ordinary voting shares of Akbar Pharmaceutical (Private) Limited (“ABPL”) from Akbar Brothers (Private) Limited (“ABL”) . The consideration for this purchase was satisfied by the issuance of new ordinary voting shares in SHL to ABL, which constitute 25% of its issued stated capital for a consideration of Rs.2,320 million. Further, the Company sold 3% of the existing ordinary voting shares held in SHL to ABL for a cash consideration of Rs 278.4 million. As a result of these transactions,
the effective shareholding in SHL held by the Company reduced from 100% to 72%.

The aggregate effects of acquisition of subsidiaries are as follows:

24.7.1 The Board of Directors has assessed the potential impairment loss of the goodwill identified on consolidation and has made a provision amounting to Rs 50 million. The Board of Directors are certain that no further provision is required for the identified goodwill.

25.1 Associate – Company

25.1.1 Disposal Gain

25.2 Associate – Group

The Group had a stake of 20% (900,000 shares) in Strategic Business Innovator (Pvt) Ltd.

Strategic Business Innovator (Pvt) Ltd. is the only Associate which the Group owns. The associate was formed through the partnership of Sunshine Holdings PLC and SBI Ven Holdings Pte. Ltd. (Head Office: Singapore), a subsidiary company of SBI Holdings (Japan). The SBI Group is a key player in the Japanese securities industry and has keen interests in the financial services sector in Japan. Group disposed the investment on 10th January 2022.

Value of the Equity accounted associate

See accounting policies in Note 18.

Derivative financial instruments

The Group holds derivative financial instruments to hedge its foreign currency and interest rate risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the host contract is not a financial asset and certain criteria are met.

Derivatives are initially measured at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are generally recognised in profit or loss.

The Group's financial instruments are summarised as follows:

Information about the Group's exposure to credit and market risk, and fair value measurement, is included in Note 39 and 40.

26.1 Fair Value through Profit or Loss – FVTPL

26.1.1 Investment in Quoted Shares

26.1.2 Investment FUND

The fund comprises investments made in Capital Alliance Investments Limited and Hatton National Bank Custody Trustee Services. The average yield for the year was 12.80% of CAL investment. (HNB 2021 – 12.80%, CAL – 7.4%).

The carrying value of the investment fund represents the following:

26.2 Fair Value through Other Comprehensive Income – FVOCI

26.2.1 Investment in Unquoted Shares

Group and Company

In the year 2016, Watawala Plantations PLC, a subsidiary of the Company has received Rs. 10,763,000 worth of investment from Unit Energy Lanka (Pvt) Limited against their land rights. In September 2017, this investment was vested from Watawala Plantations PLC to Hatton Plantations PLC (between two subsidiaries). This investment represents 5% of investment in Unit Energy Lanka (Private) Limited. The Group has changed the measurement of the investment to the fair value method during 2019.

Equity securities designated as at FVOCI

As at 1 April 2018, the Group designated the investment shown below as equity securities at FVOCI because these equity securities represent investment that the Group intends to hold for the long term for strategic purposes.

No Strategic investments were disposed during 2021, and there were no transfer of any cumulative gain or loss within equity relating to these investments.

26.3 Derivative instruments

During 2019, Group had entered into a derivative agreement for fixed interest rate and fixed exchange rate with Standard Chartered Bank Sri Lanka for the loan obtained from Standard Chartered Bank Mauritius of Rs. 1.4 Bn. (USD 9.15 Mn.) in April 2018. The loan has been fully settled on 12 April 2021.

26.4 Investment measured at Amortised cost

26.4.a Debentures

Company/Group has invested Rs. 100 Mn. in unlisted rated senior unsecured redeemable Type A – 3 years debentures issued by National Savings Bank with fixed Interest Rate of 11% per annum payable annually.

Company/Group has invested Rs. 100 Mn. in listed rated unsecured redeemable Type A – 5 years debentures issued by National Development Bank with fixed Interest Rate of 11.9% per annum payable semi-annually.

26.4.B Other Short-term Investments

Financial instruments at amortised cost include Short-term investments made in money market instruments with the intention
of withdrawing after 3 months period.

26.5 COVID-19 impact on Investment valuation

The Board of Directors has assessed the potential impact of COVID-19 in the investment valuations.

27.1 Composition of net and gross deferred tax asset/(liability)

27.2 Deferred tax asset (gross)

27.3 Deferred tax liability (gross)

27.4 Reconciliation of Deferred Tax Liabilities and Deferred Tax Assets