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Lanka Century Investments PLC Independent Advisor’s Report to the Board of Directors and Shareholders of Lanka Century Investments PLC on the Voluntary Offer made by Taprobane Holdings PLC

CORPORATE ADVISORY & CAPITAL MARKETS DIVISION 18th

BOC Merchant Tower Floor, 28 St Micheals Road Colombo 03.

Tel: 4711711

DATE: 28 July 2014

Fax: 4711741

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Contents

1. KEY INVOLVED IN THE INDEPENDENT OPINION ADVISORY ............ 4 2. THE TRANSACTION.............................................................................................. 5 3. LANKA CENTURY INVESTMENTS PLC (GREG) .................................................... 6 Recent performance ................................................................................................... 9 Subsidiary and Associate Companies ..................................................................... 10 Ceylon Leather Products PLC (CLPL) ........................................................................................ 10 Dankotuwa Porcelain PLC (DPL) ................................................................................................ 12 Royal Fernwood Porcelain Ltd (RFPL) ....................................................................................... 14 South Asia Textile Industries Lanka (Pvt) Limited (SAT) ........................................................... 15 Palla & Company (Pvt) Limited (PALL) ...................................................................................... 16 Colombo City Holdings PLC (PHAR) .......................................................................................... 17 OLANCOM (Pvt) Limited (OLAN) ................................................................................................ 19 Enterprise Technology (Pvt) Limited (ETPL) ............................................................................... 20 Senit technologies (Pvt) Limited (SENT) ..................................................................................... 21 Browns Investment PLC (BIL) ........................................................................................................ 22

4. TAPROBANE HOLDINGS PLC ............................................................................ 24 Top 20 Shareholders as at 30 June 2014 .................................................................. 25

5. THE VALUATIONS .............................................................................................. 26 Free Cash Flow (FCF) valuation ................................................................................ 26 Relative valuations..................................................................................................... 28 Sector based valuation ................................................................................................................ 28 Market based valuation............................................................................................................... 28 Peer based valuation ................................................................................................................... 29

Market Price based valuation .................................................................................. 30 Market Value of Investments .................................................................................... 31

6. INDEPENDENT OPINION ................................................................................... 32 Risk Factors specifically associated with the offer .................................................. 32

7. DECLARATION TO THE SHAREHOLDERS AND DIRECTORS OF GREG .............. 33

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Contents Tables Table 1- Corporate profile ........................................................................................................................ 6 Table 2- Top 20 Shareholders as at 17 July 2014................................................................................... 8 Table 3- Top 20 Warrant- 2015 Holders (GREG.W0006) as at 17 July 2014 ...................................... 8 Table 4- Financial Highlights ..................................................................................................................... 9 Table 5 - Sectorial performance – 2014 ................................................................................................. 9 Table 6- CLPL's group financial indicators ........................................................................................... 11 Table 7- DPL’s financial indicators......................................................................................................... 13 Table 8- RFPL’s financial Indicators ....................................................................................................... 14 Table 9- SAT’s financial indicators ......................................................................................................... 15 Table 10- PALL’s financial indicators ..................................................................................................... 16 Table 11- PHAR’s financial indicators ................................................................................................... 17 Table 12- OLAN’s financial indicators ................................................................................................... 19 Table 13- ETPL’s financial indicators ...................................................................................................... 20 Table 14- SENT’s financial indicators ..................................................................................................... 21 Table 15 - BIL's financial indicators ........................................................................................................ 23 Table 16- Top 20 Shareholders as at 30 June 2014 ............................................................................ 25 Table 17- Results of FCF valuation ......................................................................................................... 26 Table 18 - GREG Offer details ................................................................................................................ 28 Table 19 - GREG Sector PBV Valuation ................................................................................................ 28 Table 20 - GREG Market PBV Valuation ............................................................................................... 28 Table 21 - Peer based PBV valuation ................................................................................................... 29 Table 22 - GREG price statistics ............................................................................................................. 30 Table 23- Realizable Market Values ...................................................................................................... 31 Table 24- Summary of valuations .......................................................................................................... 32

Figures Figure 1- Transaction Structure ................................................................................................................ 5 Figure 2- GREG group structure ............................................................................................................... 7 Figure 3- CLPL one year price trend ..................................................................................................... 10 Figure 4- DPL one year price trend ....................................................................................................... 12 Figure 5- PHAR one year price trend .................................................................................................... 18 Figure 6- BIL One year price trend ........................................................................................................ 23 Figure 7- Taprobane Group Structure .................................................................................................. 24 Figure 8- GREG One year price trend .................................................................................................. 30

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In preparing this document, we have placed reliance, on the information contained in the offer document prepared by Taprobane Wealth Plus (Pvt) Ltd, company profiles and financial information provided by Lanka Century Investments PLC and its group companies, information available on the Colombo Stock Exchange, information gathered from explanations provided and discussions had with Lanka Century Investments PLC’s senior management and information available from any public domain. These information was adequate to facilitate an informed view of the offer and to form a reasonable basis for the opinion. We have not verified in detail, the information made available by Lanka Century Investments PLC or the group companies to us and not conducted any independent investigation into the business affairs of Taprobane Holdings PLC. While MBSL has taken reasonable care to ensure full and fair disclosure, nothing has come to the attention of the independent advisor to believe that the facts and data set forth in the report are incorrect. However, Merchant Bank of Sri Lanka PLC does not assume responsibility for any investment decisions made by the investors based on the information contained herein. In making an investment decision, prospective investors must rely on their own examination and assessments of the Company, including the risks involved. Recommendations given in this report is valid as at the report date and for a period of 6 months period from the report date.

This document has been approved by the Securities and Exchange Commission of Sri Lanka (SEC) in of the Takeovers and Mergers Code. However, the SEC assumes no responsibility for the content of the Report including but not limited to the statements made and opinions expressed in the Independent Advisor’s Report.

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1. Key involved in the Independent Opinion Advisory Mr A M A Cader Deputy General Manager - Corporate Advisory & Capital Markets E-mail - [email protected] / Tel: 011 - 4 711 769 Specialized by 35 years of industry proficiency, Mr Cader is currently heading the Corporate Advisory & Capital Markets division of MBSL for 21 years. During his professional career Mr Cader has gained experience as a competent investment banker with specialization in services such as IPO’s, Pre-IPO Restructuring & Advisory, Business Plans, Corporate Valuations, Portfolio Management, Employee Share Option Plans, Debt Syndications, Securitizations and delivering training Programs. 

Fellow Member of the Chartered Institute of Management ants, UK



Fellow Member Society of Certified Management ants of Sri Lanka



Associate Member of the Institute of Financial ants, London



M.Sc. In Information Technology from Sri Lanka Institute of Information Technology (SLIIT)



Masters of Business Studies (MBS) from University of Colombo

Ms Lalangi Goonawardena Manager - Corporate Advisory E-mail- [email protected] / Tel: 011 - 4 711 746 The long-standing industry exposure of 20 years is indeed a recourse to the bank. Her sound technical awareness of listing procedures and legislative guidelines has generated much comfort and value to the clients in successful listings of companies in the Colombo Stock Exchange. 

B.Sc.(Hons) – Physical Science from versity of Sri Jayewardenepura



Diploma in Credit Management from Institute of Bankers, Sri Lanka

Mr Hijas Suhair Assistant Manager - Corporate Advisory & Capital Markets E-mail - [email protected] Having started his professional career at PricewatrerhouseCoopers followed by DFCC Stockbrokers, Mr Hijas stands out with the ideal combination of know-how in investment banking, business advisory and portfolio management. 

MBA - University of Wales



Chartered Institute of Management ants (CIMA)



The Institute of Chartered ants of Sri Lanka (CA)

Mr Angelo Brandan Keil Analyst/ Executive - Corporate Advisory and Capital Markets E-mail - [email protected] Qualified with a strong academic background, Mr Angelo Keil has experience in Tax advisory, corporate advisory, portfolio management and other investment banking activities. 

M.Sc. in Applied Finance from University of Sri Jayewardenepura



Bachelor of Business Management (Finance) special from University of Kelaniya



Chartered Institute of Management ants (CIMA) - Finalist

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2. The Transaction On the 13 March 2014 Taprobane Holdings PLC (herein after referred to as “Taprobane” or the “Offeror”) acquired 100% of issued shares of Capital Trust Partners (Pvt) Ltd (CTP), which held Sixty Million Three Hundred Five Thousand Six Hundred and Nine (60,305,609) Ordinary Voting shares of Lanka Century Investments PLC (herein after referred to as “GREG” or the “Offeree”) amounting to 17.26% of the issued Ordinary Voting shares of GREG. Prior to this, Taprobane directly owned 28.91% of the issued Ordinary Voting shares of GREG and indirectly via its fully owned subsidiary, Taprobane Wealth Plus (Pvt) Ltd owned 0.02% of the issued Ordinary Voting shares of GREG. Hence, the entire shareholding of GREG held by Taprobane directly and indirectly amounts to 46.19%. Further, as at 13 March 2014 a Director of Taprobane, Mr R.R Anthony had 19,925 shares of GREG, amounting to 0.01% of the shareholding of the Offeree, which have subsequently disposed.

Taprobane Holdings PLC 28.93%

100.00%

Capital Trust Partners Pvt Limited

Lanka Century Investments PLC

17.26% Figure 1- Transaction Structure As such in compliance with the Takeovers and Mergers Code, the Offeror has made a Voluntary Offer to purchase the balance One Hundred Eighty Seven Million Nine Hundred Seventy Six Thousand Five Hundred and Ten (187,976,510) Ordinary Voting shares constituting approximately 53.81% of the total shareholding of the issued Ordinary Voting shares of GREG at a price of Eleven Rupees (LKR 11.00) per share, being the highest price paid by the Offeror during the period of one year, prior to the date of the acquisition. In this regard, Merchant Bank of Sri Lanka PLC - Corporate Advisory and Capital Markets Division (“MBSL”) was appointed by the Directors of the Lanka Century Investments PLC to act as the Independent Advisor to the shareholders of Lanka Century Investments PLC in connection with the above offer made to GREG by the Offeror.

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3. Lanka Century Investments PLC (GREG) Lanka Century Investment PLC is a leading investment holding company in Sri Lanka executing complex corporate restructuring investments. GREG creates sustainable value addition for investors and the companies in which they invest. The GREG group holding consist companies in diversified sectors such as manufacturing, information technology, retail , distribution, and real estate development and employees over 3,000 personnel. Domicile & Legal Form Principal Activity & Nature of the Company Company Reg. No. Board of Directors

Lanka Century Investments PLC is a Public Limited Liability Company incorporated and domiciled in Sri Lanka. Investment Holding PQ 26 Mr A.G. Weerasinghe

Chairman

Mr Eric B. Wikramanayake

Deputy Chairman

Mr Kelly T. Ehler Mr D.S.K. Amarasekara

Independent Director/ NonExecutive Independent Director/ NonExecutive

Mr R.P. Sugathadasa

Non-Executive Director

Mr Thomas Scanlan

Non-Executive Director

Mr I. C. Nanayakkkara

Non-Executive Director

Secretaries

P W Corporate Secretarial (Private) Limited 3/17, Kynsey Road, Colombo 08.

Registrars

S P Corporate Services (Private) Limited 101, Inner Flower Road, Colombo 3 Ernst & Young Chartered ants, No. 201, De Saram Place, Colombo 10. Pan Asia Banking Corporation PLC Nations Trust Bank PLC Deutsche Bank Seylan Bank PLC

Auditors Bankers

ed Address

No. 10, 5th Floor, Gothami Road, Colombo 08

details

Telephone Fax E mail Website

+94 11 570 0700 +94 11 268 0225 [email protected] www.lci.lk

Table 1- Corporate profile

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Figure 2- GREG group structure Source: GREG management and 2012/2013 annual report

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Name of Shareholder

No. of Shares

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Seylan Bank PLC/Taprobane Holdings PLC Caledonian Securities Limited Capital Trust Partners (Pvt) Limited Octagon Asset Management INC Dr N Kasim Lionhart Investments Limited Carlines Holdings (Private) Limited Phillip Securities Pte Limited Mr N Balasingam Knight Trade (Private) Limited Mellon Bank N.A. – The Frontier Emerging Markets Fund National Wealth Corporation Limited Sampath Bank PLC/Capital Trust Holdings PLC First Capital Markets Limited/Mr P R B Perera People’s Leasing & Finance PLC/Mr D M P Disanayake People’s Leasing & Finance PLC/M I M Rizly & F R Hassan Pan Asia Banking Corporation PLC/Mr V P K A Palpita Pan Asia Banking Corporation PLC/Mr Ravindra Erle Rambukwelle 19. Mr P Anandaraja 20. Pan Asia Banking Corporation PLC/Mr Mohottallage Nihal Ranasinghe

%

101,000,000 96,852,800 60,305,609 17,542,317 11,676,834 6,364,717 2,211,971 1,989,899 1,906,500 1,754,137 1,668,159 1,657,355 908,480 635,427 623,000 604,700 577,755

28.91 27.72 17.26 5.02 3.34 1.82 0.63 0.57 0.55 0.50 0.48 0.47 0.26 0.18 0.18 0.17 0.17

565,000 527,500

0.16 0.15

521,500

0.15

Table 2- Top 20 Shareholders as at 17 July 2014 Name of Warrant holder 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

No. of Shares

Caledonian Securities Limited Lionhart Investments Limited People’s Leasing & Finance PLC/Mr D M P Disanayake Mrs H P Gin Mr W M S K Weerasekara Mr P Poongunaseelan Mr S M Masoor Mr K O D Jayaratne Mr W B L Perera Mr U L N K Perera Mr A B Damunupola Mr U G K Udayanka Mrs R N R Aziz Pan Asia Banking Corporation PLC/Mr R P L Eheliyagoda Flyasia SND. BHD Mr H J De Silva Mr B W Kundanmal Mrs P Poonkulavathani Mr M N M Shiyam Mr P Thevarajah

248,158,695 68,391,004 1,659,900 1,504,991 1,203,900 917,398 907,172 850,000 769,000 603,881 561,700 510,000 426,300 323,401 320,216 300,000 282,500 281,500 257,899 241,430

% 71.37 19.67 0.48 0.43 0.35 0.26 0.26 0.24 0.22 0.17 0.16 0.15 0.12 0.09 0.09 0.09 0.08 0.08 0.07 0.07

Table 3- Top 20 Warrant- 2015 Holders (GREG.W0006) as at 17 July 2014

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Recent performance Unaudited

Audited

Audited

2013/2014

2012/2013

2012/2011

Financial Performance Revenue Operating Profit / (Loss) Profit / (Loss) Before Tax Profit / (Loss) After Tax Interest Cover Return on Equity Return on Investment Financial Position Total Assets Total Debt Total Equity No. of shares in Issue Net Assets per share Debt/Equity Debt/Total Assets Net Investments Market/shareholder Information Market Price of share Market Capitalization

LKR ‘000 LKR ‘000 LKR ‘000 LKR ‘000 Time % %

8,633,438 (56,462) (240,888) (304,179) -0.45 -3.43% -2.37%

7,184,808 (130,986) (183,421) (225,274) 0.04 -2.47% -1.84%

5,997,943 276,379 138,434 75,944 1.72 0.80% 3.32%

LKR ‘000 LKR ‘000 LKR ‘000 LKR % % LKR ‘000

12,837,692 2,386,340 8,855,891 349,367,119 22.08 25.82% 18.59% (217,446)

12,250,594 1,739,968 9,122,790 349,367,119 22.97 19.07% 14.20% 2,273,155

12,813,039 1,734,181 9,507,483 349,367,119 23.69 18.24% 13.53% 2,049,964

LKR LKR ‘000

12.30 3,877,975

15.60 5,450,127

16.80 5,869,368

Table 4- Financial Highlights

Source: Annual Reports and Unaudited Financial Statements published as at the report date

The Group’s revenue rose to LKR 8.63 Bn in year 2013/2014, mainly contributed from the revenue of textile manufacturing - LKR 4.84 Bn followed by footwear manufacturing - LKR 1.73 Bn and manufacturing porcelain with LKR 1.79 Bn. Net profit wise the Textile, Services and Property sectors contributed the highest with LKR 139.83 Mn, LKR 117.40 Mn and LKR 51.70 Mn respectively whilst the losses were attributed from Investments sector with LKR 108 Mn and Porcelain sector with LKR 19 Mn. Sectors

Revenue

Net profit/(loss)

Total assets

Return on investments

Manufacturing Footwear Manufacturing Porcelain Manufacturing Textile Investment Property Services

1,733,888 1,787,976 4,837,122 65,916 45,902 162,634 8,633,438

3,297 (19,228) 139,830 (108,039) 51,703 117,402 184,965

2,608,154 2,496,017 2,823,070 287,595 1,123,695 279,416 9,617,947

0.13% -0.77% 4.95% -37.57% 4.60% 42.02%

Table 5 - Sectorial performance – 2014

Source: Annual Reports and interim Financial Statements published as at the report date

Inter Company Transactions have been eliminated in arriving at net profit/ (loss) for the year. Segment assets do not include investments in subsidiaries & associates, goodwill, investment in group preference shares and intercompany current balances. ~9~

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Subsidiary and Associate Companies Ceylon Leather Products PLC (CLPL) Ceylon Leather Products PLC is a local pioneer in processing, manufacturing and marketing of leather, leather footwear and leather products. The business was established in year 1939 by the British Government to produce boots, shoes and accessories for the British Armed Forces. After the Second World War, the factory diversified its activities to produce shoes and leather accessories to the domestic market. In year 2009, Environmental Resources Investments PLC (Lanka Century Investments PLC) took over the controlling interest of CLPL. As at date CLPL is, a 91.39% held subsidiary of GREG. CLPL has three distinct production facilities namely, A. Tannery - Leather been produced from raw hides and skins. The factory is located in Mattakuliya, Western province, Sri Lanka with a production capacity of 200,000 sq.ft. Leather per month. There are about 140 employees working in this process. B. Shoe factory - Produces Leather footwear for gents, women and schoolchildren out of genuine leather. The factory is located in Belumahara, Western Province, Sri Lanka and embraces a production capacity of 45,000 shoe pairs per month. There are about 264 employees working at this facility. C. Leather goods factory - Produces all types of leather products and accessories. CLPL owns 9 retail stores covering the main cities and over 350 dealers island wide. CLPL has strategic investments in Ceylon Leather Products Distributors (Pvt) Ltd (100.00%), South Asia Textile Industries Lanka (Pvt) Ltd (51.55 % equity control and with effect from 18 July 2014 changed to 80.39% equity control via a rights issue of 8-for-1 at LKR0.10 ) and Palla & Company Pvt Ltd (60.00%). 70,000

80.00

CLPL

60,000

75.00

70.00

40,000 65.00 30,000 60.00

20,000

55.00

10,000 0 Jul-13

50.00 Aug-13

Sep-13

Oct-13

Nov-13 Dec-13

Jan-14

Feb-14 Mar-14

Apr-14 May-14

Figure 3- CLPL one year price trend Source: Colombo Stock Exchange

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Jun-14

Price

Volumes

50,000

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According to the unaudited financial statements as at 31 March 2014, CLPL group generated a net revenue of LKR 6.53 Bn (25%) mostly from the textile sector of LKR 4.84 Bn. CLPL’s gross profit and net profit before tax stood at LKR 918.53 Mn (14%) and LKR 190.76 Mn (51%) respectively. CLPL’s earnings per share is LKR 3.59 (31%) and the Net Assets Value per share is LKR 89.90 as at 31 March 2014. Based on discussions held with the senior management and budgets prepared, CLPL has targeted to realize net sales of LKR 1.40 Bn while maintaining a gross margin of 23% and net margin of 10 % only from its shoe/leather business next year. CLPL expects to improve its margins and sales mix and anticipates a lower growth after year 2015, since more than 70% of revenue is from Sri Lanka Armed forces. As at 13 July 2014 CLPL’s share was trading at LKR 69.20 and during the past year, the price volatility generated a negative return of 2.24%. The annualized standard deviation is about 44.44%. 2013/2014 Unaudited Revenue Gross profits Net profits Earnings per share Total assets Net assets per share Market price

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR LKR

6,529,347 918,531 135,687 3.59 5,699,989 89.90 57.30

2012/2013 Audited 5,203,031 805,818 97,206 2.75 5,508,006 87.72 62.30

Table 6- CLPL's group financial indicators

% 25% 14% 40% 31% 3% 2% -8%

Source: Annual Reports and interim Financial Statements published as at the report date

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Dankotuwa Porcelain PLC (DPL) Dankotuwa Porcelain PLC is a leading manufacturer and exporter of Porcelain Tableware which was incorporated on 6 January 1984. DPL is 65.51% owned subsidiary of GREG and listed on the Colombo Stock Exchange. With the Japanese skills, German Technology and adaptability to the changing market trends of the industry, DPL has a reputed client base including Macy’s Department Stores, British Home Stores, John Lewis, Jashanmal, El Corte Ingles, Berghoff, Galeria Kaufhof and many others scattered throughout USA, Asia and Europe. DPL is the first tableware manufacturer in Sri Lanka to obtain ISO 9001/2008 certification. With a “white ware” production capacity of 700,000 pieces per month and other decorative product capacity more than 675,000 pieces per month, DPL has recognized the necessity of increasing production capacity and innovativeness in competing globally, while constantly upgrading its machinery and plant. DPL uses local material combined with imported materials from countries such as New Zealand, India, and China, to produce the unique brand of quality porcelain for which Dankotuwa is famed. DPL employees a workforce of approximately 1,000 personnel. The demand for DPL’s products spans across over 25 countries with buyers from Belgium, Czech Republic, Colombia, Dubai, , Greece, India, Ice Land, Italy, Japan, Kuwait, Norway, Brazil Egypt, , Kenya, Bahrain, Poland, Russia, Spain, Switzerland, U.S.A, U.K, Qatar, Maldives and Ukraine, etc. DPL is a supplier of ‘Upstairs’ or up-market tableware to some of the bigger departmental stores in the United States and Europe. DPL will continue to cater the upmarket with niche markets strategies to customers with less cost consciousness. DPL made revenue of LKR 1.7 Bn (9%), gross profit of LKR 294 Mn (17%) and a net profit of LKR 16.5 Mn (52%) during the year ended 31 March 2014. During the year 2013/2014, DPL acquired 76% of Royal Fernwood Porcelain Limited for a consideration of LKR 300 Mn.

16.00

1,800,000 1,600,000

15.00

1,400,000

Volumes

1,000,000

13.00

800,000

12.00

600,000

11.00

400,000

10.00

200,000 0

15-Jul

15-Aug 15-Sep 15-Oct 15-Nov 15-Dec 15-Jan 15-Feb 15-Mar 15-Apr 15-May 15-Jun

Figure 4- DPL one year price trend Source: Colombo Stock Exchange

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9.00 15-Jul

Price

14.00

1,200,000

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DPL expects a turnaround through its investment in Royal Fernwood Porcelain Limited and replacement of the existing “Glost Klin” with new energy efficient “Fast Firing Klin”. The Fast Firing Klin will reduce the energy consumption drastically and reduce the furniture requirement in the production process. DPL has already curtailed the work force by nearly 100 employees last year & wishes to reduce the numbers further in the coming years. DPL strategizes moving from the traditional export markets in the Europe to Emerging markets such as India, Brazil, South Africa with a view to get more volumes at relatively higher prices with high value added products.

2013/2014 Unaudited Revenue Gross profit Net profit Earnings per share Total Assets Net assets per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

1,668,766 294,009 16,484 0.23 1,658,598 11.26

2012/2013 Audited 1,528,652 352,939 34,675 0.48 1,353,355 11.43

% 9% -17% -52% -52% 23% -1%

Table 7- DPL’s financial indicators Source: Annual Reports and Unaudited Financial Statements published as at the report date

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Royal Fernwood Porcelain Ltd (RFPL) Royal Fernwood Porcelain Limited is a 49.79% owned subsidiary of GREG, manufactures supreme quality tableware, achieved through superb craftsmanship and unique design creation that give new meaning to elegance and good taste. RFPL has a monthly production capacity of 670,000pcs, a blend of modern technology from , Japan and the United Kingdom, while retaining traditional skills in craftsmanship. Through its own operation, RFPL has the advantage of producing the highest quality hand painted tableware; transparent and opaque colour glazed tableware as well as two-tone colour glazes. RFPL is able to develop individual designs to customer's preferences within the shortest possible time. Behind this success story is a highly professional, totally dedicated workforce committed to achieving only the best with a vastly experienced management team to back them all the way. With its present customer base predominantly located in the USA, Europe, Australia and Asia, RFPL uses their high productivity rate to ensure that new customers are offered extremely competitive prices. RFPL has the technical know-how and capacity to produce porcelain ware with designs “under glaze”, “in glaze” as well as “on glaze” decorations. RFPL products are made to the highest international standards such as ASTM as well as being the only manufacturer in Sri Lanka to have SLSI standard for porcelain tableware. Further, RFPL is the only porcelain manufacturing company to have been awarded the prestigious national quality award and national productivity award for excellence in manufacturing and productivity.

2013/2014 Unaudited Revenue Gross profit Net loss Loss per share Total Assets Net assets per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

2012/2013 Audited

654,672 44,907 (110,335) (0.27) 1,067,462 0.67

Table 8- RFPL’s financial Indicators

645,134 16,421 (115,505) (0.46) 1,114,561 1.41

% 15% 173% -4% -41% -4% -52%

Source: Audited Financial Statements & draft financial statements prepared by the management

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South Asia Textile Industries Lanka (Pvt) Limited (SAT) South Asia Textiles was incorporated in year 2004 as a subsidiary of South Asia Textiles Singapore. SAT, started as a liaison office in 2002 with the objective of marketing fabric in Sri Lanka from the plant in Singapore. It subsequently set out on an ambitious project of setting up a fabric manufacturing facility. In June 2010, through a t acquisition by Ceylon Leather Products PLC and Lanka Century Investments PLC (GREG) acquired 51.55% and 8.09% of SAT respectively (totalling a 55.19% effective controlling interest of SAT) for a consideration of LKR 710 Mn. SAT is located in a land area of 73 hectares in Pugoda which is under a 25 year lease agreement with the BOI and out of which 15 years are still remaining. After this period, the ownership of the land would be transferred to SAT. SAT has a fully-fledged manufacturing plant that engages in Weft Knitting, Dyeing, Printing, Sueding, Brushing and Finishing, with a total monthly capacity to produce 630,000 KG of finished fabric, catering to world renowned buyers such as M&S, NEXT, Tesco, Bhs, Victoria Secret, Azda, TEMA, Columbia Sportswear, Sainsbury, Mother Care, H&M, Takko, GAP, JC Penney, Reebok etc. The ultra-modern textile manufacturing facility of SAT specializes in Printing, brushing, sueding and making Anti Pilling Micro Polar Fleece. Currently, SAT produces 100% cotton and Polly cotton blends and the factory is equipped with 140 lbs circular weft knitting machines, 24 dyeing machines, 4 washing plants 10 coloured and 16 color flatbed printing machines and a physical testing lab, audited and certified by independent buyer nominated companies. As Sri Lanka’s third largest knit fabric manufacturing plant, SAT cater to over 95% of the capacity for local garment exporters and still the opportunity on exports has not been exploited by SAT. SAT has turned around the operations and in year 2013 and 2014 and ended continues profits since the acquisition. Operating through a challenging year, SAT recorded a net profit of LKR 107 Mn as at 31March 2014.

2013/2014 Unaudited Revenue Gross profit Net profit Earnings per share Total Assets Net assets per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

2012/2013 Audited

4,837,122 958,925 131,088 0.17 2,838,188 1.41

Table 9- SAT’s financial indicators

3,801,508 623,700 154,895 0.21 2,682,454 1.23

% 27% 54% -15% -19% 6% 15%

Source: Audited Financial Statements & draft financial statements prepared by the management

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Palla & Company (Pvt) Limited (PALL) Palla & Company (Pvt) Ltd is a footwear manufacturer, incorporated on 27 February 2004. The factory complex is formed by 4 acres land with total build area of over 5,000 square meters and is situated at the Katunayake Export Processing Zone, being one of the most convenient location in the island to conduce industrial operations focused on the exports. The build area covers the production floor, office, sample room, show room, engineering, raw material stores, finished goods warehouse attached to a final inspection line. The production floor is divided into sections such as cutting, stitching, preparation, and assembly. PALL maintains an independent quality control department. PALL has installed capacity to manufacture up to 1,500 pairs per day of high quality leather shoes covering the main categories of casual and dress shoes offering a range of pumps, oxfords, flats, sandals, ankle boots and boots. Raw materials such as Upper Leather, Lining Leather, Midsoles, Outsoles, etc. are sourced locally and imported from countries such as Italy, India, Pakistan, Argentina, Saudi Arabia, China, etc. PALL also maintains a team of foreign consultants from Italy, India and Romania overlooking all the steps of the production. In the year ending on the 31 March 2014, PALL ended with a revenue of LKR 301Mn (18%), a gross loss of LKR 19 Mn (53%) and a net loss of LKR 124 Mn (31%). PALL’s negative outlook is mainly due to reduced quantities from the slow recovery from the economic recession in the west. With customer portfolio diversifications and filled capacity, the management is confident that positive results could be generated. In November 2011, CLPL made an investment to acquire 60% of Pall’s share capital and effectively GREG holds 54.8% of PALL.

2013/2014 Unaudited Revenue Gross loss Net loss Loss per share Total Assets Net deficit per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

2012/2013 Audited

301,294 (18,893) (123,983) (1,378) 258,145 (3,506)

Table 10- PALL’s financial indicators

366,118 (41,473) (179,768) (1,997) 250,087 (2,128)

% -92% 54% -31% 31% 3% -65%

Source: Audited Financial Statements & draft financial statements prepared by the management

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Colombo City Holdings PLC (PHAR) Colombo City Holdings PLC (formerly known as The Colombo Pharmacy Company PLC) established as a chemist’s store named Norris Canal Stores goes back to over a century to its more humble beginnings in 1876. With the acquisition of a majority holding of PHAR by GREG in the year 2010, PAHR has undergone significant changes planned to drive it towards achieving strong growth prospects in the future. In spite of this initiative, the Union Place building was improved by implementing a refurbishment program that significantly increased the growth prospects of PHAR. As at today PHAR is a 66.40% owned subsidiary of GREG. Due to the strategic importance of the two locations at Union Place & Bambalapitiya PHAR discontinued its pharmaceutical operations in year 2013 and directed towards high value real estate business.

2013/2014 Unaudited Revenue Gross profit Net profit Earnings per share Total Assets Net assets per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

2012/2013 Audited

45,902 45,902 48,463 38.07 1,129,092 771.86

90,472 32,500 42,606 33.47 1,121,202 733.79

% -49% 41% 14% 14% 1% 5%

Table 11- PHAR’s financial indicators

Source: Audited Financial Statements & interim financial statements published as at the report date

According to the unaudited financial statements ended 31 March 2014 PHAR generated revenue of LKR 45.90 Mn (49%) and a gross profit of the same due to not incurring any cost of sales. The fair value gain on revaluation of investment property and the decline in operational expense enabled the PHAR to realize a net profit of LKR 48.46 Mn (14%). PHAR’s earnings per share is at LKR 38.07, for the year ended 31 March 2014.

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During the last one year PHAR’S share price trading generated a return of 5.61% to close at LKR 501.00 on the 14 July 2014. PHAR’s share was volatile with an annualized standard deviation of about 41.32%. Nevertheless, PHAR shares have a public float of 18.7% as at 31 March 2014.

PHAR 10,000

600.00

9,000 8,000

550.00

6,000

500.00

5,000 4,000

450.00

3,000 2,000

400.00

1,000 -

350.00 15-Jul 15-Aug 15-Sep 15-Oct 15-Nov 15-Dec 15-Jan 15-Feb 15-Mar 15-Apr 15-May 15-Jun

Figure 5- PHAR one year price trend Source: Colombo Stock Exchange

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Price

Volumes

7,000

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OLANCOM (Pvt) Limited (OLAN) OLANCOM (Pvt) Limited was founded in year 2000 with a small team of professionals to provide e-commerce solutions. Operating in the ICT sector with a highly skilled set of employees OLAN offers a diverse range of products and services targeted at individuals, SMEs and large public and private enterprises. OLAN through its subsidiary companies, Enterprise Technology (Pvt) Limited, Roomsnet international (Pvt) Limited and Senit technologies (Pvt) Limited is one of the largest e-commerce operators based in Sri Lanka. It is also one of the leading Systems integrators in the country, having completed some of the largest systems integration projects in Sri Lanka. In year 2014 OLAN alone produced a revenue of LKR 4.5 Mn (29%) while the group achieved revenue worth of LKR 167 Mn (40%), gross profit of LKR 57 Mn and net profit of LKR 30 Mn. OLAN expects to benefit from the booming tourism sector and earn increased commission and package income in times to come. GREG acquired OLAN on 31 March 2011 and OLAN acquired ETPL on 30 June 2010. At present OLAN is 93.15% subsidiary of GREG.

2013/2014 Unaudited Revenue Gross profit Net Loss Loss per share Total Assets Net deficit per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

2012/2013 Audited

4,534 (1,135) (103,725) 81,492 (0.04)

Table 12- OLAN’s financial indicators

6,393 (1,753) (114,429) (0.01) 56,759 (0.03)

% -29% -35% -9% 44% -15%

Source: Audited Financial Statements & draft financial statements prepared by the management

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Enterprise Technology (Pvt) Limited (ETPL) Enterprise Technology (Pvt) Limited is one of Sri Lanka's premier Network Systems Integrators with over 15 years of experience in providing business-critical Information Communication Technology (ICT) solutions for major Sri Lankan Corporations. ETPL’s clientele includes organisations

from

the

Telecommunication,

Government,

Transportation,

Financial,

Manufacturing sector and Universities. ETPL offers customers secured high performing end-to-end Information Communication Technology solutions through a team of Sales, Design & Consultancy, Project Implementation and professionals. These solutions include: 

Multilayer Routing and Switching IP Networks



IP Telephony and Video Conferencing



Wireless Networks



Information Security



Internet / Enterprise Data Center



Storage and Disaster Recovery Solutions



Unified Messaging and Call Centers / Centers

ETPL has developed a seamless organizational structure to provide comprehensive services for deploying the state of art of Information Communication Technology solutions by a team of, 

Consultancy



Design



Project Management and Implementation



and Outsourcing services



Application Delivery Networks



Video surveillance

ETPL is 100.0% owned subsidiary of Olancom (Pvt) Ltd, which makes ETPL effectively a 93.15%, owned subsidiary of GREG. 2013/2014 Unaudited Revenue Gross profit Net Loss Earnings/(Losses) per share Total Assets Net deficit per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR

110,873 44,038 122,197 0.31 52,476 (0.41)

Table 13- ETPL’s financial indicators

2012/2013 Audited 150,063 60,866 (21,993) (0.06) 255,286 (0.71)

% -26% -28% >100% >100% -79% -43%

Source: Audited Financial Statements & draft financial statements prepared by the management

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Senit technologies (Pvt) Limited (SENT) Senit Technologies (Pvt) Limited is an e-commerce software solution services provider mainly concentrating on Online Hotel Reservation Solution, Online Shopping Cart Solution, and Online Payment Gateway Integrations.

2013/2014 Unaudited Revenue Gross profit Net Loss Loss per share Total Assets Deficit per share

LKR “000” LKR “000” LKR “000” LKR “000” LKR “000” LKR “000”

2012/2013 Audited

4,198 4,198 (3,946) (3,946) 10,194 (61,536)

Table 14- SENT’s financial indicators

3,116 3116 (30,003) (30,003) 9,969 (57,589)

% 35% 35% -87% -87% 2% 7%

Source: Audited Financial Statements & draft financial statements prepared the management

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Browns Investment PLC (BIL) Browns Investment was incorporated in November 2008 as in investment company and has interests in several sectors namely; plantations, leisure, manufacturing, construction & engineering, telecommunication and power sector. BIL was initially incorporated as Browns Plantation Investments Pvt Limited and subsequently changed to Browns Investments Limited. The main course of business is diversifying investments into different sectors deriving investment income, dividend income and capital gains. BIL was listed on the Colombo Stock Exchange on 26 July 2011. BIL is a subsidiary of Brown & Co PLC. BIL invests in fast growing areas of the Sri Lankan economy. BIL operates as the strategic investment vehicle of the Browns Group and may invest on its own or in concert with other investors. BIL holds 100% ownership in Browns Hotels & Resorts Ltd (formerly LOLC Leisure Ltd.) Browns Hotels & Resorts owns and operates the five star Eden Resort & Spa as well as Dickwella Resort & Spa. Browns Hotels & Resorts also has within its portfolio the properties, which were formerly Riverina, Club Palm Garden and Tropical Villas. The first stage of the 367 roomed mega project in the property housing the former Palm Gardens, Riverina and Tropical villas is progressing according to plan. The 172-roomed hotel is nearing completion. The project site, which is unique in nature, has the sea beach on the west with two water bodies in the north and south, adjacent to the turtle hatchery. While this location is unique, negotiations are in the final stages to have an international chain to manage this 5 star hotel. BIL acquired a controlling interest in the Green Paradise Resort in Dambulla. This unique property houses 67 rooms, include superior duplex, deluxe and garden suites. The property new to the region complete with luxury finishes beautiful landscaped gardens and is within close proximity to the cultural triangle and other tourist sites. BIL also acquired a controlling interest in the Sun & Fun Resort in ikudah. The resort is still under construction and it will be a 71 roomed luxury resort. BIL’s policy in managing hotels is a hybrid, being relatively new to the leisure sector. Some properties are managed and operated by the group. Other properties would be managed by international chains to capitalize on their capabilities and skills in hotel management and marketing. In a strategic restructuring of sectors, the travel segment, under Brown and Company PLC is in the BIL since year 2013. With over 45 years of experience in the travel industry and with expertise in destination management, the Travel segment fully complements the work of the Leisure sector. The travel segment through BG Air Services (Pvt) Ltd, acts as the general sales agents (GSA) for Austrian Airlines and Scandinavian Airlines in addition to handling outbound travel and inbound travel through Browns Tours (Pvt) Ltd. Inbound travel has been successful in capturing the aviation market by providing assistance to airlines to obtain permission with the Civil Aviation Authority in Sri Lanka to operate flights in and out of Colombo, SLOT clearance from Sri Lankan Airlines, landing and parking clearance to park craft overnight, aircraft catering services, customs and immigration formalities for crews etc. BIL is also building a name in event management by providing the MICE (Meetings, Incentives, Conferences and Events) market with specialized services. ~ 22 ~

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BIL’s subsidiary Excel Global Holdings has a subsidiary called Millennium Development (Pvt) Ltd. This subsidiary has leasehold rights to property termed Excel World. This is a well-known property situated in the centre of Colombo with easy access. It is planned to build a one of a kind mix mega development on this property. This property will include shopping, super marketing, conferencing facilities, gymnasiums and spas as well as restaurants, pubs and entertainment arcades. In the short term, the property has been upgraded and continues to operate as an entertainment location as well as a conferencing facility. It also houses the popular KEG pub and restaurant.

2013/2014 Unaudited Revenue Gross profit Net Profits Earnings per share Total Assets Net Assets Property Plant & Equipment Net assets per share

LKR “000” LKR “000” LKR “000” LKR LKR “000” LKR “000” LKR “000” LKR

2,881,984 483,298 20,052 0.02 22,160,641 15,284,524 10,679,978 5.72

2012/2013 Audited 2,624,821 447,321 33,928 -0.02 12,697,974 12,654,077 2,881,570 5.73

% 10% 8% -41% >100% 75% 20% >100% -0.2%

Table 15 - BIL's financial indicators

Source: Annual Reports and Unaudited Financial Statements published as at the report date

On 10 June 2014, BIL has resolved to issue 1,860,000,000 ordinary voting shares via a rights issue in the proportion of 1-for-1 based on the shareholding as at 5 August 2014. The rights issue will raise LKR 2.325 Bn to settle debts of BIL. Lanka Century Investments PLC has in principle agreed to invest LKR 465 Mn in this regard for its holding of 20% in BIL and is expected to be sourced from external funding. As at 11 July 2014, BIL’s share is trading at LKR 1.80 and during the past one year have generated a negative price return of LKR 30.20%. BIL’s annualized return volatility during the past year is 52.95%. 8,000,000

3.50

7,000,000

Volumes

5,000,000

2.50

4,000,000 2.00

3,000,000 2,000,000

1.50

1,000,000 0 1.00 12-Jul 12-Aug 12-Sep 12-Oct 12-Nov 12-Dec 12-Jan 12-Feb 12-Mar 12-Apr 12-May 12-Jun 12-Jul

Figure 6- BIL One year price trend Source: Colombo Stock Exchange

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Price

3.00

6,000,000

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4. Taprobane Holdings PLC Taprobane Holdings PLC incorporated in September 2006 was formed with the vision of becoming a leading investment powerhouse by generating a large fund base and mobilizing such funds, by investing in the government securities market, debt securities market, equity market and real estate market. Marking our presence in the investment market as a company with integrity and honesty in its dealings, Taprobane is known for its flair for creativity in mobilizing funds and identifying strategic investment options. The special feature of this fund is that it provides investors with unique combinations of risk and return options through various combinations of asset classes. In May 2012, Taprobane was successfully listed on the Diri Savi Board of the Colombo Stock Exchange, boosting and strengthening stakeholder confidence. The myriad of financial services offered by its group companies, which includes Money Brokering, Stock Brokering, Margin Trading and Corporate Finance is well supplemented by the extensive expertise into the government securities market, possessed in-house. Apart from its notable investments into the financial services sector, the group’s investment strategy implements a multi-disciplinary approach, marking presence in an array of sectors, including real estate and commercial property management.

Figure 7- Taprobane Group Structure Source: Company Profile

Brief description of the Taprobane group of companies 1. Heron Agro Products (Pvt) Ltd – A farming project mainly involved in estate management. 2. Taprobane Securities (Pvt) Ltd – A licensed Stockbroker of the Colombo Stock Exchange. 3. Capital Trust Partners (Pvt) Ltd - An investment holding company that has sizable investment. 4. Taprobane Investments (Pvt) Ltd – A licensed Money broker of the Central Bank of Sri Lanka. 5. Lexinton Holdings (Pvt) Ltd – Involved in property management which extends to maintaining commercial property. The subsidiaries of this company includes; 

Lexinton Financial Services (Pvt) Ltd – A Licensed Margin Provider of the SEC engaged in Margin Trading activities



Lexinton Resorts (Pvt) Ltd – Involved in real estate management

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

Taprobane Plantations Ltd – Involved in managing sports and recreational activity centres of Excel World Entertainment Park

6. Taprobane Wealth Plus (Pvt) Ltd – The Corporate Finance arm of the group primarily involved in equity and debt issue management.

Top 20 Shareholders as at 30 June 2014 Name of Shareholder 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

No. of Shares

SEYLAN BANK PLC/ARC CAPITAL (PVT) LTD MR. - ISHARA CHINTHAKA NANAYAKKARA BROWNS INVESTMENTS PLC SEYLAN BANK PLC/PUBUDHU SARANGA WIJAYAKUMARI RUPASINGHE SEYLAN COMMERCIAL BANK CEYLON PLC/ARC CAPITAL (PVT) LTD SEYLAN BANK LIMITED/RUWAN PRASANNA SUGATHADASA/ WALDOCK MACKENZIE LIMITED/MRS.A.C.JAYASINGHE/ L.A.C. HOLDINGS (PVT) LTD MR. - RAJANIK ROSHAN ANTONY MRS. - TERUNI MARIA WIKRAMANAYAKE MR. - DHARSHAN ASHANTHA BANDARA DASSANAYAKE SIERRA TELECOMMUNICATIONS PRIVATE LIMITED SEYLAN BANK PLC/R.P.L. EHELIYAGODA & S.U.R. EHELIYAGODA SEYLAN BANK ENTRUST LIMITED SEYLAN BANK PLC /CAPITAL TRUST HOLDINGS LIMITED MR. - NADARAJAH MURALEE PRAKASH SPRINGCARE HOLDINGS (PRIVATE) LIMITED Mr CHARITHA PRASANNA DE SILVA MR. - NICHOLAS ANDREW FOLEY SAMPATH BANK PLC/CAPITAL TRUST HOLDINGS LIMITED

355,526,332 225,920,922 200,587,305

35.46 22.53 20.00

84,497,064 51,190,106

8.43 5.11

18,241,706 18,241,669 12,702,671 8,629,762 5,073,000 4,046,465 2,095,238

1.82 1.82 1.27 0.86 0.51 0.40 0.21

2,000,000 1,211,476 1,076,481 1,047,619 1,047,619 997,333 759,592 750,809

0.20 0.12 0.11 0.10 0.10 0.10 0.08 0.07

Table 16- Top 20 Shareholders as at 30 June 2014

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5. The Valuations Free Cash Flow (FCF) valuation The FCF valuation is based on the projected income statements and balance sheets of Lanka Century Investments PLC and its subsidiary Companies provided by the respective companies, senior management discussions and assumptions provided. We have derived the FCF to the equity holders of Lanka Century Investments PLC and its companies and discounted them by the relevant weighted average cost of capital to derive the value of equity. Then the calculated equity value is taken into consideration based on the shareholding of the respective company to calculate the Equity Value of Lanka Century Investments PLC. The result of such FCF calculations are given in Table 17 below. Entity GREG CLPL DPL RFPL SAT CCH OLAN PALL BIL

Enterprise value LKR “000” 361,233 1,026,382 1,737,641 1,434,602 7,014,891 249,208 204,730 23,332

Value of Equity LKR “000” 355,927 878,079 1,352,509 1,046,142 5,901,073 223,946 38,331 -

Equity Value Number of share FCF value per share Status of offer price

% of holding 100.00% 91.39% 65.51% 49.49% 86.08% 66.40% 93.15% 55.19% 20.00%

Value to GREG LKR “000” 355,927 802,476 886,029 517,736 5,079,644 148,700 35,705 7,826,217 349,367 22.40 Lower

Table 17- Results of FCF valuation The forecasts and the respective assumptions of Browns Investments PLC was not made available for Merchant Bank of Sri Lanka PLC as at the reporting date to calculate the Free Cash flow Valuations and Equity Value of BIL. Lanka Century Investments PLC holds 20% shareholding of BIL. Therefore, FCF valuations are excluding the value arising from BIL.  SAT’s previous control through CLPL of 51.55% and the direct control by GREG of 8.09% will effectively change via a rights issue of 8:1 at a price of LKR 0.10 to CLPL’s control of 80.39% and GREG’s direct control to 12.61%. Therefore, GREG’s effective control will change from 55.19% to 86.08% after the rights issues. The set of assumptions used in this valuation is listed below. 

No sale of any assets or discontinuation of businesses of any companies during the next five years.



The 347,721,600 Warrants of GREG outstanding will not be converted at the exercise price of LKR 39.00 in year 2015.



The risk free rate is 8.93%, the 5 year bond rate



The expected market return is 12.50%.



Perpetual Growth rate of all the considered companies after the fifth year is 0.00%.



The projections for the FCF valuations were provided by the respective companies and senior management of GREG.

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

The total non-current liabilities were considered when arriving at the value of debt as at today.

Therefore, the FCF value is significantly above the offer price of LKR 11.00 offered by Taprobane Holdings PLC through the voluntary offer. If the FCF valuation of BIL was calculated and incorporated in the FCF valuation of GREG, it will have a positive impact on FCF valuation.

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Relative valuations Sector based valuation The sector based relative valuations are calculated based on the Price to book value multiples of the Investment Trust sector. As at date there are nine listed companies (including GREG) operating in this sector. The Price to Earnings ratio is not considered since GREG incurred a loss during the financial year ended 31 March 2014. The basic snapshot of the offer is given in Table 18 below. Offer Price Group's net profit Group’s EPS Price Earnings ratio Group's Net assets ("000") Group's Net assets per share – 31 March 2014 Price to Book value based on offer price No of Ordinary shares

LKR LKR "000" LKR Times LKR "000" LKR Times "000"

11.00 (304,179) (0.89) N/A 8,855,891 22.08 0.50 349,367

Table 18 - GREG Offer details Price to book value based valuations The valuation used in this methodology is the overall sector based net assets compared to the sector market capitalization. Based on Table 19, below the offer price made on the voluntary offer is significantly lower than the valuation presented from the sector based valuation. Sector

Investment Trust

Sector Price to book value Sector PBV based valuation Status of offer price

1.10 24.30 Lower

Table 19 - GREG Sector PBV Valuation

Market based valuation The valuation methodology used is the overall market net assets compared to the overall market capitalization. Based on the Table 20 below, the offer price made on the voluntary offer is significantly lower than the value presented from the sector based valuation. Market Market PBV as at 16 June 2014 Market PBV based valuation Status of offer price

2.07 45.70 Significantly lower

Table 20 - GREG Market PBV Valuation

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Peer based valuation The valuation methodology used is the peer based net assets compared to the peer market capitalization. Based on Table 21 below, the offer price made on the voluntary offer is significantly lower than the valuation presented from the peer based valuation. Peer Company Price as at 13 Jul 2014 Net assets per share Price to Book value

LKR LKR Times

Ascot Holdings PLC 105.00 69.93 1.50

Price as at 13 Jul 2014 Net assets per share Price to Book value

LKR LKR Times

Ceylon Guardian Investment Trust PLC 192.30 166.93 1.15

Average Peer Price to Book Value GREG net assets value – 31 March 2014 GREG value based on Peer PBV Status of offer price

Times LKR LKR

Peer Company

Table 21 - Peer based PBV valuation

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1.33 22.08 29.26 Significantly lower

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Market Price based valuation The average of closing prices for the last one-year commencing from 12 July 2013 to 11 July 2014 is considered to calculate the average market prices of GREG. Given in Table 22 below, the offer price made on the voluntary offer is lower than the average closing prices for the last 1-year and last three months.

Starting date Ending period

12-Jul-13 11-Jul-14

Number of trading days Highest closing price Highest traded price Lowest closing price Lowest traded price Average daily price return/(loss) Total Price return/(loss) Annualized Volatility One year average closing price Three months average closing price Status of offer price

LKR LKR LKR LKR

240 15.60 16.00 10.00 9.90

% % %

-0.09 -21.94 38.33

LKR LKR

12.90 11.40 Lower

Table 22 - GREG price statistics

6,000,000

17.00 16.00

5,000,000

15.00 14.00 13.00

3,000,000

12.00

2,000,000

11.00 10.00

1,000,000

9.00

0 Jul-13

8.00 Aug- Sep-13 Oct-13 Nov-13 Dec- Jan-14 Feb-14 Mar-14 Apr-14 May- Jun-14 Jul-14 13 13 14

Figure 8- GREG One year price trend Source: Colombo Stock Exchange

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Price

Volumes

4,000,000

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Market Value of Investments The net realizable value (NRV) of assets is usually computed when the liquidation approach is used to value a company. Marketable securities will be considered at the present value considering a sale and other assets at the book values. Stake of GREG

No of shares

Market Price

Control

LKR "000"

Voting Shares

91.39%

31,284,589

68.00

N/A

2,127,352

Warrant - 2014

73.65%

18,411,702

0.60

N/A

11,047

Warrant 2015

73.65%

18,411,702

3.00

N/A

55,235

20%

372,000,000

2.30

N/A

855,600

DPL

58.36%

42,163,000

12.00

PHAR

66.40%

845,159

520.00

20%

527,379

12.61%

N/A

627,921

CLPL

BIL

505,956

Textured Jersey Lanka PLC Turn over (LKR) Bn

12.725

Market Cap (LKR) Bn

13.1

South Asia Textile Industries Lanka (Pvt) Limited Turnover -(LKR)

4.873 Bn

Net Realizable Values from GREG - 31 March 2014 Cash & Cash Equivalents

346,423

Other assets

20,798

Total Net Realizable Value of assets

5,077,711

No of shares

349,367

Value per share

14.53

Status of offer price

Lower Table 23- Realizable Market Values

Market price as at 21 July 2014 except for BIL which is as at 6 June 2014 in order to adjust for prices before the rights issue.  South Asia Textile Industries Lanka (Pvt) Limited has been valued based on Textured Jersey Lanka PLC’s Market capitalization weighted on turnover for the year ended 31 March 2014.

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6. Independent Opinion The objective of this independent opinion is to examine whether the offer price of LKR 11.00 offered by Taprobane Holdings PLC for the existing shareholders of Lanka Century Investments PLC is reasonable and fair. Merchant Bank of Sri Lanka PLC has adopted the following valuation methodologies included in section 5 of this report with the detailed valuations. The valuation outcomes of such methodologies are given below in Table 24. Valuation method

Value

Status

Free Cash flow based

22.40

Lower

Sector Price to book value based

24.30

Lower

Market Price to book value based

45.70

Significantly lower

Peer Price to book value based

29.26

Significantly lower

One year Average market price based

12.90

Lower

Market Value of Investment

14.53

Lower

Table 24- Summary of valuations Considering the valuation outcomes given Table 24 above, we are of the opinion that the offer price of LKR 11.00 made by Taprobane Holdings PLC to the remaining shareholders of Lanka Century Investments PLC is not attractive as the offer price is at a discount against all the valuations methodologies adopted as at the valuation date 28 July 2014.

Risk Factors specifically associated with the offer Shareholders who accepts the offer:



The share price of GREG will change in secondary market based on many factors. If a shareholder accepts this offer and sell his shares and thereafter if the share price surge in the secondary market, such shareholders will experience a lost opportunity of retaining a higher capital gain.



After accepting the offer, if the Company declare dividends to its shareholder, such shareholders who accepted this offer may not receive such dividends.

Shareholders who reject the offer



The share price of GREG will change in secondary market based on many factors. If a shareholder rejects this offer and thereafter if the share price decline in the secondary market, such shareholders may incur a capital loss.

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7. Declaration to the Shareholders and Directors of GREG 28 July 2014 DECLARATION BY THE INDEPENDENT ADVISOR, MERCHANT BANK OF SRI LANKA PLC We, Merchant Bank of Sri Lanka PLC (MBSL) of No. 28, St. Michael’s Road, Colombo 03 being the Independent Advisor to the Voluntary offer made by Taprobane Holdings PLC (Offeror) to acquire the remaining Ordinary Voting Shares, not already owned by Taprobane Holdings PLC or any person acting in concert with Taprobane Holdings PLC, of Lanka Century Investments PLC (Offeree) do hereby declare and confirm that we do not act as the financial advisor to the Offeror Company nor we have any interest in or financial connection with either the Offeror or the Offeree. MBSL as the independent advisor has given and not withdrawn the consent to the publication of the report to the Board of Directors and shareholders of Lanka century Investments PLC Yours faithfully, MERCHANT BANK OF SRI LANKA PLC

---------------------------------------

--------------------------------------------

Mr A M A Cader

Ms Lalangi Goonawardena

Deputy General Manager

Manager

Corporate Advisory & Capital Markets

Corporate Advisory

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28 July 2014

The Board of Directors Lanka Century Investments PLC No. 10, 5th Floor, Gothami Road, Colombo 08.

Dear Sir / Madam INDEPENDENT ADVISOR’S REPORT ON THE OFFER MADE BY TAPROBANE HOLDINGS PLC TO THE SHAREHOLDERS OF LANKA CENTURY INVESTMENTS PLC At the request of the Board of Directors, we have carried out the valuation of the ordinary shares of Lanka Century Investments PLC for the above purpose and pleased to submit herewith our opinion in compliance with the rules and regulations contained in the Company Takeovers and Mergers code 1995 (as amended in 2003) of the Securities and Exchange Commission of Sri Lanka. Thanking You Yours faithfully MERCHANT BANK OF SRI LANKA PLC

-------------------------

------------------------------------

Mr A M A Cader

Ms Lalangi Goonawardena

Deputy General Manager

Manager

Corporate Advisory & Capital Markets

Corporate Advisory

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