THE SHAREHOLDERS OF NAWALOKA HOSPITALS PLC

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of Nawaloka Hospitals PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statement of financial position as at 31 March 2025, and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year ended, and notes to the financial statements, including material accounting policies and other explanatory information set out in pages 104 to 167.

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

Basis for Opinion

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

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Company and the Group financial statements of the current year. These matters were addressed in the context of our audit of the Company and the Group financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Revenue Recognition

(Refer to Note material accounting policies and explanatory Note 9 to the financial statements)

Risk Description

The Company and the Group has recognised a revenue of Rs. 5,783 Mn. and Rs. 11,013 Mn. respectively for the year ended 31 March 2025. Revenue is a key performance indicator used to evaluate the performance of the Company and the Group.

Given the significance of the total value, the number of transactions, judgement involved in the timing of recognition, the recognition of revenue was considered as a key area of focus.

Our response

Our audit procedures included;

• Obtaining an understanding of and assessing the design, implementation and operating effectiveness of management’s key internal controls in respect of the Group’s revenue recognition basis;
• On a sample basis, testing revenue and related discounts to ensure those have been recognized in the correct accounting period;
• Assessing the appropriateness of the recognition of revenue and related discounts including carrying out substantive testing procedures.
• Assessing the adequacy of financial statements disclosures.

2. Management’s assessment of the Group’s ability to continue as a Going Concern

(Refer accounting policies and explanatory Notes 2.5 and 44 to the financial statements)

Risk Description

The Group has generated a profit of Rs. 56 Mn. during the year ended 31 March 2025 and, as of that date, the Group’s current liabilities exceeded its current assets by Rs. 6,402 Mn. Additionally, the Group reported accumulated losses of Rs. 1,116 Mn. as at 31 March 2025.

Note 44 to the financial statements explains how the Directors have formed the judgement that use of the going concern basis is appropriate in preparing the financial statements. The Directors have considered the Group’s existing cash resources and available unutilized borrowing facilities as at the date of the audit report and have concluded their judgement as such indications do not give rise to a material uncertainty casting significant doubt on the Group’s ability to continue as a going concern. In particular, the Directors have concluded that the Group’s unutilized borrowing facilities totaling approximately to Rs. 5,547 Mn. will remain available throughout next twelve months from 31 March 2025 and the Group will be able to utilize these facilities to avoid any financial distress.

We consider this as a Key audit matter, as this assessment involves consideration of future events, many of which are outside the control of the Group and there is a risk that the Directors’ judgement is inappropriate and that there is a material uncertainty which requires additional disclosures in the financial statements.

Our response

Our audit procedures included

• Obtaining the representation from the Board of Directors of the Group about management’s assessment of the Group’s ability to continue as a going concern and enhanced strategies as disclosed in Note 44 to the financial statements.
• Obtaining the cash flow projections covering period of not less than twelve months from the reporting period end date and challenging the reasonableness of the key assumptions.
• Inspecting the terms of the Group’s available unutilized credit facilities to ensure that the Group can pay its debts as and when they fall due and payable for a minimum period of 12 months period from the reporting date.
• Reviewing the financial performance and position of the Group for the subsequent period and analyzing trends and variances in key financial metrics based on the management accounts.
• Obtaining a direct confirmation from the bank for the available unutilized facilities available as at the reporting date.
• Assessing the adequacy of disclosures in the financial statements in relation to the use of going concern assumption for the preparation of financial statements of the Group.

3. Accounting for Investment in Associate

(Refer accounting policies and explanatory Notes 19 to the financial statements)

Risk Description

The carrying amount of the Group’s and the Company’s equity accounted investee amounts to Rs. 582 Mn. as at 31st March 2025. The Group and the Company have recognized a share of profit of Rs. 223 Mn related to this equity accounted investee for the year ended 31 March 2025. As disclosed in Note 19 to these financial statements, a former director and present shareholder of the Company through a case filed in Commercial High Court Colombo has claimed the ownership of the shares of this equity accounted investee for which a judgement was delivered in favor of the former director. The Company has appealed against the said judgment in the Supreme Court of Sri Lanka.

Given the significance of the share of profit recognized for the year and the carrying amount of the equity accounted investee, as well as the complexity and the importance of the application of management judgement around the uncertainty over the ongoing litigation, we identified the accounting for investment in associate as a key audit matter.

Our response

Our audit procedures included;

• Inspecting the legal documents associated with the court proceedings including determinations issued up to the date and understanding the nature and background of the litigation.
• Making inquiries from management including Company’s in-house legal team and obtaining written representations regarding their assessment of the litigation and their view over potential outcomes.
• Obtaining the legal opinion from the Group’s external legal counsel on appeal process and continuation of director rights.
• Evaluating the grounds of appeal based on the discussion with our in-house legal experts.
• Assessing the appropriateness of the judgement applied by the management to its accounting treatment, including the application of the equity method of accounting.
• Evaluating the adequacy of disclosures in the financial statements in line with Sri Lanka Accounting Standards.

Other Information

Management is responsible for the other information. The other information comprises the information included in the annual report but does not include the financial statements and our auditor’s report thereon.

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

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

Responsibilities of Management and Those Charged with Governance for the Financial Statements

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

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

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

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

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

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

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

Report on Other Legal and Regulatory Requirements

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

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 3029.

Chartered Accountants
Colombo

04 September 2025