Annual report for 2004/05 - Hemas Holdings, Ltd

Group ProfileIt was a far thinking entrepreneur Sheikh Hasannally Esufally (MBE) who, in 1948, saw the promise oftrading in pharmaceuticals and chemicals in a newly independent country. Naming his trading enterpriseHemas (Drugs) Limited, seeing more opportunities emerge in the 1960s, the company diversified into themanufacture of toiletries in collaboration with a French multinational company. With the liberalisation ofthe economy in the late 1970s, the Group decided to venture into travel and tourism, commodity exports,apparel, power and transport.Along the way, the Group has chartered many a course as a dynamic industry leader, never losing sight ofits vision and goals, coming to be known among competitors and counterparts alike as a Group built onsolid values, futuristic vision, strength of innovation, commitment to quality and a dedication to care.FMCG SectorThe largest business within the Group, this sector is engaged in the development, manufacture, marketingand distribution of FMCG products with sights set on expanding its presence overseas as well. Rankedsecond in the country for personal care products, our portfolio comprises well known names that are aneveryday presence in Sri Lankan households. Fully equipped R&D facilities enhance product developmentwith manufacturing done at an ISO 9001 accredited production facility. Our distribution reach across theisland is aided by state of the art technology.HealthcareWith over half a century’s experience in the field of pharmaceuticals, we have expanded on our keystrengths to become the largest importer of pharmaceutical products in the private sector. Our portfolio ofagencies, which amount to more than 35, represent global R&D based pharmaceutical companies andleading suppliers of medical equipment, surgicals and diagnostics.LeisureWith primary business activities in this sector being destination management services, operation of travelcentres and ownership & management of hotels, Hemas is a preferred choice among world renowned traveland tour operators working within the region. Serendib, Dolphin, Sigiriya and Lihiniya Surf are the hotelsthat come under the umbrella of Hemas, while new developments are on the cards.TransportationOur portfolio in this sector comprises airline representation, travel retailing and air & sea logisticssolutions. In a highly competitive industry, Hemas has held fast to its market share improving year onyear through strategic customer focus initiations and value additions. Our strong relationships withprincipals has helped us better our expectations. Through a comprehensive and innovative internet portaland constantly expanding services, the travel arm is on par to compete in a highly aggressive market. Ourvalue added services, focus on niche markets and representation of global networks have helped thebusiness of freight management grow significantly in the recent past.Strategic InvestmentsPowerHemas made a strategic investment into the power sector in order to boost national infrastructuredevelopment through Heladhanavi, a joint venture between the Company and Lakdhanavi to construct andoperate a 100MW Thermal Power Plant. Having constructed the plant ahead of schedule, Hemas was ableto begin commercial operations earlier than expected. The company also signed a landmark Interest RateSwap Agreement in June 2004, deemed the largest such transaction hitherto in the country. Working onthis success, we are now pursuing further opportunities in the power sector.GarmentsAs one of the preferred suppliers for international brand names like Nike, Tesco and Next, the Company hasexpanded considerably given the demand for its services. The Company is expected to grow fastersubsequent to the strategic tie-up with The Fielding Group in March this year.PropertyHemas Developments has achieved a healthy growth year on year. Even though faced with a challengingenvironment of an over abundance of office space within the commercial capital, the Company remainsconfident that its efficient service imparted to its prestigious clientele at Hemas House will allow the fulloccupancy levels it has enjoyed thus far, to be carried into the future.

Operational Highlights4May ‘04• Germguard Toothpaste was launched offering aTriclosan based germ fighting formulation for the firsttime to the Sri Lankan consumer.October ‘04• Hemas was adjudged the Winner of the OverallNational HRM Award for Group of Companies in theManufacturing Sector• Acquisition of the ‘Fems’ brand of sanitary napkinsJune ‘04• Signing of Heladhanavi Ltd Power Project InterestRate Swap Agreement, the largest such transactionhitherto in the countryNovember ‘04• Setting up of an ultra modern e-resource centre incollaboration with Sri Lankan Medical Associationto support doctoral education1July ‘04• Acquisition of Bristol Mayers Squibb (BMS) agencyfor the pharmaceutical business2• GSA for Malaysia Airlines celebrated their ten yearpartnership with the AirlineFebruary ‘055• Hemas entered the large toilet soap market withVelvet Skincare SoapAugust ‘04• Sector exited its distribution agreement with Proctor& Gamble due to increased conflicts within theproduct portfolio3March ‘056• 70% of the apparel business was acquired by TFG(The Fielding Group), a UK based apparel supplier• We signed an agreement to acquire the operatingassets and liabilities of Nimesha Enterprises and itskey brand Nimex.September ‘04• Our joint venture, Heladhanavi commenced supplies tothe national grid ahead of schedule. A short term powerpurchase agreement was signed with the CEB coveringthe period 29th September to 7th December 2004.• Corporate Travel division of Hemas Travels enteredinto a strategic partnership with Business TravelInternational (BTI)1 2 34 5 6

Financial HighlightsYear Ended 31st March 2005 2004 % Change 2003Operating ResultsGroup Revenue Rs'000s 8,797,881 6,485,422 35.7 5,290,102Profit before Interest and Tax Rs'000s 1,180,220 882,824 33.7 597,418Profit before Taxation Rs'000s 1,024,678 834,184 22.8 556,030Profit after Taxation Rs'000s 799,535 654,116 22.2 422,786Profit attributable to the Group Rs'000s 803,973 612,514 31.3 401,199Dividends Rs'000s 213,466 147,500 44.7 100,000Cash from Operations Rs'000s 1,182,366 574,317 105.9 357,025Balance Sheet HighlightsTotal Assets Rs'000s 9,651,969 7,873,459 22.6 4,048,269Total Shareholders’ Funds Rs'000s 3,541,973 2,627,888 34.8 1,685,538No. of shares '000s 79,130 78,000 1.45 40,000Debt to Equity % 82.6 97.6 - 24.5Shareholder InformationReturn on Equity % 25.9 28.4 - 26.2Earnings per Share Rs. 10.1 8.3 21.7 5.7Dividends per Share Rs. 3.0 2.5 20.0 3.3Dividend Payout % 26.7 24.1 - 24.9Net Asset per Share Rs. 44.8 33.7 32.9 21.6Market Capitalisation Rs'000s 8,625,121 6,883,500 25.3 -Price Earnings Ratio Times 10.8 10.7 - -Market Price as at 31st March Rs. 109.00 88.25 23.5 -Rs' Mn.9,000Group Revenue8,798Rs' Mn.900Profit attributableto the GroupRs' Mn.1,200Cash from Operations1,182Shareholders Funds & ROERs' Mn.4,00028.4%%3025.9%8,0007,0006,0005,2906,4858007006006138041,0008003,5003,0002,50026.2%2,6283,54225205,0004,0003,0005004003004016004003575742,0001,5001,0001,68515102,0001,00002003 2004 200520010002003 2004 200520002003 2004 200550002003 2004 2005Shareholders FundsROE50A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 5

CEO’s ReviewI have pleasure in presenting to you the Annual Report andAudited Accounts of your Company for the year ended 31 March2005. In an environment where businesses were faced with manychallenges, I am happy to report that your Company did well indifficult conditions, delivering record Profits and continuing tocreate exceptional value to shareholders.A GDP growth of 5.4% in 2004 as against 6.0% in 2003 indicatesa slowdown in overall economic activity in the country. Economicgrowth last year had been mainly driven by the services sectorwhich grew by 7.6%. Consumer demand suffered during theaccount, this reflects an overall return of 26.9%. Investors whopurchased Hemas shares at the initial public offer, and held tillthe year end, have made a total return of 129%.Sector performance… Ups and downsThe FMCG Sector, which accounts for 33% of Group revenue and44% of Group profits, saw its turnover decline marginally.However its core branded business performed well, under diffcultconditions, maintaining its market share intact. Due to improvedprofitability, as a result of a favorable sales mix and carefulFor the third year insuccession, we have beenable to deliver returns onshareholders’ funds ofgreater than 25%, on a fastgrowing equity base.financial year under review, due to increasing inflation on theback of increasing world oil prices, and this had a significantimpact on the FMCG business, our largest sector.The promise of peace and improved security conditions in SriLanka paved the way for a robust and growing tourism industry.As anticipated the number of tourist arrivals to Sri Lanka grew ata healthy rate until late December when the devastating tsunamitook place. Whilst the tsunami waves took away thousands ofhuman lives, and displaced almost 3% of our population, it alsohad a devastating impact on the peak period of tourism in SriLanka with severe repercussions on the Leisure Sector. Some ofour other businesses such as FMCG and Healthcare were alsoimpacted, albeit to a lesser degree.Despite these challenges, your Company has been able to sustainits growth momentum with the Group recording a revenue of Rs8.8 billion, and a net profit of Rs 804 million, reflecting a top-linegrowth of 35.7% and a bottom-line growth of 31.3%. For the thirdyear in succession, we have been able to deliver returns onshareholders’ funds of greater than 25%, on a fast growing equitybase. Our emphasis on sustainable earnings as the key driver ofshareholder value ensures that bottom-line focus is notcompromised when growth is being pursued.During the year under review, Hemas share price increased by23.5%, from Rs 88.25 to Rs 109.00. When dividends are taken intomonitoring of expenses, the Sector has recorded a healthy profitgrowth. During the year, the FMCG Sector consolidated itsposition in its existing market segments through new productsand brand re-launches, while entering allied segments throughbrand acquisitions and takeovers. In August 2004, the Sectorexited its distribution agreement with Proctor & Gamble due toincreased conflicts within the product portfolio which wereincompatible with its future growth strategy.The Healthcare Sector has shown excellent growth in bothturnover and profits during the year, and was able to reinforce itsleadership position in the private pharmaceutical market, closingthe year with a market share of 15.8%. The Sector was able toattract the agency of Bristol Mayers Squibb (BMS) to its portfolioof principals, which currently amounts to more than 35. In itsquest to become an industry leader, the Sector has startedventuring into new areas in healthcare, in addition to itsmainstream business of pharmaceutical distribution.Hemas Transportation Sector which consists of AirlineRepresentation, Travel Agency Business and Freight Forwarding,recorded a healthy growth in profits, in an industry whichcontinues to be increasingly competitive. For the nine monthsending December 2004 the Leisure Sector, which consists ofDestination Management, Travel Centre operations and Hotels,was seeing an excellent growth, but, consequent to the tsunamiits profits were washed away during the last quarter of the6H E M A S H O L D I N G S L I M I T E D

CEO’s Reviewfinancial year. We perceive the setback due to the tsunami to bea short-term phenomenon, and we are in the process ofcompleting our blueprint for the Leisure Sector strategy in viewof the long-term growth prospects of this Sector.Our joint venture, Heladhanavi commenced supplies to the nationalgrid on 29 September 2004 and a short term power purchaseagreement was signed with the CEB covering the period 29September to 7 December 2004. During this period the plantperformed satisfactorily, supplying energy of 147,120 MWh to thenational grid. At the conclusion of this period, on 8 December 2004,the 10 year power purchase agreement took effect. Whilst delays inCEB payments cause concern for the whole industry, we take theview that this is a short-term issue and hope that the Governmentwill soon resolve the energy crisis which is very necessary not justfor our business, but, also for the nation at large.After a period of mediocre performance, the Apparel Businessshowed much improved results with the managementrestructuring that took place in August 2004. The search for astrategic partner was successfully concluded in March this yearwhen 70% of the business was acquired by The Fielding Group, aUK based apparel supplier. We believe this strategic move wouldhelp the business grow faster as a result of wider exposure tointernational buyers, technical expertise and increased focus.People, values and change…We realize that it is the power of our people that has been thekey to our continued success over the years. As a growingorganization, we are committed to creating exciting careersbacked by the right rewards, to the right people.The introduction of the new Performance Management System(PMS) will bring closer alignment between Company andIndividual performance, whilst helping to identify and developfuture leaders based on past performance and other criteria suchas future potential and adherence to Hemas values.As an organization which has reinvented itself over the years, weunderstand the importance of organizational change to surviveand thrive over time. This ethos runs deep within theorganization and we strive to constantly challenge ourselves andbring in the paradigm shifts which we believe are necessary tosustain our forward momentum.In this context of perpetual change, some things need to beconstant and here, your Company places much emphasis on itsculture and values. Our core values, namely, passion for customer,obsession for performance, driven by innovation, and, concern forpeople are the timeless pillars on which the organization rests.Over the last year, much work was done to inculcate these valuesacross all employees of the Group.Helping to rebuild…The events following the devastating Tsunami on 26 December2004 has had a profound impact on the country and yourCompany took up the position that we have a sharedresponsibility to help the country rebuild. Subsequent to ourimmediate relief efforts in the form of consumer goods andpharmaceuticals in the aftermath of the December tsunami, wehave embarked on a pre-school project in collaboration with theMinistry of Social Welfare. This project proposes to buildapproximately 20 pre-schools in the affected areas. All facilitiesincluding educational equipment, specialized training forteachers, parental awareness campaigns etc will be provided. Theknowledge and experience gained during the past two yearsthrough our ‘Piyawara’ program has given us the confidence toinitiate and undertake a project of this nature. In order to financethis exercise we have set up a special fund, to which we aretargeting to collect a sum of Rs 100 million through contributionsfrom our staff, business partners and well wishers. The companyhas committed a contribution of Rs 25 million towards thistarget. The Tsunami Relief Committee of Hemas which hasundertaken this project consists of high level resource personnelin the organization and is headed by one of our Board members.The year ahead…Operating in a macro-environment that is not entirely conduciveto our core businesses, we foresee challenging times ahead, witha consumer market that is expected to further slowdown on theback of rising inflation, a tsunami-hit tourism industry thatwould take time to revive, and the intensifying competition ingeneral, faced by all our businesses. However, from a new businessdevelopment perspective, we have identified long-term highgrowth areas in all our key sectors – selected FMCG categories,healthcare services, high-end resorts and logistics/maritimeindustry – and this year we plan to allocate more resources toeffectively structure and support investment in these areas.Being an organization that is committed to long-term success, wehave undertaken several key initiatives for the year ahead, witha view to enhancing customer focus, driving a performanceculture, improving process & cost efficiencies, and extractingsynergies within the Group. Further, we envisage that ProjectGenesis (our ERP implementation initiative) will play a significantrole in all these endeavors.In conclusion, I wish to extend my special thanks to the entireHemas Team and my fellow Board members for their commitmentand support, without which these results would not have beenpossible. I take this opportunity to thank all our stakeholders forthe trust and confidence placed in us, whilst assuring them of ourbest endeavors in our mission to deliver exceptional value.Husein EsufallyDirector and Chief Executive OfficerColombo20th May 2005A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 7

Members of the BoardFrom left to right : Imtiaz Esufally, Maithri Wickremesinghe, Husein Esufally, Debu Bhatnagar, Serena Fonseka,Abbas Esufally, Simon Scarff, Lalith de Mel and Murtaza EsufallyHusein EsufallyDirector and Chief Executive OfficerMr. H.N. Esufally holds a Bachelor of Science (Honours)degree in Electronics from the University of Sussex, U.K. Hewas appointed as the Chief Executive Officer in 2001 and hasmanagement experience of over 20 years. He wasinstrumental in building the FMCG business to its currentstatus.Serena FonsekaDirector and Group Finance DirectorMs. M.S. Fonseka is a Fellow of the Chartered Institute ofManagement Accountants, U.K. and a Member of theCertified Management Accountants, Australia. She hasmanagement experience of over 20 years, both in Sri Lankaand overseas. She is also the Managing Director of HemasCorporate Services, the company providing centralisedservices to the Group.Abbas EsufallyDirectorMr. A.N. Esufally is a Fellow of the Institute of CharteredAccountants of England and Wales, an Associate of theInstitute of Chartered Accountants of Sri Lanka and an AllIsland Justice of Peace. He is the Head of the Leisure Sectorand Chairman of Serendib Hotels Ltd. He has experience ofover 25 years in Sri Lanka and overseas and has been in theforefront of the leisure industry in Sri Lanka. He is theHonorary Consul General of Bhutan in Sri Lanka.lmtiaz EsufallyDirectorMr. I. A. H. Esufally holds a Bachelor of Arts (Honours)degree in Accounting and Economics from the University ofKent, UK. He heads the Group’s Transportation Sector. Hehas over 20 years sector specific experience in Sri Lanka andoverseas. He is one of the Past Presidents of theInternational Association of Travel Agents and has heldmany industry related positions.8H E M A S H O L D I N G S L I M I T E D

Members of the BoardDebu BhatnagarDirectorMr. D. Bhatnagar is a Graduate in Mechanical Engineeringfrom the Indian Institute of Technology, Kanpur, India withan MBA in Marketing from the Indian Institute ofManagement, Calcutta, India. He has over 25 years ofexperience with multinational companies such as Unilever,Benckiser, Phillips and ICI. He heads the FMCG Sector of theGroup.Murtaza EsufallyDirectorMr. M.A.H. Esufally holds a Bachelor of Law degree fromUniversity of Essex, UK. He is a Barrister-at-Law (Lincoln’sInn) and is an Attorney-at-Law of the Supreme Court ofSri Lanka. He has over 10 years experience in the ApparelIndustry. He is a Council Member of the Sri Lanka ApparelExporters Association, and a Director of the Centre forPoverty Analyisis.Lalith de MelNon Executive DirectorMr. L. de Mel has a Master of Arts Degree from CambridgeUniversity, UK. He has significant experience having servedas a Director of several companies in Sri Lanka and in theUnited Kingdom. He has served most of his career at ReckittBenkiser Plc, UK and was the Global Director-Pharmaceuticals before his retirement in 1999. He hasserved as the Chairman of the Board of Investment and theChairman of Sri Lanka Telecom Limited. He holdsdirectorships in many other companies and is a SeniorAdvisor to the Ministry of Finance & Planning.Simon ScarffNon Executive DirectorMr. S. Scarff is a British National with wide internationalexperience in several multinational companies operating inthe consumer/healthcare business. He has served asManaging Director of Glaxo Smithkline Consumer HealthCare Ltd, India. He was awarded the MBE in 1984 for hisservices to the British community and an OBE in 1999 for hisservice to British industry. He continues to serve on theboards of several other companies and trusts.Maithri WickremesingheNon Executive DirectorMr. M. E. Wickremesinghe is an Honours Graduate in Lawfrom the University of Colombo, an Attorney-at-Law of theSupreme Court of Sri Lanka and a Fellow of the CharteredInstitute of Management Accountants of the UnitedKingdom. He is a practicing Attorney-at-Law specialising inCorporate Law with extensive experience in CorporateFinance and Financial Structuring. He has lectured at theFaculty of Law of the University of Colombo, at theUniversity of Moratuwa and the Kotalawela DefenceAcademy.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 9

Group Management CommitteeFrom left to right : Abbas Esufally, Debu Bhatnagar, Edward Fernando, Harshini Wickrema, Husein Esufally, Imtiaz Esufally,Irshad Halaldeen and Kishantha NanayakkaraAbbas EsufallyDirectorProfile on page 8Debu BhatnagarDirector and Managing Director - Hemas Marketing (Pte) Ltd andHemas Manufacturing (Pte) LtdProfile on page 9Edward FernandoManaging Director – Hemas International Freight (Pte) LtdMr E Fernando holds a Professional Postgraduate Diploma inMarketing (CIM – UK). He counts 15 years of sales &marketing experience in the Airline industry both locally andoverseas, and 3 years in the freight management industry . Heis a member of the Executive Committee of the Sri LankaFreight Forwarders’ Association, and the past DeputyChairman of the Sri Lanka Association of AirlineRepresentatives.Harshini WickremaCompany Secretary and Head of Group LegalMs H Wickrema is an Attorney-at-Law of the Supreme Courtof Sri Lanka and holds a Diploma in Intellectual PropertyLaw from the Sri Lanka Law College in collaboration with theAsia Pacific Legal Institute, Washington DC, USA. She alsoholds a Certificate in Marketing from CIM, UK. She hasprevious experience as a practicing Attorney.Husein EsufallyDirector and Chief Executive OfficerProfile on page 8Imitiaz EsufallyDirectorProfile on page 810H E M A S H O L D I N G S L I M I T E D

Group Management CommitteeFrom left to right : Malinga Arsakularatne, Manoj Arora, Murtaza Esufally, Neville Ruwanpathirana, Serena Fonseka, SrilalMitthapala, Stuart Chapman and Victor AbeyesekeraIrshad HalaldeenDirector – Group Human ResourcesMr I Halaldeen holds an MSc in Industrial Managementspecializing in Organizational Development, from theNorwegian University of Science and Technology. He hasover 15 years experience in the Manufacturing and FinancialServices industries. He is also a member of the Associationof Human Resource Professionals in Sri Lanka.Kishantha NanayakkaraManaging Director – Hemas Power (Pte) LtdMr K Nanayakkara is a Fellow of the Chartered Institute ofManagement Accountants (CIMA), UK, and holds an MSc inFinance from the Birmingham Business School of theUniversity of Birmingham, UK. He has held several seniormanagement positions in companies ranging frommanufacturing to financial services. He also heads theCorporate Venture Fund of the Group.Malinga ArsakularatneBusiness StrategistMr M Arsakularatne is a CFA Charterholder and an AssociateMember of CIMA, UK. He also holds an MSc in InvestmentManagement from the City University Business School, UK,and a BSc in Computer Science & Engineering from theUniversity of Moratuwa, Sri Lanka. He has 8 years ofexperience in the fund management industry, and is a BoardMember & the University Liaison Chair of CFA Sri Lanka.Manoj AroraChief Information OfficerMr. M Arora is a Post Graduate in Computer Science andholds an MBA from the University of Delhi, India. He has 15years of experience in the field of Information SystemsManagement including SAP (ERP) implementation in Indiaand across Asia-Pacific with multinational companies suchas Becton Dickenson & Lucent Technologies.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 11

Group Management CommitteeMurtaza EsufallyDirectorProfile on page 9Neville RuwanpathiranaDirector – New Business DevelopmentMr N Ruwanpathirana holds an MBA from the University ofColombo and a BSc (Special Degree in Chemistry) from theUniversity of Peradeniya. He holds a Diploma from theChartered Institute of Marketing, UK and is also a CharteredChemist. He has over 25 years of management experienceranging from Technical, Marketing to Sales both in Hemasand in Unilever.Serena FonsekaDirector and Group Finance DirectorProfile on page 8Srilal MitthapalaCEO – Serendib Leisure Management LtdMr S Mitthapala holds a BSc (Electrical Power Engineering)from the University of Moratuwa. He is a Chartered ElectricalEngineer and a member of the Institute of ElectricalEngineers, London and British Institute of Management. Hehas over 20 years of management experience in themercantile sector in Sri Lanka at several senior managementpositions and directorships.Stuart ChapmanManaging Director – Hemas Pharmaceuticals (Pte) Ltd andHemas Healthcare (Pte) LtdMr S Chapman holds an MBA from the University of Colombo.He is a Chartered Marketer and a Diplomate of the CharteredInstitute of Marketing UK. He holds a Diploma in LifeInsurance Sales and Marketing from the Life Underwriters’Training Council of USA. He is a Member of the Institute ofManagement UK. He has over 25 years of experience inleading multinational and Sri Lankan companies spanningFMCG, Financial Services and Healthcare.Victor AbeysekeraManaging Director – Hemtours (Pte) LtdMr V Abeysekera holds an MBA from the University of SriJayawardenapura, an Advanced Diploma in BusinessAdministration from the UK. He is also a member of theChartered Institute of Marketing, UK (MCIM), and theAssociation of Business Executives, UK (MABE). He has 22years of experience in the travel and tour industry. He is theChairman of the Leisure Group for the Sri Lankan Region ofthe Chartered Institute of Marketing, and a Director of theInstitute of Strategic Management, Sri Lanka.12H E M A S H O L D I N G S L I M I T E D

Review of OperationsFinancial Review 14FMCG Sector 16Healthcare Sector 18Leisure Sector 19Transportation Sector 20Strategic Investments 21

Financial ReviewCompany StatusRs' Mn.7,0006,0005,0004,0003,0002,0001,0000Capital Employed20011,180 838 48720021,314 399 48520031,532 407 49520042,157 1,489 527Average Shareholders FundAverage BorrowingsAverage Minority Interest3,085 2,746 6142005The year under review was the first complete financial year as a public companyafter the listing on the Colombo Stock Exchange on 15th October 2003. During theyear 1,129,550 shares were issued to employees as a result of them exercising theirshare options and the issued share capital was increased to Rs. 791,295,500 as atthe year end. The Hemas share was selected to be included in the Milanka Indexand achieved the 10th position in terms of market capitalization as at 31st March2005.Joint VentureThe company owns 50% of Heladhanavi Ltd in a joint venture with Lakdhanavi Ltd.The interest in this joint venture is accounted for by proportionate consolidation,whereby the venturer’s 50% share of each of the assets, liabilities, income andexpenses are combined on a line by line basis with similar items in theconsolidated financial statements.RevenueThe group achieved a consolidated revenue of Rs. 8.8 billion for the year endedMarch 2005 recording a growth of 35.7% over the previous year. The main factorfor higher growth was the contribution to revenue from Heladhanavi Limited whichcommenced commercial operations in the supply of power to Ceylon ElectricityBoard in September 2004.Segmental ContributionTurnover33.6%32.9%Operating ProfitsEarnings before interest and tax (EBIT) grew by 33.7% to Rs. 1,180 million, as aresult of the revenue growth coupled with improvement in performance efficienciesin most of the sectors. Profit after tax was Rs. 800 million, an increase of 22% overthe previous year.4.0%5.1%24.4%FMCGHealthcareLeisureTransportationStrategic InvestmentsPerformanceEarnings per share (EPS) for the year under review was Rs. 10.11. The company’sPrice/Earnings (PE) ratio was 10.8 at the year end share price of Rs. 109. Thecomparative market PE of the diversified sector as published by the Colombo StockExchange ratio was 17.7.Segmental Contribution Rs. Mn.TurnoverProfit after taxFMCG 2,898 353Healthcare 2,144 103Leisure 445 19Transportation 353 54Strategic Investments 2,958 2718,798 80014H E M A S H O L D I N G S L I M I T E D

Financial ReviewTaxationGroup provision for taxation for the year under review increased to Rs. 225 millionfrom Rs. 180 million in the previous year. The dividend tax on the dividends paidby the subsidiary companies amounted to Rs. 30 million, which is included in theSegmental ContributionProfitgroup tax expense. Excluding the dividend tax, the effective rate of taxation onprofits reduced from 21.5 % last year to 19.1%. Effective tax rate includingdividend tax, was marginally increased to 21.9% from 21.6%. The tax free profitsfrom strategic investments contributed to the reduction in effective rate of tax for33.9%44.1%the year under review. The group was also able to claim tax exemptions frominvestment relief, and certain expansion profit exemptions under the InlandRevenue Amendment Act.DividendsA first interim dividend of Rs. 1.25 per share was paid in November 2004 and a6.8%2.3%12.9%FMCGHealthcareLeisureTransportationStrategic Investmentssecond interim dividend of Rs. 1.75 per share was declared on 29th March 2005 andpaid in April 2005. The dividend cover is 3.7 times against 4.2 times in the previousyear.Investments / DivestmentsThe group invested Rs. 63 million in acquiring a 56% stake in exchange & FinanceInvestments Ltd and increasing the shareholding in Peace Haven Resorts Ltd andAssociated Hotels Ltd. Hemas Holdings divested 70% of the shareholding in HemasGarments, for Rs. 123 million.Cash Flows30Earnings per Share& Return on Equity28.4Net Cash Flow from operating activities was Rs. 1182 million recording a 105.9%increase over the previous year.252017.626.225.9Funding & Liquidity1515.5The total borrowings of the Group increased from Rs. 2565 million to Rs.2927 million over the year under review decreasing the Group Debt to Equity ratioto 82.6% from 97.6% the previous year. The consolidation of the financialstatements (50% Joint Venture) of Heladhanavi Ltd, has increased the total debtof the group. The loans obtained by Haladhanavi is encumbered only on the projectassets. The proportion of borrowings of Heladhanavi as at 31 March 2005,1052.972.915.738.2810.1102001 2002 2003 2004 2005Earning Per Share (Rs.)Return on Equity (%)amounted to Rs. 2450 million. Excluding same, the total borrowings of the groupstood at Rs. 477 million.The trade receivables excluding Heladhanavi receivables of Rs. 727 million,amounts to Rs. 1468 million compared to Rs. 1582 million as at the previous yearend.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 15

FMCG SectorHemas FMCG (Fast Moving Consumer Goods) Sector, which is the largest businesswithin the Group, is engaged in the development, manufacture, marketing anddistribution of FMCG products, the bulk of which belong to the Personal Carecategory. Whilst the Sector primarily distributes its products to the local market,we have a small but growing presence in overseas markets.Ranked second in the country for Personal Care products, ourproduct portfolio includes several household names, notably, BabyCheramy, Clogard, Goya and Dandex. New products developedover the last three years account for more than 20% of thebusiness, signifying our ability to be proactive to market changesand our drive for innovation. New product development is backedby a fully equipped R&D facility and a modern production facilitywith ISO 9001 accreditation. Our distribution reach, which coversalmost the entire nation, is enabled by the latest availabletechnology, which electronically links our Distributors to theCompany. With the implementation of SAP in the coming year, weexpect to have a total supply chain that is more effective andstreamlined.The performance of the Sector during the financial year under review was impactedby a slow down in market growth due to a steep increase in the cost of living,affecting the purchasing power of the consumer. Inflation in input factors due toadditional taxation (excise duty on fragrances, cess on imports), high oil pricesand depreciation in the local currency led to inevitable price increases, withresultant impact on demand. During the latter part of the year,markets were further hit by the tsunami, resulting in a short-termimpact on revenues, and additional costs were incurred on therehabilitation of our distributors and retailers. In addition, theSector made a strategic move to exit from the distribution agreementwith Proctor & Gamble in view of the conflicts within our productportfolio. Although this move led to a loss of revenue during thesecond half of the financial year, the profitability of the sales mixwas improved.New productsdeveloped over thelast three yearsaccount for more than20% of the business,signifying our abilityto be proactive tomarket changes andour drive forinnovation.We managed to maintain a profit growth of 18.2% despite a 1.6% drop in revenue,as a result of improved profitability due to an improved sales mix and processes &procedures that were put in place to improve cost efficiencies.Our flagship brand, Baby Cheramy, operating in a slow growth market, has donewell to maintain market share in view of increasing competition. The ‘SuwaSingithi Wasana Baby Contest’ was run for the second time this year. The brand wasextended into the herbal area with the launch of Aloe Vera soap and cream whilethe Petals range offered greater consumer choice in Baby Cologne and Talc. In theOral Care segment, Clogard maintained market share in the face of severecompetition and a new variant, Germguard waslaunched, offering a Triclosan based germ fightingformulation for the first time to the Sri Lankanconsumer. Growth in the Fragrances sector wasimpacted by the imposition of heavy excise dutywhich led to price increases. In an effort to retain ourconsumer franchise, the Company introduced singleuse perfume tissues under the Goya brand, which have had an excellent reception16 H E M A S H O L D I N G S L I M I T E D

FMCG Sectorin the market. In the Hair care category, we continue to lead the male hairgrooming segment through Pro Sport and Gold hairgel, whilst the relaunch of Kumarika shampoo hasbeen well received.In line with its strategy to diversify into relatedcategories, the Sector entered the Paper categoryacquiring the Fems brand of sanitary napkins inOctober 2004. Towards the end of the year, we signedan agreement to acquire the operating assets andliabilities of Nimesha Enterprises and its key brandNimex, which sells paper serviettes, toilet rolls and other related products. Thesestrategic acquisitions give the Sector a sound platform from which to grow in thisfast growing category.Consequent to the investment of a toilet soap plant during the previous financialyear, the Sector launched Velvet Skincare Soap in February2005. The launch has been well received and, together withBaby Cheramy soap, the Sector now has a significantpresence in the Personal Wash category.As internal initiatives during the year, we have redone themanufacturing layout in the Welisara factory with a view toincreasing productivity and margins. Further, the proprietarysales automation system, which links the distributors to thecompany, was fully rolled out to all territories.Looking forward, we are not optimistic that market growth rates will improvesignificantly given the multitude of challenges facing the government inaccelerating growth and combating inflation. With effect from 1st April2005, the government has legislated that 50% of all advertisingexpenditure will be disallowed for tax. We see this as a retrogrademeasure which will ultimately hurt consumers and local companies.The industry has made several representations urging the authoritiesto repeal or at least amend the statute, and we are hopeful that someconsideration to these appeals will be given in due course.In the coming year, continued focus and market share growth of ourcore brands would be a key priority. Ensuring the success of newly launched brandssuch as Diva and Velvet, along with the emphasis on new product development andacquisitions with a view to entering allied segments, would be our key strategiesfor long-term growth.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 17

Healthcare SectorThe Healthcare Sector Vision is to be the leading and most sought after provider ofhealthcare products and services. While its core activity over the past 50 years hasbeen the distribution of Pharmaceuticals which continues to grow, this new Visionenvisages greater focus on entering potential new businesses in the widerHealthcare industry.For the year under review the Healthcare Sector achieved excellent results withturnover growing by 26.2 % to reach Rs 2.14 billion and Profit after tax growingby 20.3 % to reach Rs 103.1 million. The Sector consolidated its status as theleading distributor of Pharmaceuticals, increasing its market share from 15.0% to15.81% in 2004 (IMS Q4 2004) which is noteworthy in this highly fragmentedmarket. Hemas continues to be regarded as the best sales & distribution andintegrated logistics provider for Pharmaceutical businesses in Sri Lanka.Hemas passion towards bringing the most up to date quality solutions to Patientsis represented through its portfolio of prestigious global R&D based Pharmaceuticalprincipals. A significant addition to the portfolio was Bristol Mayers Squibb (BMS)in July 2004, after a competitive evaluation of key Pharmaceutical Distributors inSri Lanka by their global evaluation team. New product introductions by areagencies accounted for an impressive 8 % of turnover. Some of the significant newproduct launches that added value to patients during the year were Lumigan,Crestor, Alphagan P, Cialis, Voluven, Fexet Tabs and Iodosorb.During the year there was greater focus directed to the development of the Surgicalbusiness. Working closely with surgeons, several new alliances were entered into inorder to bring in the latest Surgical products and techniques.The Sector continues to support and add value to the medical profession whereverpossible and November 2004 saw the setting up of an ultra modern Hemas e-resource centre in collaboration with the Sri Lanka Medical Association to supportthe education needs of Doctors in different specialities. We are happy to reportthat the centre is well used by Doctors both young and old. We also continue tosupport the various medical colleges in their key activities pertaining to theeducation of Medical Professionals.Hemas continues to beregarded as the bestsales & distributionand integratedlogistics providerfor Pharmaceuticalbusinesses inSri Lanka.With increasing pressure on patients’ disposable incomes the company realizes theneed to maintain prices that give patients value for money and towards this endwe are continuously focusing on bringing such solutions to patients. The companyhas also looked internally and is targeting to improve the cost effectiveness of itslogistics through the introduction of SAP in the new financial year which will alsoprovide greater value to principals and customers.While the medium to long term outlook is good for the sector, there is a possibilityof a short term impact from the drop in sales to the government sector which hasreceived substantial amounts of medicines to support the Tsunami victims. A keystrategy in the coming years will be to build on our long standing associationswithin the industry and the medical profession to enter other areas of theHealthcare industry.18H E M A S H O L D I N G S L I M I T E D

Leisure SectorThe primary business activities of the Hemas Leisure Sector are destinationmanagement, travel centre operation, and hotel ownership & management.Hemtours (Pte) Ltd, which is a fully owned subsidiary of Hemas Holdings Ltd, isengaged in destination management and travel centre operations. In destinationmanagement, the majority of the business is generated through internationallyprominent tour operators and travel agents. Direct selling to foreign travellersthrough the web, although marginal at present, is a fast growing and highlyprofitable segment. We carryout our travel centre operations from several keyhotels, offering the entire range of leisure services to the customer.We make our presence felt in the hotel industry through our subsidiary, SerendibGroup, and our associate company, Associated Hotels Ltd. The Serendib Groupowns and manages Serendib Hotel, Hotel Sigiriya and Hotel Club Dolphin, whereasAssociated Hotels Ltd owns Lihiniya Surf Hotel.The first nine months of the financial year saw our turnover and profits grow at ahealthy rate on the back of a tourism industry which was thriving in an improvedpolitical environment. Whist a record year was anticipated for the industry interms of growth and profitability, the momentum was brought to a halt with theunfortunate events on December 26th. At present, the challenge for the Sri Lankanleisure industry is to rebuild the damaged properties, whilst restoring tourists’confidence in Sri Lanka. One of the major achievements for the industry this yearwas the approval of the Tourism Act by the Cabinet, an important legislation thatenvisages the restructuring of the institutions governing the industry.Despite the setback due to tsunami, most of our tour operators have flown downto get a first hand feedback of the ground situation and have recommencedoperations in Sri Lanka. Their positive approach to establishing our country as aleading long-haul destination is an encouragement to the whole industry.Subsequent to the refurbishments last year, Serendib Hotel was enjoying highoccupancy levels till December. Although the hotel suffered heavily from thetsunami, it recommenced operations on January 22 as a result of a phenomenaleffort by the entire Serendib team. From July onwards, Hotel Sigiriya would be ableto offer greater customer satisfaction with the completion of the new restaurantand the ayurvedic centre along with the refurbishments in public areas. Significantdevelopments have taken place at Hotel Club Dolphin with the addition of the newbeach front and 28 new rooms which opened in early December thereby enhancingits value proposition to the customer.Despite the short-term setback towards the latter part of the financial year, wemaintain a positive outlook for the Sector, which continues to offer high-growthbusiness prospects over the long term.Despite the setback dueto tsunami, most of ourtour operators haveflown down to get afirst hand feedback ofthe ground situationand have recommencedoperations in Sri Lanka.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 19

Transportation SectorThe portfolio of businesses in the Transportation Sector continues to offer acomprehensive service range in the field of Aviation Marketing through thestrategic selection of Airline Principals, Travel Agency retailing and LogisticSolutions in Air and Sea Freight. Over the year, the sales throughput reached Rs6.5 billion, a growth of 29%. Whilst the tsunami had a limited impact on thebusiness for a short period of time, the resilience of the sector ensured that themomentum did not lose steam.On the Airline Representation segment, there was an overall growth on bothpassenger and cargo businesses. In order to facilitate the growing business ofEmirates, we initiated a complete refurbishment and expansion program. Anexclusive Emirates Sky Cargo office was developed to support the growing cargobusiness and the plush Passenger Sales Office incorporates a range of newamenities. These include a "Travel Shop", a dedicated counter for Travel Agents, anexclusive booking and information counter for Emirates Holidays and a separatecounter for First & Business Class passengers and for Gold & Silver members ofSkywards - the airline's Frequent Flyer program. During the year the GSA forMalaysia Airlines celebrated its ten year relationship with the airline, and reacheda record sales throughput of Rs. 1 billion. To facilitate growth, the GSA invested ina state of the art mid and back office system, thus giving the team timelyinformation for decision making. Investment in Automatic Call Distributionfacilities was implemented to ensure that consistent service levels are maintained.During the year, the Sector entered into a strategic partnership with Exchange andFinance Investment Limited, the GSA for passenger and cargo for Alitalia andKenya Airways, seeing growth in overall turnover & distribution and enhancing themarketability of the airlines.During the year theGSA for MalaysiaAirlines celebrated itsten year relationshipwith the airline, andreached a record salesthroughput ofRs. 1 billion.Hemas Travels, the travel agency operation performed admirably in a severelycompetitive market. The consistent focus on customer service was enhancedthrough an extensive ‘Service Excellence Program’ for the whole company, whichblueprinted processes, customer contact points and overall service standards. Thecompany continued with its product development strategies for its customersthrough the partnership with Gulliver’s Travels, bringing new global products tosupport the Corporate and Leisure segments. Whilst the internet portal,www.hemastravels.com, continued to generate a growing interest as could bejudged from the increasing number of business generated, the Corporate Traveldivision further expanded its services through the strategic partnership withBusiness Travel International (BTI), one of the largest global corporate travelorganizations.The Freight Management business continued to grow in volume, turnover andprofits. Although the core business of Air and Ocean Freight sees intensecompetition, the initiatives taken by the team to focus on value added logisticssolutions saw a significant growth in contribution from special projects and vesselchartering which had a positive impact on the overall performance of the company.During the year the Company was able to secure several international networks.Their networks and the interest in this region is expected to enhance the growthof ocean freight business for the company in the coming year and is also expectedto support our expansion plan in the West Asia region.20H E M A S H O L D I N G S L I M I T E D

Strategic InvestmentsPowerAs reported in our last annual report, construction work of Heladhanavi powerplant commenced in September 2003 under a total turnkey contract. Frominception, it is pertinent to note that the work continued at a commendable paceand the completed plant, ready to be commissioned, was handed back toHeladhanavi in September 2004, three months ahead of schedule. In addition, allother conditions stipulated in the project agreement on the engineering andenvironmental aspects were fully met.Heladhanavi also signed a landmark Interest Rate Swap Agreement in June 2004,the largest such transaction hitherto in the country. The power plant thereby wasready to commence commercial operations ahead of schedule.This favourable time frame allowed for Heladhanavi to sign up for a short termPower Purchase Agreement (PPA) with the Ceylon Electricity Board (CEB),commencing commercial operations on 29 September 2004. The Short term PPA wasterminated on 7 December 2004 having met all our obligations. Heladhanavirecommenced commercial operations on 8 December 2004 under the main projectagreement.The plant has been operating satisfactorily and has consistently dispatched overand above the Minimum Guaranteed Energy Amount stipulated in the PPA.Considering the successful entry into this sector, the Group is currently looking atnew opportunities in the sector.ApparelThe Apparel business is now reaping the benefits of the expansion plan put intoplace last year and the high concentration on continuous improvementmethodologies to increase efficiency levels, on-time delivery, higher productivityand quality drives. Two more production lines were put into place in the Thihariyaplant to meet the increased demand. We have seen marked improvement inoperational performance, especially in the second half of the year in the areas ofefficiency, material usage and customer satisfaction. These have all contributedtowards the significant growth in sales from all our major customers in the EU andthe USA, especially Nike, Tesco and Next.A strategic decision taken during the year was the tie-up with TFG (The FieldingGroup), a UK based apparel supplier, which introduced into the business the threeimperatives of scale, design skills and focus at the highest level of decision making.PropertyDuring the year Hemas House, operated under Hemas Development (Pte) Ltd,achieved an overall occupancy level of 98%.The Company has a prestigious list of corporate clients and will continue to beselective in its efforts to deliver a unique quality and style to its clientele.External signage was erected in order to give visibility to our clients housed atHemas House.With full occupancy levels being achieved during the year under review, theCompany is expecting its healthy performance to be continued in the coming year.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 21

Sustainability ReportingHemas Tsunami Response Plan 24The Piyawara Programme 26The Hemas Team 28

Hemas Tsunami Response Plan26 December 2004 will go down as a fateful day in Sri Lanka’s history - a date thatno Sri Lankan will ever forget. As the worst earthquake in 40 years broke out offthe coast of Sumatra, it created a tsunami, the magnitude of which no livinggeneration has ever witnessed. Within a few horrifying hours the lives of SriLankans, especially those inhabiting the southern and eastern coastal belts,changed dramatically as thousands of people were swept to sea, and infrastructure& buildings collapsed under the force of the waves. Children were the hardest hitby the tsunami. Statistics reveal that approximately 42,407 children have beenadversely affected, through the loss of one or both parents, through the trauma of witnessing the terrifying events. 16,962 ofthese children are of a pre-school age.Hemas Holdings immediately identified the importance of reaching out to this vulnerable section of the population. Pre-schoolchildren are still at an age where their verbal communication skills are limited, and they are therefore restricted in their abilityto voice out their emotions. Hemas Holdings realised that over 100 pre-schools on the southern and eastern coasts had beendamaged and destroyed. The Company therefore took upon itself the task of constructing schools to provide these children withan opportunity to return to a setting in which they would feel comfortable.For the past two years Hemas has been actively involved in working with pre-school children, under an Early Childhood Careand Development (ECCD) program titled Piyawara. For this purpose we have liaised with the Ministry of Social Welfare, andcreated a successful project that binds the students, teachers and parents towards the goal of total childhood development.HEMAS HOLDINGS RESPONSE PLANHemas Holdings adopted a two pronged approach to the construction of pre-schools in the tsunami affected regions.Phase I - Establishment of thirty makeshift pre-schools in refugee campsDuring the first phase Hemas set up 27 make-shift pre-schools atcamps housing displaced persons. Studies have shown thatestablishing some semblance of normalcy is essential to theprocess of healing. By setting up these temporary pre-schools wehave provided approximately 1400 students the opportunity toreturn to school, and re-engage in learning and play.Funds were utilised to purchase furniture, educational material,stationery, in addition to the monthly allowances paid to theteachers. Hemas Holdings selected and trained the pre-schoolteachers. At the end of February the teachers of the temporary pre-schools were brought to Colombo for a five-dayresidential training program on Trauma Counselling. The program was conducted by the University of Colombo. Hemasalso encouraged members of the community, parents, and teachers to participate in building small play areas within thecamps using eco-friendly material. This gesture proved to be immensely therapeutic as it provided a sense of belongingand positive psychological stimulation.Fund Commitment:US $20,000 for 27 temporary pre-schoolsNo. of children benefiting:1,400Project status:Operational aspects complete.27 temporary pre-schools are beingoperated in makeshift camps.Trauma Counsellors have been appointedfor the Pre-schools.24H E M A S H O L D I N G S L I M I T E D

Hemas Tsunami Response PlanPhase II - Construction of 20 new pre-schools to replace those destroyed or damagedFund Commitment:US $1 million with US $ 250,000 committed by the Hemas Group.The balance has been pledged by business partners and friends.No. of children benefiting2,000Project status:20 schools allocated to Hemas, our friends and our business partners14 tracts of land allocated in the Southern ProvinceDesign and Structural Plan finalisedSeminars and workshops conducted jointly with theMinistry of Social Welfare for Local Governmentauthorities on importance of ECCDFoundation stones will be laid beginning in the second week of May 2005The second phase involves the construction of 20 new pre-schools to replace those that were destroyed or damaged by thetsunami. In coordination with the Ministry of Social Welfare Hemas selected towns and villages in the districts of Ampara,Galle, Hambantota and Matara. Each of the pre-schools will cater to 100 students, thereby providing 2000 childrenbetween the ages of 2 and 5 the opportunity to obtain an education. Major donors will have pre-schools constructed intheir names, thereby establishing a life-long relationship between the two parties.Hemas has been working in close co-operation with the Authorities to accelerate the process of allocating land and havebeen successful in obtaining 14 blocks of land in the Southern province. The East Coast, however, still poses a delay andwe envisage that the Government might take a further period of two months to provide us with land. In the event thatstate land is not provided, the Trustees of the Hemas Tsunami Foundation have decided to purchase private property.After completion of the project, the buildings will be handed over to the Local Government Authority. However, in orderto ensure that good standards are maintained, Hemas Holdings Ltd, Ministry of Social Welfare and the Local GovernmentAuthority will sign an MOU, which will be monitored under our CSR project ‘Piyawara’. This will no doubt guarantee thesustainability of this project.Hemas Tsunami Disaster Relief Task Force and the Hemas Tsunami FoundationHemas Holdings Ltd has appointed a task force comprising directors from the Group’s subsidiaries to serve asthe Executive Committee to the project. Ernst & Young Chartered Accountants have been appointedauditors to the Fund. A Trust, which will function as an independent entity, has also beenestablished to manage the Fund. The trustees comprise of directors ofHemas Holdings as well as external experts. The trustees are:• Dr Pramilla Senanayake – Former Assistant Director General,of the International Planned Parenthood Federation• Sue Scarff – Former Marketing Professional at A T Kearney• Serena Fonseka – Director, Hemas Holdings• Abbas Esufally – Director, Hemas Holdings• Murtaza Esufally – Director, Hemas HoldingsShiromi Masakorala, the Group’s CSR Manager has beenappointed to work fulltime on the project along with anewly recruited Project Manager.25

Piyawara ProgrammeEarly Childhood Care &Development (ECCD)The Piyawara programme is the dedicated CSR mission forHemas Holdings in association with the Ministry of SocialWelfare.Our MissionTo create child friendly pre schools island widefor children between the ages of 3-5 years inorder to provide a sound foundation for lifelong learning.Training teachers became a primary focus last year. Hemastogether with the Ministry trained over 100 teachers fromeach district that houses Piyawara centres. It has beenemphasised by the participating teachers that theworkshops have been intensive and useful, spurring theteachers to employ different styles and methodologies inteaching. As a result of these workshops, some teachers haveinitiated the concept of ‘learning corners’ stimulating themind, senses and physical activities of children using propsbrought from children’s homes.From Birth to 5 years are the most critical years in the lifecycle of a child since it is in this period that the fullpotential of the child is established and foundation for thedevelopment of the human being is laid. The Pre school isthe first ever experience a child has with society and it isvital to have proper learning practices at this stage.Piyawara programme works in 4 stages:1. Providing a safe, caring, and conducive environment bydeveloping infrastructure and creating child friendlypreschools.2. Regularly training the care givers.3. Creating the right home environment through parentalawareness campaigns.Due recognition for pre school teachers is an important aspect.We are happy to note that some of the teachers from Piyawaracentres have been given due recognition by the localGovernment authorities. They have been given specialappointments to train and over look other pre schools in thearea.Parental awareness is a key to the success of this project. Achild needs a conducive environment in the home front thatis vital for the early years of growing. This year, Hemas4. Mobilising and empowering caregivers,Parents and society at large.By year 2004 we set up 9 ‘model pre schools’islandwide by developing infrastructure, playareas, providing educational equipment andtraining the teachers. These schools wereidentified by the Ministry of Social Welfare. Theyear under review saw the implementation ofstage 2, 3 & 4 .What we have done has created a learning culture for the children through wordsand deeds. It is not totally a classroom atmosphere. Through the training wereceived, which could be termed revolutionary because the entire teachingmethods have been transformed, the child is drawn into learning througheffective interaction. Even the building is attractive to a child and we have triedto make children enjoy school. “We learnt so much but have still not been ableto completely use everything that was taught to us. It was intensive that I amcontinuously looking for ways to improve my teaching methods to give mystudents an even better start in education.”- Binari Kokila Kumarasinghe Head Teacher, Polonnaruwa.26H E M A S H O L D I N G S L I M I T E D

Piyawara Programme“A child’s first five years are the most formative years and it is during this timethat we as adults have a responsibility to shape his/her childhood, adolescenceand adulthood. ECCD focuses on laying the foundation for children to achievetheir fullest potential for life long learning and social skills. I am most gratefulto Hemas for the support we have received in getting this programme off theground, because although we had the ideas and even drew up the National Policyon ECCD based on the Ministry’s Study on Childcare Provision in Pre Schools onan initiative by UNICEF, we didn’t have the wherewithal to get about making theseplans a reality.”- Vinitha Weerasekera, Director Children’s Secretariat, Ministry of Social Welfare.initiated a training programme for parents in all Piyawaracentres enlightening them to the importance of goodparenting, health and nutrition, affect of domestic violence,child abuse, domestic communication and mother migration.These programmes proved to be highly successful with fullattendance. There is now an enthusiastic participation ofparents and a more decisive relationship with the teacherfocusing on a child who enjoys going to school. This is oneof the fundamental cornerstones of this project. There isnow a clamour by the parents for more such traininginitiatives.PiyawaraAnagathayata Peragamanakwkd.;hg fmr.uklacitizens and the entire village communityassisting the schools whenever a need arises. Ithas brought a sense of belonging andattachment. Community involvement is vital forthe sustainability of a project of this nature.Working with a government Ministry successfully has alsobroken the myth about the lack of partnership between thepublic and private sectors with unparalleled dedication andcommitment displayed by the members of the Children’sSecretariat. The Ministry participation has led to the projectbeing monitored and coordinated by the district secretariatsand provincial councils.The coming year will see a few more districts being added tothe Piyawara project. We also plan to cluster 3 more preschools to the already existing Piyawara centres and spreadour conceptual practices to the other schools in the area.Piyawara aims to bring together the three pronged“ Earlier, there was never a link between the teachers and therelationship of parenncher and child in order to create aparents. We just dropped off our children and picked them up.sound foundation for life long learning.Today, it is totally different. We parents are constantly calledupon to assist in school activities and we gladly do it becauseit is for our children. We have collectively donated variousitems needed for the school, we organise events and in fact,there have been awareness workshops conducted by theMinistry and Hemas to teach parents, how to be ‘goodparents’.”What is unique about the Piyawara programme is that it hasspurred a behavioural change not only among parents andteachers but among the community as well. There has beencomplete community involvement in the project with senior- B G Wijedeva, Parent and President of the Parent TeacherAssociation of the Matale Piyawara Pre-school.Other CSR Initiatives:1. Educate a Child Programme in Kalutara – Donation ofRs.300,000/- was made available for this project in order toprovide computers for beach kids who are now being educatedby Dr. Pramilla Senanayake.2. Donation of an eResource Centre to Sri Lanka MedicalAssociation. This will serve as a ‘knowledge centre’ formembers of SLMA allowing them to access many internationalmedical journals & important medical sites with the latestinnovations and findings in the medical field.3. Heladhanavi Ltd has initiated many community projects in thearea. Developing the Maduragama Temple, water supplyprojects in Maduragama area and construction of a buildingfor pre natal clinics in the area to mention a few.4. Our subsidiary, Serendib Group is involved in many CSRactivities in the areas that we operate our hotels. Variousinitiatives have been taken to protect the environment,provide English education for children, maintaining wards inselected hospitals and promoting Sri Lankan Culture.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 27

The Hemas TeamOur team has always been the cause celebre of our successthrough the years. Ultimately it is the competence anddynamism of our people that allow us to set better standardsof excellence in serving our customers and stakeholders.With an increasing number of businesses now coming underthe main umbrella of Hemas Holdings, we recognize theimportance of a shared culture and values in bringing ustogether as a single team. Whilst we grow, we seek to retainthe personal touch which has hitherto given us the edge inforging a work environment that is both competitive andcaring.Aligning Individual Performance with Group Visionand Values…As an employer that is committed to creating exciting newopportunities and a rising share of wealth to its employees,Hemas understands the importance of being able totranslate its vision down to individual performance. Further,being a Group that is committed to adhering to its values tothe highest level, it is essential that our core values arereflected in the day to day activities of our employees.The Group and Sector Visions are translated to BusinessGoals during the Annual Corporate Planning process, andour Performance Management System (PMS) ensures thatthese Business Goals are clearly translated into IndividualGoals at all levels. Whilst the PMS attempts to improveemployee performance by maintaining healthy competitionand benchmarking, the Personal Development Plan seeks todevelop each employee to his/her full potentialThe development of frontline staff across the Group is astrategically important area for us, and in this respect, theHemas Academy in association with the Sri Lanka Instituteof Marketing conducts a Diploma programme in SalesManagement.In addition to internal training, selected managerial staffare regularly sent for executive development programs, bothlocal and overseas, based on business and personaldevelopment plans.Having the Right People…Our recruitment process is focused on attracting the bestcandidates and selecting those of the highest quality for therequired job. At the managerial level, candidates have toundergo a rigorous process before getting selected.The Group believes in identifying, nurturing and developingthose individuals who have the potential to become futureleaders. The Project Fast Track is an HR initiative thatmanages the career development of High Flyers within theGroup, with a view to placing them in leadership positionswithin 3 to 4 years.To be the Best in what we do…Our quest to become the best in what we do also extends toA Learning Culture…Investment in training and development is part of thelearning culture that we promote at Hemas. Our present &future business needs are matched with employeecapabilities to provide the key inputs to our training anddevelopment initiatives.our HR activities. In this respect, we achieved a significantmilestone in October 2004 when Hemas was adjudged theWinner of the Overall National HRM Award for Group ofCompanies in the Manufacturing Sector. The awardrecognized the best HR practices of the Hemas Group, whichfurther cemented our objective of treading the correct pathin developing HR for our people, to suit their individualcareer aspirations in tandem with our Group Vision.28H E M A S H O L D I N G S L I M I T E D

Financial StatementsCorporate Governance 30Risk Management 31Report of the Directors 32Statement of Directors’ Responsibilities 34Auditors’ Report 35Income Statement 36Balance Sheet 37Statement of Changes in Equity 38Cash Flow Statement 39Notes to the Financial Statements 40

Corporate GovernanceCommitment to the highest standards of ethics and integrity has been an uncompromising principal of the Hemas Group acrossthe different Sectors and among all levels. The role of the parent company, Hemas Holdings Ltd is to manage the diverse businessportfolio of investments in its subsidiaries and associate companies in order to ensure that Corporate objectives are met, whilstmaintaining an appropriate risk profile. The Board of Directors of Hemas Holdings Ltd provides policy and strategic direction tothe Group and this is implemented through the Executive Management of the Group.Board of DirectorsThe Board consists of three Non-executive Directors and six Executive Directors, one of whom is the Chief Executive Officer. TheBoard is fully accountable to shareholders and takes ultimate responsibility for the activities of the Group. The profiles of thedirectors are given on pages 8 and 9 of this report.The Non-executive Directors are respected individuals who have, or are, currently holding senior positions in their respectiveprofessions, industries or government. The value addition from the Non-executive Directors comes from the expertise they bringin from their respective disciplines and enrich Board deliberations through their knowledge and independence.The Board as a whole decides on the appointment of Directors and the election of the Chief Executive Officer. The Directors soappointed retire at the next Annual General Meeting and seek election by shareholders. The performance of the Chief ExecutiveOfficer is subject to evaluation by the Board of Directors.Board responsibilities are discharged either directly or through various committees. The Board meets regularly, at least six timesa year and has a formal schedule of matters reserved for it. The Annual Business Plan is approved by the Board and reviewedperiodically for corrective action. Directors are given appropriate and timely information so that they can maintain full andeffective control over strategic, financial, operational, compliance and governance issues. Both Executive and Non-executiveDirectors devote adequate time to serve the interests of the Company.Group Management Committee (GMC)The day to day affairs of the Group are carried out by the Group Management Committee consisting of the Chief Executive Officer,Executive Directors and other senior Directors of subsidiaries. Their profiles are listed on pages 10 and 11 of this report. The GMCmeets every month to review Corporate and SBU performance against the Annual Business Plan and ensure that businessdirection is in line with the vision and goals.Directors’ RemunerationThe Remuneration Committee consists of one Non-Executive Director and the Chief Executive Officer. The purpose of theRemuneration Committee is to assist the Board in the establishment of remuneration policies and practices in relation tocompensation packages of the Company’s Chief Executive Officer and Executive Directors of the Board. In doing so, theCommittee provides oversight of broad policies to ensure that Shareholder and Employee interests are aligned, and, the abilityof the Group to attract and retain superior management talent.Accountability and AuditThe Audit Committee consists of two Non- Executive Directors. The Chief Executive Officer and the Group Finance Director areinvited to attend the Audit Committee meetings. The External Auditors and Internal Auditors attend meetings when theirpresence is necessary.The purpose of the Audit Committee is to assist the Directors to fulfill their responsibility with regard to best corporategovernance practices in audit and risk management. The Audit committee is empowered to examine any matter relating to thefinancial affairs of the Company and its subsidiaries. The Audit Committee receives direct reports from the External Auditors ontheir audit findings and reviews the External Auditor’s Management Letter and examines action taken. The Committee is briefedabout the Group’s Risk management system and actions taken to prevent or mitigate same.Investor relationsThe Company strives to have good communication with its institutional and individual shareholders including employeeshareholders. The Chief Executive Officer and other Executive Directors maintain a healthy dialogue with shareholders, analystsand brokers through regular contact and meetings. The Board ensures that this contact does not result in the disclosure of anyprice sensitive information.30H E M A S H O L D I N G S L I M I T E D

Risk ManagementBeing a diversified group exposed to many areas of business, we realize the importance of having an effective Risk ManagementFramework in place, in order to manage the various types of risks such as strategic, operational, financial and hazard risks. Theeffective management of risk through a systematic framework results in an improved risk profile, which enhances theshareholder value.Risk management at Hemas is intertwined with the strategic and business planning framework. The key objective of riskmanagement at Hemas is to improve decision making and hence Group profitability by having a framework, which ensures thatonly justifiable risks are taken whilst unjustifiable risks are avoided. This mechanism also ensures that the speed of decisionmaking is not adversely affected by unnecessary controls.The risk management process of the Group covers the areas of business strategy & operations, finance, legal & regulatory, creditmanagement, treasury management, human resource management and information technology, and consists of the following keycomponents:• Risk identification and assessment at the annual planning stage• Review of policy, processes & compliance reporting by the Internal Audit Division• Centralized treasury function to monitor and manage exposures of interest rate and exchange rate risks• A provisioning policy to adequately provide for doubtful realization of current assets• A central function to ensure that Group assets are properly insured• A process to ensure the security and reliability of IT systemsAs the Hemas Group looks to diversify into new areas whilst maintaining a steady growth in its current businesses, and giventhe increasing dynamism in the business environment, we strive for continuous improvements in our risk management processwith a view to delivering better value to our stakeholders.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 31

Report of the DirectorsDIRECTORS’ REPORTThe Directors of Hemas Holdings Limited present their Report together with the Audited Financial Statements of the companyand its subsidiaries for the year ended 31st March 2005.GROUP ACTIVITIES AND BUSINESS REVIEWThe group is engaged in several diverse business activities which are described on pages 16 to 21 of this report. The principalactivities of the Holding Company is disclosed in the financial accounts, note 1.2 on page 40. A review of Group’s operationsduring the year with the comments on operational results and future prospects is contained in the CEO’s statement, SectorReports and the Financial Review.GROUP TURNOVER & PROFITSThe turnover of the group excluding associate companies was Rs. 8.8 billion. An analysis of which is given in Note 3 to thefinancial statements. The group profit excluding the share of profits of associate companies amounted to Rs. 1,021 million.The group profit before taxation was Rs. 1,025 million and after taxation, extra ordinary items & minority interest the netprofit attributable to the group was Rs. 804 million.The sector contributions to the group turnover and net profit is stated in the Financial Review on page 14.DIVIDENDSThe company paid a 1st interim dividend of 12.5% in November 2004 and 2nd interim dividend of 17.5% in April 2005.PROPERTY, PLANT & EQUIPMENTThe details relating to the movement in property, plant & equipment are given in Note 10 to the financial statements.INVESTMENTSThe information relating to the investments is given in notes 12, 13 & 14 to the financial statements and the FinancialReview.SHARE CAPITALDuring the year, the issued share capital of the company was increased from Rs 780,000,000 to Rs 791,295,500 comprising of79,129,550 ordinary shares with a par value of Rs 10/-. The increase in share capital is attributable to options exercised inrespect of 1,129,550 shares.RESERVESThe total group reserves amounted to Rs. 2.75 billion, the details are disclosed in the Statement of Changes in Equity on page 38.SHARE INFORMATIONInformation relating to earnings, dividends, net assets, market value per share is disclosed in the Financial Highlights, in thisreport.DIRECTORSNames and profiles of the Directors of the company as at the end of the financial year, appear on pages 8 and 9 of this report.Mr Lalith De Mel, Mr Simon Scarff and Mr Maithri Wickremesinghe are non executive directors. All the directors held officethroughout the year.32H E M A S H O L D I N G S L I M I T E D

Report of the DirectorsDIRECTOR’S SHAREHOLDINGDirect and indirect shareholdings of Directors of the Company and their spouses are as follows:Hemas Holdings Ltd As at 31/03/05 As at 31/03/04H N Esufally 16,323,366 16,323,366A N Esufally 17,026,960 17,022,860I A H Esufally 16,255,600 16,225,000M A H Esufally 16,224,907 16,224,907M S Fonseka 125,000 100,000S J Scarff Nil NilD Bhatnagar 4,000 NilM E Wickremesinghe 1,800 1,800L De Mel 4,400 4,400EMPLOYEE SHARE OPTION PLAN (ESOP)Details of the ESOP is disclosed in note 2.6 to the financial statements.EVENTS AFTER THE BALANCE SHEET DATEThere are no material post balance sheet events, that have arisen which would require adjustments to the financialstatements as at 31st March 2005.GOING CONCERNOn the basis of current financial projections and facilities available, the Directors are confident that the company hasadequate resources to continue business operations. Accordingly the Directors consider that it is appropriate to adopt thegoing concern basis in preparing the financial statements.AUDITORSThe retiring auditors M/s Ernst & Young are seeking re-appointment and in accordance with the companies Act No. 17 of 1982a resolution proposing their re-appointment as auditors of the company will be submitted at the Annual General Meeting.By Order of the BoardHemas Corporate Services (Pte) LtdSecretaries20th May 2005A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 33

Statement of Directors’ ResponsibilitiesThe responsibilities of the directors in relation to the financial statements of the company and the Group differ from theresponsibilities of the Auditors which are set out in their report appearing on page 35.The Companies Act No. 17 of 1982 requires the Directors to prepare financial statements for each financial year, giving a trueand fair view of the state of affairs of the Company and the Group as at end of the financial year, and of the Profit or Loss ofthe Company and the Group for the financial year. In preparing the financial statements, appropriate accounting policies havebeen selected and applied consistently, reasonable and prudent judgements and estimates have been made and applicableaccounting standards have been followed.The Directors are responsible for ensuring that the companies within the Group keep sufficient accounting records to disclosewith reasonable accuracy the financial position of the Company and the Group and for ensuring that the financial statementshave been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information requiredby the Companies Act No. 17 of 1982. They are also responsible for taking reasonable measures to safeguard the assets of theGroup, and in that context to have proper regard to the establishment of appropriate systems of internal control with a view tothe prevention and detection of fraud and other irregularities.The Directors are confident that they have discharged their responsibilities as set out in this statement. The directors alsoconfirm that to the best of their knowledge, all statutory dues payable by the Group as at the Balance Sheet date have beenpaid or where relevant, provided for.By Order of the BoardHemas Corporate Services Pte LimitedSecretaries,36, Bristol Street, Colombo 1.20th May, 200534H E M A S H O L D I N G S L I M I T E D

Auditors’ ReportAUDITORS’ REPORT TO THE MEMBERS OF HEMAS HOLDINGS LIMITEDWe have audited the Balance Sheet of Hemas Holdings Limited as at 31 March 2005, the Consolidated Balance Sheet of theCompany and its Subsidiaries as at that date, and the related statements of Income, Cash Flows and Changes in Equity for theyear then ended, together with the Accounting Policies and Notes as set out on pages 36 to 69.Respective Responsibilities of Directors and AuditorsThe Directors are responsible for preparing and presenting these financial statements in accordance with the Sri LankaAccounting Standards. Our responsibility is to express an opinion on these financial statements, based on our audit.Basis of OpinionWe conducted our audit in accordance with the Sri Lanka Auditing Standards, which require that we plan and perform the auditto obtain reasonable assurance about whether the said financial statements are free of material misstatements. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the said financial statements, assessing theaccounting principles used and significant estimates made by the directors, evaluating the overall presentation of the financialstatements, and determining whether the said financial statements are prepared and presented in accordance with the Sri LankaAccounting Standards. We have obtained all the information and explanations, which to the best of our knowledge and beliefwere necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.OpinionIn our opinion, so far as appears from our examination, the Company has maintained proper books of account for the year ended31 March 2005, and to the best of our information and according to the explanations given to us, the said balance sheet andrelated statements of income, cash flows and changes in equity and the accounting policies and notes thereto, which are inagreement with the said books and have been prepared and presented in accordance with the Sri Lanka Accounting Standards,provide the information required by the Companies Act, No.17 of 1982 and give a true and fair view of the Company’s state ofaffairs as at 31 March 2005 and its profit and cash flows for the year then ended.In our opinion, the consolidated balance sheet and statements of income, cash flows and changes in equity and the accountingpolicies and notes thereto have been properly prepared and presented in accordance with the Companies Act, No. 17 of 1982and the Sri Lanka Accounting Standards, and give a true and fair view of the state of affairs as at 31 March 2005 and the profitand cash flows for the year then ended of the Company and its subsidiaries dealt with thereby, so far as concerns the membersof the Company.Directors’ Interest in Contracts with the CompanyAccording to the information made available to us, the Directors of the Company were not directly or indirectly interested incontracts with the Company during the year ended 31 March 2005 except as stated in Note 33 to these financial statements.Ernst & YoungColombo20th May 2005A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 35

Income StatementYear ended 31 March 2005GroupCompanyNote 2005 2004 2005 2004Rs. Rs. Rs. Rs.Revenue 3 8,797,880,679 6,485,421,977 54,476,512 34,863,612Cost of Sales (5,878,203,643) (4,098,225,241) - -Gross Profit 2,919,677,036 2,387,196,736 54,476,512 34,863,612Other Operating Income 4 164,110,220 108,502,182 444,759,276 191,954,801Distribution Costs (811,653,977) (677,314,685) - -Administrative Expenses (1,062,178,137) (941,153,717) (66,515,711) (39,166,889)Other Operating Expenses (35,219,171) (9,559,399) - (532,776)Profit from Operating Activities 5 1,174,735,971 867,671,117 432,720,077 187,118,748Negative Goodwill Written Back 5,534,929 7,199,761 - -Goodwill Written Off (3,638,438) (3,459,733) - -Finance Cost 6 (155,542,408) (48,639,927) (1,536,455) (4,890,213)Profit from Ordinary Activities Before Tax 1,021,090,054 822,771,218 431,183,622 182,228,535Share of Associate Company Profit 3,587,700 11,412,480 - -Share of Profits of Subsidiaries - - 130,046,213 436,622,733Profit Before Taxation 1,024,677,754 834,183,698 561,229,835 618,851,268Income Tax Expenses 7 (225,142,584) (180,067,670) (3,203,163) (4,384,861)Net Profit after Taxation 799,535,170 654,116,028 558,026,672 614,466,407Minority Interest 6,896,744 (41,601,823) - -Extra Ordinary Items (2,458,629) - - -Net Profit for the year attributable to the Group 803,973,285 612,514,205 558,026,672 614,466,407Earnings Per Share - Basic 8 10.11 8.28 7.07 8.30Dividends Per Share - Interim Paid 9 3.00 1.25 3.00 1.25- Final Proposed 9 - 1.25 - 1.25The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.Colombo20 May 200536H E M A S H O L D I N G S L I M I T E D

Balance SheetAs at 31 March 2005Note Group CompanyASSETS 2005 2004 2005 2004Non-Current Assets Rs. Rs. Rs. Rs.Property, Plant & Equipment - At Cost 10 3,825,182,533 3,346,930,862 67,795,296 35,738,440- At Valuation 10 1,508,123,877 944,001,539 120,942,500 82,698,027Intangible Assets 11 40,335,770 8,012,700 - -Investments in Subsidiaries 12 - - 3,333,100,870 2,750,680,710Investments in Associates 13 195,897,526 120,567,197 83,410,456 41,386,045Other Investments 14 37,361,308 75,178,151 2,505,000 14,178,020Other Receivables - 1,671,650 - -5,606,901,014 4,496,362,099 3,607,754,122 2,924,681,242Current AssetsInventories 15 732,935,986 781,689,738 - -Trade and Other Receivables 16 2,195,110,152 1,991,157,991 10,940,767 8,257,460Loans Due from Related Parties 17 - - 174,504,611 181,130,531Investments 14 306,738 306,738 1,094,905 22,306,296Tax Recoverable 18,885,094 12,292,112 2,703,604 -Amounts Due from Related Parties 18 145,468 14,480 383,395,549 375,895,803Short Term Cash Investments 28 439,752,239 120,602,249 62,743,210 66,920,365Cash and Bank Balances 28 657,932,581 471,034,056 170,392,257 6,243,3724,045,068,258 3,377,097,364 805,774,903 660,753,827Total Assets 9,651,969,272 7,873,459,463 4,413,529,025 3,585,435,069EQUITY AND LIABILITIESCapital and ReservesIssued Share Capital 19 791,295,500 780,000,000 791,295,500 780,000,000Reserves 20 827,991,413 28,669,843 622,906,729 1,684,462Share Premium 343,889,834 297,387,834 343,889,834 297,387,834Accumulated Profits 1,578,796,259 1,525,508,670 1,787,933,342 1,547,377,945Preliminary Expenses - (3,678,776) - -Total Equity 3,541,973,006 2,627,887,571 3,546,025,405 2,626,450,241Minority Interest 681,897,221 546,380,272 - -Non-Current LiabilitiesNon Interest Bearing Loans and Borrowings 21 11,274,897 7,696,816 536,625,644 554,220,229Interest Bearing Loans & Borrowings 22 2,084,462,170 1,868,131,264 - -Deferred Income Tax 23 91,326,474 90,115,751 10,805,541 11,071,290Other Deferred Liabilities 24 84,083,421 78,634,094 7,036,396 5,835,658Negative Goodwill 25 11,173,295 8,019,871 - -Trade and Other Payables - 6,620,118 - -2,282,320,257 2,059,217,914 554,467,581 571,127,177Current LiabilitiesTrade and Other Payables 26 1,910,273,670 1,873,704,555 17,576,499 8,014,799Dividends Payable 133,404,054 - 131,173,989 -Income Tax Liabilities 66,939,018 69,264,065 5,799,774 4,259,815Amounts Due to Related Parties 27 189,096,330 - 158,436,813 303,155,683Non Interest Bearing Loans & Borrowings 21 3,340,285 550,000 - -Interest Bearing Loans & Borrowings 22 842,725,431 696,455,086 48,964 72,427,3543,145,778,788 2,639,973,706 313,036,039 387,857,651Total Equity,Minority Interest and Liabilities 9,651,969,272 7,873,459,463 4,413,529,025 3,585,435,069The Board of Directors is responsible for the preparation and presentation of these financial statements.Signed for and on behalf of the Board by,Husein EsufallyMs. Serena FonsekaChief Executive OfficerGroup Finance DirectorThe Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.Colombo20 May 2005A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 37

Statement of Changes in EquityYear ended 31 March 2005Share Share Premium Capital & Revenue Deferred Preliminary Accumulated TotalCapital Reserve Expenses Expenses ProfitGroup Rs. Rs. Rs. Rs. Rs. Rs. Rs.Balance as at 31 March 2003 400,000,000 - 170,619,714 (1,360,000) (4,765,156) 1,121,044,594 1,685,539,152Net Profit for the Year - - - - - 612,514,205 612,514,205Shares Issued for Cash 80,000,000 320,000,000 - - - - 400,000,000IPO Expenses Written off - (22,612,166) - - - - (22,612,166)Bonus Issue 300,000,000 - (138,841,174) - - (161,158,826) -Dividends - - - - - (50,000,000) (50,000,000)Transferred to/from During the Year - - (3,108,697) - - 3,108,697 -Amounts Written Off During the Year - - - 1,360,000 1,086,380 - 2,446,380Balance as at 31 March 2004 780,000,000 297,387,834 28,669,843 - (3,678,776) 1,525,508,670 2,627,887,571Net Profit for the Year - - - - - 803,973,285 803,973,285Shares Issued for Cash 11,295,500 46,502,000 - - - - 57,797,500Dividends - - - - - (317,471,276) (317,471,276)Preference shares Dividends - - - - - (5,950,686) (5,950,686)Revaluation Reserve - - 326,233,752 - - - 326,233,752Transferred to/from During the Year - - 473,087,818 - - (423,584,958) 49,502,860Amounts Written Off During the Year - - - - 3,678,776 (3,678,776) -Balance as at 31 March 2005 791,295,500 343,889,834 827,991,413 - - 1,578,796,259 3,541,973,006The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.Share Share Capital & Revenue Accumulated TotalCompany Capital Premium Reserve ProfitRs. Rs. Rs. Rs. Rs.Balance as at 31 March 2003 400,000,000 - 135,548,118 1,144,070,365 1,679,618,483Net Profit for the Year - - - 614,466,407 614,466,407Dividends - - - (50,000,000) (50,000,000)Bonus Issue 300,000,000 - (138,841,173) (161,158,827) -Shares Issued for Cash 80,000,000 320,000,000 - - 400,000,000IPO Expenses Written-off - (22,612,166) - - (22,612,166)Share of Capital Reserve of Subsidiary - - 4,977,517 - 4,977,517Balance as at 31 March 2004 780,000,000 297,387,834 1,684,462 1,547,377,945 2,626,450,241Net Profit for the Year - - - 558,026,672 558,026,672Dividends - - - (317,471,275) (317,471,275)Shares Issued for Cash 11,295,500 46,502,000 - - 57,797,500Revaluation Reserve - - 41,193,306 - 41,193,306Share of Capital Reserve of Subsidiary - - 580,028,961 - 580,028,961Balance as at 31 March 2005 791,295,500 343,889,834 622,906,729 1,787,933,342 3,546,025,405The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.Colombo20 May 200538H E M A S H O L D I N G S L I M I T E D

Cash Flow StatementYear ended 31 March 2005GroupCompanyCash flows from Operating Activities 2005 2004 2005 2004Rs. Rs. Rs. Rs.Net Profit Before Taxation 1,024,677,754 834,183,698 561,229,835 618,851,268Adjustments forGoodwill (Net) (1,896,491) (3,740,028) - -Depreciation 352,878,064 157,301,034 9,182,177 8,186,137Profit on Sale of Property, Plant & Equipment (12,829,359) (17,128,540) 89,455 (3,462,125)Preliminary Expenses Written - off - 1,086,380 - -Provision for Retiring Gratuity 20,087,254 32,574,317 1,642,426 2,911,910Impairment of Assets 28,472,729 - - -Finance Cost 155,542,408 48,639,927 1,536,455 4,890,213Investment Income (10,199,661) (2,350,025) (325,587,903) (140,315,786)(Profit)/loss on Associates/ Subsidiaries (3,587,700) (11,412,480) (130,046,213) (436,622,733)Development Expenditure Written-off 19,248,557 1,360,000 - -(Profit)/Loss on Sale of Investments (55,397,733) (32,545,203) (79,419,739) (29,349,244)Operating Cash Flow before Working Capital Changes 1,516,995,822 1,007,969,080 38,626,493 25,089,640(Increase)/Decrease in Receivables (204,001,476) (713,839,025) (2,683,303) 520,149(Increase)/Decrease in Inventories 48,753,752 (172,318,467) - -(Increase)/Decrease in amounts Due from Related Companies (81,673) 488,749 (7,499,746) (222,591,945)Increase/(Decrease) in amounts Due to Related Companies 186,587,397 - (144,718,870) 102,576,554Increase/(Decrease) in Creditors and Accruals 32,457,930 640,501,058 9,561,700 (1,400,182)Cash Generated from/(Used in) Operations 1,580,711,752 762,801,395 (106,713,726) (95,805,784)Finance Cost Paid (155,542,408) (48,639,927) (1,536,455) (4,890,213)Income Tax Paid (230,141,016) (134,650,132) (4,631,839) -Gratuity Paid (7,111,161) (5,194,467) (441,688) (104,920)Development Expenses paid (5,551,333) - - -Net Cash from/(Used in) Operating Activities 1,182,365,834 574,316,869 (113,323,708) (100,800,917)Cash Flows from Investing ActivitiesPurchase of Property, Plant & Equipment (1,138,619,201) (2,691,942,245) (38,436,256) (5,850,921)Investment in Subsidiaries/Associates (Note 29) 60,478,157 (175,789,296) (172,369,397) (474,632,400)Investment in Brand (25,000,000) - - -Other Investments (2,969) (21,285) - (1,662,500)Proceeds from Sale of Property, Plant & Equipment 61,223,385 28,162,308 56,600 10,474,625Proceeds from Disposal of Investments 59,269,656 113,806,220 370,304,148 116,473,364Dividends Received from Associates 2,520,000 2,700,000 - -Investment Income 10,199,661 2,350,025 325,587,903 140,315,786Net Cash from/( Used in) in Investing Activities (969,931,311) (2,720,734,273) 485,142,998 (214,882,046)Cash Flows from Financing ActivitiesBorrowings (Net) 186,315,930 2,011,546,991 (35,968,665) (28,510,209)Proceeds From Issue of Shares (Net of Issue Expenses) 57,797,500 377,387,834 57,797,500 377,387,834Proceeds From Issue of Shares and Debentures to Minority 42,017,563 - - -Dividends Paid - To Hemas Share Holders (186,297,287) (80,000,000) (186,298,005) (80,000,000)- To Minority Share Holders of Subsidiaries (13,873,401) - - -Rental Deposits Received 6,368,366 3,623,237 - -Finance Lease Paid (435,276) (1,597,917) - -Net Cash from/(Used in ) used in Financing Activities 91,893,395 2,310,960,145 (164,469,170) 268,877,625Net Increase in Cash and Cash Equivalents 304,327,918 164,542,741 207,350,120 (46,805,338)Cash & Cash Equivalents at the Beginning of the Year (Note 28) 431,463,671 266,920,930 25,736,383 72,541,721Cash & Cash Equivalents at the End of the Year (Note 28) 735,791,589 431,463,671 233,086,503 25,736,383The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 39

Notes to the Financial StatementsYear ended 31 March 20051. CORPORATE INFORMATION1.1 GeneralHemas Holdings Limited (formally “Hemas Holdings (Pte)Ltd”) is a public limited liability company incorporated anddomiciled in Sri Lanka. The company changed its status froma private company to a public limited liability company on7th August 2003, under section 20(1) of the Companies Act,No.17 of 1982. Subsequently, the company changed itsname from Hemas Holdings (Pte) Ltd, to Hemas HoldingsLtd.Hemas Holdings Limited (“Company”) was listed in theColombo Stock Exchange on 15th October 2003.The registered office and the principal place of business issituated at No. 36, Bristol Street, Colombo 01.Hemas Holdings Ltd., does not have an identifiable parent ofits own.1.2 Principal Activities and Nature of OperationsDuring the year, the principal activities of the Company werecarrying out investment activities, and providingmanagement and administration services to otherCompanies in the group.1.3 Date of Authorisation for IssueThe financial statements of Hemas Holdings Limited for theyear ended 31st March 2005 , were authorised for issue , inaccordance with a resolution of the Board of Directors on20th May 2005.1.4 Number of EmployeesThe number of employees of the company at the end of theyear was 10 (2004- 9)The number of employees of Hemas Holdings Ltd., and its100% owned subsidiaries was 1171 at the end of the year.(2004-2525)2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES2.1 General Policies2.1.1 Basis of PreparationThe balance sheet, statements of income, changes in equityand cash flows, together with accounting policies and notes,(“Financial Statements”) of the Company as at 31st March2005 and for the year then ended, comply with the SriLanka Accounting Standards.These financial statements presented in Sri Lanka Rupeeshave been prepared on historical cost basis except for thevaluation of certain Property Plant & Equipment, which arestated at market values.2.1.2 Consolidation Policy- Principles of Consolidation(a) SubsidiariesThe financial statements of the Group represent theconsolidation of the financial statements of the Company,and its controlled subsidiaries after elimination of allmaterial intra group transactions and unrealized gainsarising from intra – group transactions.Subsidiaries are consolidated from the date the Parentobtains control until such time as control ceases.The total profits & losses for the period of the Company andof its subsidiaries included in consolidation are shown in theconsolidated income statement with the proportion of profitor loss after taxation pertaining to minority shareholders ofsubsidiaries being deducted as “Minority Interest”.All assets and liabilities of the Company and of itssubsidiaries included in consolidation are shown in theconsolidated balance sheet. The interest of minorityshareholders of subsidiaries in the fair value of net assets ofthe Group are indicated separately in the consolidatedbalance sheet under the heading “Minority Interest.”(b) Associate CompaniesAssociate companies have been accounted for on the equitymethod.Associates are those investments in which the Group has asignificant influence of 20% to 50% and which are neithersubsidiaries nor joint ventures of the Group.The income statement reflects the Group’s share of theresults of the operations of each associate.The related investments are carried forward in theconsolidated balance sheet initially at cost and valuesadjusted to reflect the Group’s share of post acquisitionprofit /(loss) of the associates , net of any dividends paid bysuch associate.Unrealized gains arising from transactions with associatesare eliminated against the investment in the associate , tothe extent of Group’s interest in the enterprise.(c) Joint VenturesThe Group’s interests in Joint Ventures is accounted for byproportionate consolidation, whereby the venturers’proportionate share of each of the assets, liabilities, incomeand expenses of the jointly controlled entity is combined ona line by line basis with similar items in the consolidatedfinancial statements.(d) GoodwillGoodwill arising on acquisition represents the excess of costof the acquisition over the fair value of identifiable net40H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005assets of a subsidiary, associate or joint venture as at thedate of acquisition.Negative GoodwillNegative goodwill arising on acquisition comprises theexcess of the fair value of net identifiable assets acquiredover the purchase price or cost of acquisition.Acquired goodwill is recognized as an intangible asset andnegative goodwill as deferred income in the consolidatedfinancial statements and stated at cost less accumulatedamortization.Any acquired goodwill, including negative goodwill isamortized over 5 years on a straight line basis from the dateof initial recognition.(e) Changes in Group CompaniesHemas Garments (Pte) Limited a subsidiary, (70% controllinginterest) was disposed on 31st March 2005 and Exchange &Finance Investment Limited was acquired as a subsidiary(56% controlling interest) and the controlling interest inPeace Haven Resorts Limited was increased to 88% from71%.(f) Financial YearAll Companies in the Group have a common financial yearthat ends on 31st March .(g) Country of IncorporationAll subsidiaries and the associate companies areincorporated in Sri Lanka.2.1.3 Comparative InformationThe accounting policies have been consistently applied bythe Company and are consistent with those used in theprevious year. The previous years’ figures and phrases havebeen rearranged wherever necessary to conform to thecurrent presentation.2.1.4 Foreign Currency TranslationAll foreign exchange transactions are converted to Sri LankaRupees, which is the reporting currency, at the rates ofexchange prevailing at the time the transactions wereeffected. Monetary assets and liabilities denominated inforeign currencies are translated to Sri Lanka Rupeeequivalents using year-end spot foreign exchange rates.Non- monetary assets and liabilities are translated usingexchange rates that existed when the values weredetermined. The resulting gains and losses are accounted forin the Income Statement.2.1.5 Taxationa) Current TaxesThe provision for income tax is based on the elements ofincome and expenditure as reported in the financialstatements and computed in accordance with the provisionsof the Inland Revenue Act.Trading income of Serendib Hotels Ltd., Hotel Sigiriya Ltd.,Stafford Hotels Ltd., Miami Beach Hotels Ltd., SerendibLeisure Management Ltd., Hemas Travels (Pte) Ltd. andHemtours (Pte) Ltd., is taxed at 15%, other income of theseCompanies are taxed at 30%.The profits of Hemas Garments (Pte) Ltd., are exempt fromIncome Tax under BOI Act No. 4 of 1978 for a period of 15years reckoned from the year of assessment 1996/1997 inwhich the Company commences to make profits in relationto its transactions in that year of assessment not later than5 years from the date of first commercial production oroperation of the enterprise which occurs earlier. On theexpiration of the above tax exemption period the provisionof section 85 A of the Inland Revenue Act No. 38 of 2000shall apply to the company.Hemas Developments (Pte) Ltd., has obtained BOI approvalunder Section 17 and it enjoys a 7 year tax holidaycommencing from the year of assessment 1998/1999 inwhich the enterprise makes profits in relation to itstransactions in that year or not later than 5 years from thedate of its first commercial operation whichever is earlier.b) Deferred TaxationDeferred taxation is provided on the liability method. Thetax effect of all timing differences which occur where itemsare allowed for income tax purposes in a period differentfrom that when they are recognised in financial statementsis included in the provision for deferred taxation at rates oftaxation, which would prevail at the time the differencereverses.Deferred tax assets are recognised for all deductible timingdifferences and carry forward of unused tax losses, to theextent that it is probable that taxable profit will be availableagainst which the deductible timing differences and carryforward of unused tax losses can be utilized. The carryingamount of deferred tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longerprobable that sufficient taxable profit will be available toallow all or part of the deferred tax asset to be utilized.2.1.6 Borrowing CostsBorrowing costs are recognised as an expense in the periodin which they are incurred, unless they are incurred inrespect of qualifying assets in which case it is capitalized aspart of that asset.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 41

Notes to the Financial StatementsYear ended 31 March 20052.1.7 Deferred ExpenditureExpenditure which is deemed to have a benefit orrelationship to more than one financial year is classified asdeferred expenditure. Such expenditure is written off overthe period to which it relates, on a straight-line basis.2.1.8 Research and Development CostsResearch and development costs are expensed as incurred,except for development costs, which are recognised as anasset to the extent that it is expected that such asset willgenerate future economic benefits. Where development costsare recognised as an asset, such costs are amortized on astraight- line basis over the period of expected futurebenefits. At each balance sheet date, the company assesseswhether there is any indication of impairment ofdevelopment costs recognized as assets i.e. whether it is nolonger probable that further economic benefits will begenerated. If any such indication exits, only the estimatedrecoverable amount is further amortised.2.1.9 Other Intagible AssetsOther intangible assets (other than positive and negativegoodwill) that are acquired by the Group are stated at costless accumulated amortisation. Acquisition of a Brand isrecognized in the Balance Sheet as an asset and is amortisedover 5 years with no amortisation for year of acquisition anda full year’s charge in the final (5th) year.2.2 Valuation of Assets and their Measurement Bases2.2.1 InventoriesInventories are valued at the lower of cost and net realisablevalue, after making due allowances for obsolete and slowmoving items. Net realisable value is the price at whichinventories can be sold in the ordinary course of businessless the estimated cost of completion and the estimated costnecessary to make the sale.The cost incurred in bringing inventories to its presentlocation and condition are accounted using the followingcost formulae:-Raw Materials - At actual cost on first-in first-out basis /weighted average basis.Finished Goods & Work-in-Progress - At the cost of directmaterials, direct labour and an appropriate proportion offixed production overheads based on normal operatingcapacity.Other Stocks - At actual cost.2.2.2 Trade and Other ReceivablesTrade receivables are stated at the amounts they areestimated to realise net of provisions for bad and doubtfulreceivables.Other receivables and dues from Related Parties arerecognised at cost less provision for bad and doubtfulreceivables.2.2.3 Cash and Cash EquivalentsCash and cash equivalents are defined as cash in hand,demand deposits and short term highly liquid investments,readily convertible to known amounts of cash and subject toan insignificant risk of changes in value.For the purpose of cash flow statement, cash and cashequivalents consist of cash in hand and deposits in banksnet of outstanding bank overdrafts. Investments with shortmaturities i.e. three months or less from the date ofacquisition are also treated as cash equivalents.2.2.4 Property, Plant and Equipmenta) Cost and ValuationAll items of Property, Plant & Equipment are initiallyrecorded at cost. Where items of Property, Plant andEquipment are subsequently revalued, the entire class ofsuch assets is revalued. Revaluations are made withsufficient regularity to ensure that their carrying amountsdo not differ materially from their fair values at the balancesheet date. Subsequent to the initial recognition as an assetat cost, revalued Property, Plant and Equipment are carriedat revalued amounts less any subsequent depreciationthereon. All other Property, Plant and Equipment are statedat historical cost less depreciation.When an asset is revalued, any increase in the carryingamount is credited directly to a revaluation surplus unless itreverses a previous revaluation decrease relating to the sameasset, which was previously recognised as an expense. Inthese circumstances the increase is recognised as income tothe extent of the previous write down. When an asset’scarrying amount is decreased as a result of a revaluation, thedecrease is recognised as an expense unless it reverses aprevious increment relating to that asset, in which case it ischarged against any related revaluation surplus, to theextent that the decrease does not exceed the amount heldin the revaluation surplus in respect of that same asset. Anybalance remaining in the revaluation surplus in respect of anasset, is transferred directly to Accumulated Profits onretirement or disposal of the asset.An amount equal to the excess of the annual depreciationchare on revalued assets over the notional historical costdepreciation charge on such asssets is transferred annuallyfrom the surplus in the revaluation reserve to theaccumulated profit in Hemas Development (Pte) Ltd. andHemtours (Pte) Ltd.42H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005b) Restoration CostsExpenditure incurred on repairs or maintenance of Property,Plant and Equipment in order to restore or maintain thefuture economic benefits expected from originally assessedstandard of performance, is recognised as an expense whenincurred.c) DepreciationThe provision for depreciation is calculated by using astraight line method (except for Serendib Hotels Ltd, HotelSigiriya Ltd. and Stafford Hotels Ltd,) on the cost orvaluation of all Property, Plant and Equipment other thanfreehold, in order to write off such amounts over theestimated useful lives. The principal annual rates used bythe companies in the Group are as follows:AssetsRate p.a.Buildings 1.5% - 5%Furniture & Fittings 7% - 25%Office & Factory Equipments 10% - 33.33%Computer Accessories 33 1/3 %Plant & Machinery 6% - 25%Motor Vehicles 20% - 25%Leased Assets 25%Crockery & Cutlery 50% - 100%Fire Fighting Equipment 10%Leasehold land and buildings are depreciated over theremaining lease period (except for Serendib Hotel Ltd andHotel Sigiriya Ltd)In Serendib Hotels Ltd., value of the buildings on theleasehold land is amortized in 20 equal annual installmentscommencing from 1 April 1994 and ending on 31 March2014. The Company has further obtained an extension of thelease period for 30 years commencing 1 April 2002.Accordingly the balance written down value of leaseholdland and buildings as at 1st April 2000 is amortized over aperiod of 33 years. However, if the lease is not renewed afterthe date of termination on 31 March 2034, the Company isentitled to compensation for the cost of buildings andlandscaping.Hotel Sigiriya Ltd., has commenced amortizing leaseholdproperty from the year 1994/95, the policy of this Companyis to amortize the leasehold buildings over 20 years in equalannual installments i.e. 10 years beyond the expiry of thelease.No provision is made in the year of purchase and full year’sdepreciation is provided for in the year of sale. (except forHeladhanavi Ltd.)2.2.5 Leasesa) Finance LeasesProperty, Plant and Equipment on finance leases, whicheffectively transfer to the Group substantially all of the riskand benefits incidental to ownership of the leased item arecapitalised at the inception of the lease at the fair value ofleased property or, if lower, at the present value of minimumlease payments. Capitalized leased assets are disclosed asFinance Leases under Property, Plant and Equipment anddepreciated over the period the Group is expected to benefitfrom the use of the leased assets.The corresponding principal amount payable to the lessortogether with interest payable over the period of lease isshown as a liability. Lease payments are apportionedbetween the finance charges and reduction of the leaseliability so as to achieve a constant rate of interest on theremaining balance of the liability. The interest payable overthe period is transferred to an interest in suspense account.The interest element of the rental obligations pertaining toeach financial year is charged to income statement over theperiod of lease.The cost of improvements to or on leasehold property iscapitalised, disclosed as leasehold improvements, anddepreciated over the unexpired period of the lease or theestimated useful lives of the improvements, whichever isshorter.b) Operating LeasesLeases where the lessor effectively retains substantially allthe risks and benefits of ownership over the leased term, areclassified as operating leases.Lease rentals paid under operating leases are recognised asan expense in the income statement on a straight-line basisover the lease term.2.2.6 Investmentsa) Current InvestmentsCurrent investments are stated at lower of cost and marketvalue determined on an aggregate portfolio basis.The cost of an investment is the cost of acquisition inclusiveof brokerages, fees, duties and bank fees.Unrealized gains and losses on current investments carriedat market value i.e. reduction to market value and reversalsof such reductions required to reflect current investments atthe lower of cost and market value, are credited or chargedto income statement.b) Long Term InvestmentsQuoted and unquoted investments in shares held on a longterm basis are stated at cost.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 43

Notes to the Financial StatementsYear ended 31 March 2005The cost of the investment is the cost of acquisitioninclusive of brokerage fees, duties and bank fees.The carrying amount of long term investments is reduced torecognise a decline other than temporary in the value ofinvestments, determined on an individual investment basis.In the Company’s financial statements, investments insubsidiaries are accounted for in the equity method andassociates are carried at cost, net of any provision for otherthan temporary diminution in value, under the Company’saccounting policy for long term investments.c) Other InvestmentsTreasury bills and other interest bearing securities held forresale in the near future to benefit from short term marketmovements are accounted for at cost plus relevantproportion of the discounts or premiums.2.3 Liabilities and Provisions2.3.1 ProvisionsProvisions are recognized when the company has a presentobligation (legal or constructive) as a result of a past event,where it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of theobligation. If the effect of the time value of money ismaterial, provisions are determined by discounting theexpected future cash flows at a pre- tax rate that reflectscurrent market assessments of the time value of money and,where appropriate, the risks specific to the liability.2.3.2 Retirement Benefit Obligationsa) Defined Benefit Plan – GratuityGratuity is a Defined Benefit Plan. The Company is liable topay gratuity in terms of the relevant statute. In order tomeet this liability, a provision is carried forward in thebalance sheet, equivalent to an amount calculated based ona half month’s salary of the last month of the financial yearof all employees for each completed year of service,commencing from the first year of service. The resultingdifference between brought forward provision at thebeginning of a year and the carried forward provision at theend of a year is dealt with in the income statement.In respect of those employees those who have not completed5 years , the provision required at the end of 5 years is builtup on an increasing sum of digit basis and accordingly theretirement benefit cost is charged to the income statement.The gratuity liability is not externally funded nor actuariallyvalued. This item is grouped under Other DeferredLiabilities in the Balance Sheet.However, as per the payment of Gratuity Act No. 12 of 1983this liability only arises upon completion of 5 years ofcontinued service.b) Defined Contribution Plans – Employees’ Provident Fund &Employees’ Trust FundEmployees are eligible for Employees’ Provident FundContributions and Employees’ Trust Fund Contributions inline with the respective statutes and regulations. TheCompany contributes 12 % and 3% of gross emoluments ofemployees to Employees’ Provident Fund and Employees’Trust Fund respectively.2.4 Income Statement2.4.1 Revenue RecognitionRevenue is recognised to the extent that it is probable thatthe economic benefits will flow to the Company and therevenue and associated costs incurred or to be incurred canbe reliably measured. Revenue is measured at the fair valueof the consideration received or receivable net of tradediscounts, value added taxes, and other sales taxes and aftereliminating intra-group sales. The following specific criteriaare used for the purpose of recognition of revenue.a) Sale of GoodsRevenue from sale of goods is recognised when thesignificant risks and rewards of ownership of the goods havepassed to buyer; with the Company retaining neithercontinuing managerial involvement to the degree usuallyassociated with ownership, nor effective control over thegoods sold.b) Rendering of ServicesRevenue from rendering of services is recognised in theaccounting period in which the services are rendered orperformed.c) InterestInterest Income is recognised on an accrual basis.d) DividendsDividend income is recognised on a cash basis.e) Rental IncomeRental income is recognised on an accrual basis.f) OthersOther income is recognised on an accrual basis.Net gains and losses of a revenue nature on the disposal ofProperty, Plant & Equipment and other non current assetsincluding investments have been accounted for in theincome statement, having deducted from proceeds ondisposal, the carrying amount of the assets and relatedselling expenses. On disposal of revalued Property, Plant andEquipment, amount remaining in Revaluation Reserverelating to that asset is transferred directly to AccumulatedProfit.44H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005Gains and losses arising from incidental activities to mainrevenue generating activities and those arising from a groupof similar transactions which are not material, areaggregated, reported and presented on a net basis.2.4.2 Expenditure Recognitiona) Expenses are recognised in the income statement on thebasis of a direct association between the cost incurred andthe earning of specific items of income. All expenditureincurred in the running of the business and in maintainingthe Property, Plant & Equipment in a state of efficiency hasbeen charged to income in arriving at the profit for the year.b) For the purpose of presentation of income statement theCompany has adopted “the function of expenses” method onthe basis that it presents fairly the elements of theCompany’s and Group’s performance.2.5 Business Segment ReportingA business segment is distinguishable component of anenterprise that is engaged in providing an individualproduct or service or a group of related products or servicesthat is subject to risk and returns that are different fromthose of other business segments. The accounting policiesadopted for segment reporting are the same accountingpolicies adopted for preparing and presenting consolidatedfinancial statements of the Group.Inter-Segment transfers are based on fair market prices.2.6 Employees Share Option Plan (ESOP)The Company has established an Employee Share OptionPlan by way of a shareholder resolution passed on 20thAugust 2003 whereby its Senior Management and Employeesare entitled to purchase up to 3,120,000 Ordinary Shares ofthe Company between 1st April 2004 and 31st March 2008.These shares would be allocated at the discretion of theBoard. The allocation to the Senior Management would bebased on performance criteria. Approvals from the ColomboStock Exchange and Securities & Exchange Commission havebeen duly obtained for the scheme.The allocation to the Senior Management and theEmployees, which has taken place and is expected to takeplace in the future is as follows:Date / Period of Number of options granted Date by which options have to No of optionsgrant option /to be granted to be exercised Exercised duringthe year30th August 2003 1,560,000 1st April 2004- 31st March 2006 1,096,55014th September 2004 732,500 14st September 2004 - 31st March 2007 33,0001st July 2005- 827,500 From date of grant-31st March 200830th September 2005The first option which has been granted on 30th August 2003, entitled Senior Management and Employees to subscribe for theirentitlements of Ordinary Shares with an exercise price of Rs 50/- per share. The second option has been granted on 14th September2004, to Senior Management with an exercise price of Rs. 90/- per share.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 45

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany2005 2004 2005 2004Rs. Rs. Rs. Rs.3. REVENUE3.1 SummarySales 9,050,149,487 6,514,540,034 54,476,512 42,370,700Less: Sales Taxes:Turnover Tax (34,230,474) (8,811,357) - -National Security Levy / VAT (218,038,334) (20,306,700) - (7,507,088)Revenue 8,797,880,679 6,485,421,977 54,476,512 34,863,6123.2 Goods and Services AnalysisSales of Goods 7,934,531,133 5,687,142,130 - -Rendering of Services 863,349,546 798,279,847 54,476,512 34,863,6128,797,880,679 6,485,421,977 54,476,512 34,863,612Segment information is given in Note 35 to these financial statements.GroupCompany4. OTHER OPERATING INCOME 2005 2004 2005 2004Rs. Rs. Rs. Rs.Income from Investments with Related Parties- Quoted 637,385 1,129,300 275,450 -- Non Quoted - 3,935,576 324,706,237 140,131,592Income from Other Investments- Quoted 9,243,824 156,938 106,216 59,194- Non Quoted 955,837 2,193,087 500,000 125,000Interest Income - Related Parties - - 7,367,272 4,828,326- Others 23,245,416 8,828,842 10,372,077 15,322,789Profit on Disposal of Current Investments 21,452,813 32,545,203 12,512,772 29,882,020Profit on Disposal of Hemas Garments (Pte) Ltd. 53,944,920 - 86,906,967 -Rental Income 5,496,713 762,950 - -Profits on Disposal of Rejected Stocks 1,965,605 1,582,146 - -Commission Income 12,255,577 13,116,673 - -Exchange Gain 2,471,131 3,124,501 - -Sundry Income 9,690,365 20,956,430 2,012,285 1,605,880Travel Counter Income 22,750,634 20,170,536 - -164,110,220 108,502,182 444,759,276 191,954,80146H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 20055. PROFIT FROM OPERATING ACTIVITIESStated after Charging /(Crediting)GroupCompany2005 2004 2005 2004Rs. Rs. Rs. Rs.Directors’ Emoluments 26,525,034 21,374,061 10,246,746 11,235,140Auditors’ Fees and Expenses 2,576,441 2,432,075 402,313 290,215Depreciation 352,878,064 157,301,034 9,182,177 8,186,138Donations 4,759,333 215,825 - -(Profit)/Loss on Disposal of Property, Plant & Equipment (12,829,359) (17,128,540) 89,455 (3,462,125)Bad Debts Written - off 2,082,006 10,247,523 21,706 -Provision for Doubtful Debts 7,696,657 3,059,565 4,525,000 -Staff Costs includes:Defined Benefit Plan Cost - Gratuity 20,087,254 32,574,317 1,642,426 2,911,910Defined Contribution Plan Cost - MSPS/EPF/ETF 63,905,109 55,319,239 1,662,229 2,115,485Other Staff Costs 541,181,659 498,623,732 6,635,393 2,677,9276. FINANCE COSTInterest Expense on Overdrafts 13,624,393 15,058,973 153,856 901,107Interest Expense on Loans & Borrowings 139,868,299 29,981,563 1,382,599 3,989,106153,492,692 45,040,536 1,536,455 4,890,213Bank Guarantee Charges 1,394,012 2,953,298 - -Finance Charges on Lease Liabilities 655,704 646,093 - -155,542,408 48,639,927 1,536,455 4,890,2137. INCOME TAX EXPENSECurrent Income TaxGroupCompany2005 2004 2005 2004Rs. Rs. Rs. Rs.Current Tax Expense on Ordinary Activities for the Year (7.1) 193,331,283 154,186,239 5,798,706 4,657,419Under/(Over) Provision of Current taxesin respect of prior years (1,845,728) (128,450) (2,329,794) -Share of Associate Company Income Tax 2,708,874 2,630,168 - -Tax on Dividends 29,737,432 443,441 - -Deferred Income TaxDeferred Taxation Charge/(Reversal) (7.2) 1,210,723 22,936,272 (265,749) (272,558)225,142,584 180,067,670 3,203,163 4,384,861A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 47

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany7.1 Reconciliation between Current Tax Expense/ 2005 2004 2005 2004(Income) and the product of Accounting Profit Rs. Rs. Rs. Rs.Accounting Profit (Profit from Ordinary Activities before Tax) 1,021,090,054 822,771,218 431,183,622 182,228,535Intra Group Adjustment 395,608,053 111,503,218 - -1,416,698,107 934,274,436 431,183,622 182,228,535Aggregate Disallowed Items 169,573,303 135,981,852 18,626,933 11,497,915Aggregate Allowable Expenses (315,101,442) (307,721,427) (8,381,763) (37,200,046)Aggregate Allowable Income (569,181,451) (6,024,132) (417,782,954) (138,613,254)Incentives not recognised in the Income Statements (5,813,454) (12,403,275) - (3,582,630)Income not subject to Tax (21,837,072) (207,561,058) - -Taxable Profit / (Loss) 674,337,991 536,546,396 23,645,838 14,330,520Tax Losses Brought Forward and Utilized (4,362,727) (137,697) - -669,975,264 536,408,699 23,645,838 14,330,520Current Income Tax Expense 193,331,283 154,186,239 5,798,706 4,657,419The Group tax expense is based on taxable profit of each Group Company.The carried forward tax losses of the Group as at 31st March 2005 amount to Rs. 15,768,628/- (Provisional) (2004 -Rs 52,404,818/-).The related tax effect of these tax losses which are carried forward have not been included in net income of any period.7.2 Deferred Tax Expense/(Income)Deferred Tax Expense / (Income) arising due to- Origination and Reversal of Timing Differences 1,210,723 22,936,272 (265,749) (272,558)1,210,723 22,936,272 (265,749) (272,558)7.3 Deferred Tax has been computed using the current effective tax rates applicable to each Group Company.7.4 Applicable Tax RatesAs per the Inland Revenue Act, No. 38 of 2000, all resident companies are liable to effective Income Tax of 32.5% (Statutory Tax rateof 30% and Human Resource Endowment Fund rate of 2.5%) ( 2004 - 32.5%), with the exception of the below stated Companies.- Trading income of Serendib Hotels Ltd., Hotel Sigiriya Ltd., Stafford Hotels Ltd., Miami Beach Hotels Ltd., Serendib LeisureManagement Ltd., Hemas Travels (Pte) Ltd. and Hemtours (Pte) Ltd., is taxed at 15%, while the other income of these Companies istaxed at 30%. (2004 – 15%)- The profits of Hemas Garments (Pte) Ltd., are exempt from Income Tax under BOI Act No. 4 of 1978 for a period of 15 years reckonedfrom the year of assessment 1996/1997 in which the Company commences to make profits in relation to its transactions in that yearof assessment not later than 15 years from the date of first commercial production or operation of the enterprise whichever occursearlier. On the expiration of the above tax exemption period the provision of section 85 A of the Inland Revenue Act No. 38 of 2000shall apply to the Company.- Hemas Developments (Pte) Ltd., has obtained BOI approval under Section 17 and it enjoys a 7 year tax holiday commencing from theyear of assessment 1998/1999 in which the enterprise makes profits in relation to its transactions in that year or not later than 5years from the date of its first commercial operation whichever is earlier.- The profits and income of the Hemas Power (Pte) Ltd., (other than from sale of capital assets) is exempted from income tax for aperiod of 5 years commencing from the year of assessment in which the Company commences to carry on commercial operations, underSection 21H of the Inland Revenue (Amendment) Act, No 37 of 2003 (Provided that the Company, qualifies the criteria specified in thesaid section). Commercial operations would be deemed to commence in the year in which the issued share capital of the Companyreaches Rs. 100 million before 01st April 2008. The issued share capital of the Company as at 31st March 2005, amounted to Rs. 600million.48H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005- Pursuant to the agreement dated 28th August 2003, entered into with Board of Investment under section 17 of the Board ofInvestment Law, Heladhanavi Ltd., is exempt from tax for a period of 10 years from the year in which the Company commences tomake profits or any year of assessment not later than two years from the date of commencement of commercial operations of theenterprise, whichever is earlier. After the expiration of the said, tax exemption period the income of the enterprise shall be chargedat the rate of 15%.However, other operating income of the Company is liable for income tax in accordance with the provisions of the Inland Revenue Act.- Companies where the taxable income is less than Rs. 5 million in any year of assessment are liable to income tax at a rate of 20%, inthat year.8. EARNINGS PER SHARE8.1 Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary shareholders of the Company bythe weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary sharesoutstanding during the year and the previous year are adjusted for events that have changed the number of ordinary shares outstanding,without a corresponding change in the resources such as a bonus issue.8.2 The following reflects the income and share data used in the basic Earnings Per Share computation.GroupCompanyAmount Used as the Numerator: 2005 2004 2005 2004Rs. Rs. Rs. Rs.Net Profit for the year 803,973,285 612,514,205 558,026,672 614,466,407Less: Preference Dividends (5,950,686) - - -Net Profit Attributable to Ordinary Shareholders for BasicEarnings Per Share 798,022,599 612,514,205 558,026,672 614,466,4072005 2004 2005 2004Number of Ordinary Shares Used as Denominator: Number Number Number NumberWeighted Average number of Ordinary Shares in issueApplicable to basic Earnings Per Share 78,900,000 74,000,000 78,900,000 74,000,0008.3 There were no potentially dilutive ordinary shares outstanding at any time during the year.9. DIVIDEND PER SHARE - Group / Company 2005 2004% Rs. % Rs.9.1 Dividends PaidInterim Paid - 1st Interim 12.5 98,695,562 12.5 50,000,000- 2nd Interim 17.5 138,489,225 - -Final Proposed - - 12.5 97,500,00030.00 237,184,787 25.00 147,500,0009.2 Dividend Per Share- 1 st Interim 1.25 1.25- 2 nd Interim 1.75 -- Final Proposed - 1.259.3 The interim dividends has been paid on 19th November 2004 and 25th April 2005.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 49

Notes to the Financial StatementsYear ended 31 March 200510. PROPERTY, PLANT & EQUIPMENT Balance Additions/ Disposals/ Balance10.1 Group As at Transfers/ Transfers As atGross Carrying Amount 01.04.2004 Acquisitions 31.03.2005Rs. Rs. Rs. Rs.At Cost/ Cost incurred sinceLast RevaluationFreehold Land 158,343,444 4,622,379 (18,708,076) 144,257,747Freehold Buildings 216,778,471 146,180,245 (190,183,331) 172,775,385Building on Leasehold Land 45,679,730 9,744,305 (55,424,035) -Plant & Machinery 471,438,461 3,014,870,555 (136,300,766) 3,350,008,250Furniture & Fittings 224,362,148 47,155,344 (30,040,361) 241,477,131Office & Factory Equipment 232,262,940 27,154,596 (87,172,794) 172,244,742Computer & Accessories 104,545,293 50,049,230 (31,913,976) 122,680,547Motor Vehicles 219,233,320 29,096,298 (42,367,586) 205,962,032Crockery & Cutlery 12,975,665 1,372,407 (4,031,996) 10,316,076Revertment 18,965,927 421,500 (278,550) 19,108,8771,704,585,399 3,330,666,859 (596,421,471) 4,438,830,787At ValuationFreehold Land 226,787,000 103,760,901 (34,361,500) 296,186,401Freehold Buildings 645,354,814 387,474,748 (116,399,290) 916,430,272Leasehold Land 104,244,254 20,399,919 - 124,644,173Leasehold Buildings 114,310,625 57,521,598 (969,192) 170,863,0311,090,696,693 569,157,166 (151,729,982) 1,508,123,877Assets on Finance LeasesMotor Vehicles 9,482,988 1,053,800 (1,106,667) 9,430,1219,482,988 1,053,800 (1,106,667) 9,430,121Total Value of Assets 2,804,765,080 3,900,877,825 (749,258,120) 5,956,384,785BalanceBalanceAs at Charge for Disposals / As atDepreciation 01.04.2004 the year Transfers 31.03.2005Rs. Rs. Rs. Rs.At CostFreehold Buildings 19,724,387 8,057,990 (26,371,919) 1,410,458Plant & Machinery 190,537,115 199,199,206 (80,925,878) 308,810,443Furniture & Fittings 108,093,299 21,147,673 (21,690,444) 107,550,528Office & Factory Equipment 91,596,291 25,895,057 (58,630,283) 58,861,065Computer Accessories 70,962,415 17,330,842 (22,533,754) 65,759,503Motor Vehicles 113,022,212 36,509,402 (29,816,189) 119,715,425Crockery & Cutlery 7,198,840 148,309 (276,795) 7,070,354Revertment 6,045,072 948,299 - 6,993,371607,179,631 309,236,778 (240,245,262) 676,171,147At ValuationFreehold Buildings 111,326,074 15,222,758 (126,548,832) -Leasehold Land 6,913,944 1,580,047 (8,493,991) -Leasehold Buildings 28,455,136 29,165,376 (57,620,512) -146,695,154 45,968,181 (192,663,335) -Assets on Finance LeasesMotor Vehicles 2,545,308 2,002,375 (1,106,667) 3,441,0162,545,308 2,002,375 (1,106,667) 3,441,016Total Depreciation 756,420,093 357,207,334 (434,015,264) 679,612,163Capital Work-In-Progress 2,242,587,414 782,404,447 (2,968,458,073) 56,533,7882,242,587,414 782,404,447 (2,968,458,073) 56,533,7882005 2004Rs.Rs.Net Book ValuesAt Cost 3,819,193,428 3,339,993,182At Valuation 1,508,123,877 944,001,539Assets on Finance Lease 5,989,105 6,937,680Total Carrying Amount 5,333,306,410 4,290,932,40150H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200510.1.1 The Land and Buildings of Hemas Holdings Ltd, Hemas Manufacturing (Pte) Ltd., and Hemas Development (Pte) Ltd., were revaluedduring the financial years 1999/2000 & 2004/2005 by Mr. D.S.A. Senaratne (A.I.V.) an independent valuer. The results of suchrevaluation was incorporated in these financial statements from its effective date which is 31 March 2000 & 31 March 2005. Such assetswere valued on an open market value for existing use basis. The surplus arising from the revaluation was transferred to a RevaluationReserve.10.1.2 Leasehold Property and Furniture and Equipment of Hotel Sigiriya Ltd., were revalued during the financial years in 1991, 1994 and2004/2005 respectively, by Mr. D.S.A.Senaratne, an Associate of the Institute of Valuers of Sri Lanka. The surplus arising on revaluationwas credited to the Revaluation Reserve.10.1.3 The Land and Buildings of Serendib Hotels Ltd., Stafford Hotels Ltd. & Miami Beach Hotels Ltd., were last revalued during the financialyears 1995/96 and 2004/2005 by Mr. D.S.A. Senaratne, an Associate of the Institute of Valuers of Sri Lanka. The properties were valuedon an open market value for existing use basis. The surplus arising from the revaluation was transferred to a Revaluation Reserve.CumulativeDepreciation Net Carrying Net CarryingIf assets were Amount AmountClass of Asset Cost Carried at cost 2005 2004Rs. Rs. Rs. Rs.Buildings on Freehold Land 325,719,367 25,749,588 299,969,779 122,220,823Buildings on Leasehold Land 76,835,407 5,593,575 71,241,832 14,009,941Leasehold Property 31,962,385 13,667,912 18,294,473 18,773,90910.1.4 During the financial year, the Group acquired Property, Plant & Equipment to the aggregate value of Rs.3,900,877,825/-(2004 - Rs.569,674,674/-) of which Rs. 1,053,800/- (2004: Rs. 5,001,561 /-) was acquired by means of finance leases. Cash payments amountingto Rs. 1,138,619,201/- (2004: Rs. 2,691,942,246/-) was paid during the year for purchases of Property, Plant & Equipment.10.1.5 During the year Heladhanavi Ltd., a Jointly Controlled Entity has capitalised Rs. 75,708,265/- (2004 - Rs. 72,050,692/-) of borrowingcost under Plant and Machinery.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 51

Notes to the Financial StatementsYear ended 31 March 200510. PROPERTY, PLANT AND EQUIPMENT (Contd.)Balance Additions/ Disposal/ Balance10.2 Company As At Transfers/ Transfers As at01.04.2004 Acquisitions 31.03.2005At Cost Rs. Rs. Rs. Rs.Roadways 4,858,512 - - 4,858,512Furniture & Fittings 7,412,696 3,707,686 - 11,120,382Office Equipment 8,211,987 314,919 (9,689) 8,517,217Computer & Accessories 2,818,368 24,904,063 (210,000) 27,512,431Motor Vehicles 5,675,055 4,090,202 - 9,765,257Plant and Machinery 21,613,616 - - 21,613,61650,590,234 33,016,870 (219,689) 83,387,415At ValuationFreehold Land 35,425,000 7,775,000 - 43,200,000Freehold Buildings 57,142,500Buildings Transferred from cost 1,834,149 58,976,649 33,418,306 (14,652,455) 77,742,50094,401,649 41,193,306 (14,652,455) 120,942,500Total Value of Assets 144,991,883 33,016,870 (14,872,144) 163,136,609Work in Progress - 5,419,386 - 5,419,386Depreciation Balance Charge BalanceAs at For the Disposals/ As tAt Cost 01.04.2004 Year Transfers 31.03.2005Rs. Rs. Rs. Rs.Furniture & Fittings 3,766,889 660,708 - 4,427,597Office Equipment 3,938,086 776,713 (3,633) 4,711,166Computer & Accessories 785,724 844,207 (70,000) 1,559,931Motor Vehicles 957,691 1,250,014 - 2,207,705Plant & Machinery 5,403,404 2,701,702 - 8,105,10614,851,794 6,233,344 (73,633) 21,011,505At ValuationFreehold Buildings 11,428,501Buildings Transferred from Cost 275,121 11,703,622 2,948,833 (14,652,455) -11,703,622 2,948,833 (14,652,455) -Total Depreciation 26,555,416 9,182,177 (14,726,088) 21,011,5052005 2004Net Book Values Rs. Rs.At Cost 62,375,910 35,738,440At Valuation 120,942,500 82,698,027Work In Progress 5,419,386 -Total Carrying Amount 188,737,796 118,436,467The Land and Buildings of the Company were revalued during the financial years 1999/2000 & 2004/2005 by Mr. D.S.A. Senaratne (A.I.V)an independent valuer. The results of such revaluation was incorporated in these financial statements from its effective date which is31 March 2000 and 31 March 2005. Such assets were valued on an open market value basis. The surplus arising from the revaluationwas transferred to a Revaluation Reserve.The Carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at costless depreciation is as follow:52H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005CumulativeDepreciation Net Carrying Net Carryingif assets were Amount AmountClass of Asset Cost Carried at cost 2005 2004Rs. Rs. Rs. Rs.Freehold Land 9,833,928 - 9,833,928 9,833,928Buildings 42,722,702 25,450,329 17,272,373 19,893,90652,556,630 25,450,329 27,106,301 29,727,83410.2.2 During the financial year, the Company acquired Property, Plant & Equipment to the aggregate value of Rs. 79,629,562/-(2004 -Rs. 5,850,921/-) of which Rs. 38,436,256/- (2004- Rs. 5,850,921/-) was acquired by means of cash.11. INTANGIBLE ASSETSCompany2005 2004Rs.Rs.Goodwill 9,784,437 8,012,700Acquisition of Brand 25,000,000 -Project Development Expenses 5,551,333 -40,335,770 8,012,70011.1 GoodwillAt the beginning of the year 8,012,700 2,378,605Acquired during the year 5,410,175 9,093,828Amounts Written off during the year (3,638,438) (3,459,733)9,784,437 8,012,70012. INVESTMENT IN SUBSIDIARIESGroup Holding Company Holding Company% % % % 2005 200412.1 Non-Quoted Investments 2005 2004 2005 2004 Rs. Rs.Hemas Marketing (Pte) Ltd 100% 100% 100% 100% 105,300 105,300Hemas Manufacturing (Pte) Ltd 100% 100% 100% 100% 40,000,000 40,000,000Hemas Travels (Pte) Ltd 100% 100% 100% 100% 2,840,112 2,840,112Hemas Garments (Pte) Ltd - 100% - 59.0% - 41,500,000Hemtours (Pte) Ltd 100% 100% 100% 100% 30,000,020 30,000,020Hemas Commodities (Pte) Ltd 100% 100% 100% 100% 2,500,000 2,500,000Hemas Pharmaceuticals (Pte) Ltd 100% 100% 100% 100% 33,000,000 33,000,000Discover the World Marketing (Pte) Ltd 100% 100% 100% 100% 500,000 500,000Hemas Aviation (Pte) Ltd 100% 100% 100% 100% 500,000 500,000Hemas International Freight (Pte) Ltd 100% 100% 100% 100% 999,960 999,960Hemas Developments (Pte) Ltd 100% 100% 50.0% 50.0% 75,000,000 75,000,000Hemas Air Services (Pte) Ltd 100% 100% 100% 100% 4,999,980 4,999,980Hemas Healthcare (Pte) Ltd 100% 100% 100% 100% 18,000,000 18,000,000Hemas Foods (Pte) Ltd 100% 100% 100% 100% 20,000,000 20,000,000Hemas Corporate Services (Pte) Ltd 100% 100% 100% 100% 10,000,010 10,000,010Leisure Asia Investments Ltd 61.5% 61.5% 61.5% 61.5% 80,663,830 80,663,830Forbes Air Services (Pte) ltd 100% 100% 100% 100% 37,029,988 37,029,988Hemas Power (Pte) Ltd 100% 100% 2.2% 4.8% 172,000,000 360,000,000Peace Haven Resorts Ltd 88.0% 71.0% 88.0% 71.0% 88,671,156 70,688,670Exchange & Finance Investment Ltd. 56.0% - 56.0% - 5,000,000 -12.2 Quoted Investments621,810,356 828,327,870Serendib Hotels Ltd 29.7% 29.7% 1.4% 1.4% 86,823,005 7,960,505Share of Capital Reserves of Subsidiaries 979,359,124 396,035,183Share of Revenue Reserves of Subsidiaries 1,645,108,385 1,518,357,152Total 3,333,100,870 2,750,680,710A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 53

Notes to the Financial StatementsYear ended 31 March 200512.3 The companies with less than 50% voting power are considered as subsidiaries,as control exists over their financial and operating policiesin line with SLAS 26.12.4 Disposal of Subsidiary during the yearThe Company divested 70% of its investment in Hemas Garments (Pte) Ltd., on 31st March 2005, as part of its strategic repositioning.Hemas Holdings Ltd., had held a total investement of 7,000,000 Ordinary Shares at a cost of Rs. 70,000,000/- and 3,000,000 PreferenceShares at a cost of Rs. 30,000,000/- in Hemas Garments (Pte) Ltd., as at the date of disposal.13. INVESTMENTS IN ASSOCIATESCarrying Increase Share of Profit Carrying13.1 Group Holding % Value (Decrease) in net of Dividends Value2005 2004 2004 Investments Received 2005Non-Quoted Rs. Rs. Rs. Rs.Mowbray Hotels Ltd 39.6% 39.3% 9,567,837 - (648,803) 8,919,034Brushco (Pvt) Ltd 40% 40% 8,006,406 - 3,297,269 11,303,675Associated Hotels Ltd 47% 47% 102,992,954 33,124,912 (4,569,640) 131,548,226Hemas Garments (Pte) Ltd 30% - - 44,126,591 - 44,126,591120,567,197 77,251,503 (1,921,174) 195,897,52613.2 CompanyHolding % No. of Shares 2005 20042005 2004 2005 2004 Rs. Rs.Mowbray Hotels Ltd 33.3% 33.3% 1,926,671 1,926,671 5,380,533 5,380,533Associated Hotels Ltd 17% 17% 1,549,237 884,496 48,029,923 36,005,512Hemas Garments (Pte) Ltd 30% - 3,000,000 - 30,000,000 -83,410,456 41,386,04514. OTHER INVESTMENTS Group Company2005 2004 2005 2004Summary Rs. Rs. Rs. Rs.Non CurrentInvestments in Equity Securities (14.1) 16,014,088 54,290,931 - -Investments in Equity Securities (14.2) - - 2,505,000 14,178,020Investments in Debentures (14.1.1) 1,497,220 1,497,220 - -Investments in Fixed Deposits 19,850,000 19,390,000 - -37,361,308 75,178,151 2,505,000 14,178,020CurrentInvestment in Equity Securities (14.1.2) 306,738 306,738 - -Investments in Equity Securities (14.2.1) - - 1,094,905 22,306,296Investments in Fixed Deposits - - - -306,738 306,738 1,094,905 22,306,296Total Carrying Value of Other Investments 37,668,046 75,484,889 3,599,905 36,484,31654H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200514.1 Investments in Equity Securities-Non CurrentCarrying Market Carrying MarketGroup No of Shares Value Value in Value Value2005 2004 2005 2005 2004 2004Non-Quoted Rs. Rs. Rs. Rs.Mahaweli Reach Hotel Ltd - 648,890 - - 15,465,370 11,680,020Overseas Realty (Ceylon) Ltd 3,500 500 35,000 28,000 10,000 3,750Eden Hotels Lanka Ltd 127 127 861 2,096 861 2,000Galadari Hotels 2,000 2,000 20,000 32,000 20,000 17,500Blue Diamond Jewellers Ltd 1,300 1,300 15,600 4,875 15,600 3,900Royal Palm Beach Hotels 85 85 676 3,485 676 2,805Diesel Motor Engineering Co Ltd 884 - 12,390 86,932 - -Serendib Land Ltd 5,400 5,400 262,500 1,620,000 262,500 649,350Colombo Land and Developments Ltd 3,500 - 5,525 22,750 - -Ceylon Hospitals Ltd 50,000 153,000 1,000,000 1,362,500 3,325,000 3,060,000Lanka Hospitals Ltd 3,400 1,866,400 46,265 54,250 20,595,153 19,130,600Lanka Walltile Ltd 100 - 5,000 5,400 - -Lankem (Ceylon) Ltd 1,500 - 14,500 105,000 - -Provision for loss for the year (12,950) - (12,950) -Total Investment in Quoted Equity Securities 1,405,367 3,327,288 39,682,210 34,549,925Investments in Equity Securities - Non Current Carrying CarryingGroup - Continued Value Value2005 2004b) Non-Quoted Rs. Rs.Unit Trust (NAMAL) 2,500,000 2,500,000Felix Hotels Ltd 1,751,210 1,751,210Rainforest Ecology (Pvt) Ltd 10,000,000 10,000,000SLFFA Cargo Services Ltd 357,511 357,51114,608,721 14,608,721Total Equity Investments (Group - Non Current) 16,014,088 54,290,931No of DebenturesCarrying Value14.1.1 Investment in Debentures 2005 2004 2005 2004Group Rs. Rs.Ocean View Ltd (6% interest) 149,722 149,722 1,497,220 1,497,220149,722 149,722 1,497,220 1,497,220A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 55

Notes to the Financial StatementsYear ended 31 March 200514.1.2 Investments in Equity Securities - Current Carrying Market Carrying MarketGroup No of No of Value Value Value ValueShares Shares 2005 2005 2004 2004a) Quoted 2005 2004 Rs. Rs. Rs. Rs.Ceylinco Securities & Financial Services Ltd - 6000 - - 42,000 45,000John Keells Holdings Ltd 726 726 48,642 98,373 48,642 80,586Aitken Spence & Co. Ltd 133 133 34,000 50,208 34,000 35,046Lanka Milk Foods Ltd 100 100 3,200 1,925 3,200 2,250Overseas Realty (Ceylon) Ltd 500 500 5,000 2,125 5,000 2,125Harischandra Mills Ltd 100 100 11,500 35,700 11,500 16,000Millers Ltd 500 500 24,000 225,000 24,000 102,500Cargills Ltd 200 200 17,200 55,000 17,200 24,000Keells Food Products Ltd 100 100 1,875 3,800 1,875 1,700Elephant Lite Corporation Ltd 100 100 700 975 700 500Soy Foods (F&W ) Ltd 100 100 3,550 4,650 3,550 2,575Muller & Phipps Ltd 100 100 1,500 975 1,500 80Chemanex Ltd 174 116 12,975 24,012 11,525 9,251John Keells Ltd 284 284 13,000 41,180 13,000 36,920Bata Shoe Co. of Ceylon Ltd - 100 - - 5,200 1,150Glaxo Ceylon Ltd 150 150 4,500 4,875 4,500 6,338Shaw Wallace Ltd 100 100 6,800 13,000 6,800 533Ceylon Cold Stores Ltd 300 300 4,025 36,000 4,025 35,100Ceylon Tobacco Ltd 196 196 3,900 8,918 3,900 8,036Nestle Lanka Ltd 400 400 17,625 38,000 17,625 36,400Lankem Ceylon Ltd 100 100 6,300 7,000 6,300 1,425E.B. Creasy Ltd 150 150 23,000 39,000 23,000 2,625J.L. Morisons Ltd 100 100 30,550 55,500 17,550 30,000Hayleys Ltd 396 287 26,240 44,550 26,240 33,364Galadari Hotels - 500 - - 5,000 2,000Chemical Industries Ceylon Ltd 148 132 11,525 23,680 11,525 14,784311,607 814,446 349,357 530,288Less: Provision for fall in Value (11,744) (57,494) -Total Equity Investments (Group - Current) 299,863 814,446 291,863 530,288b) Non QuotedPure Beverages Ltd 100 100 5,275 - 5,275 -Rekitt & Colman Ltd - 300 - - 8,000 -Carsons Marketing Ltd 100 100 1,600 - 1,600 -6,875 - 14,875 -Total Investment 306,738 814,446 306,738 530,28856H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200514.2 Investment in Equity Securities - Non Current Carrying Market Carrying MarketCompany Value Value Value ValueNo of Shares 2005 2005 2004 20042005 2004 Rs. Rs. Rs. Rs.a. QuotedMahaweli Reach Hotel Ltd - 530,910 - - 11,631,020 9,556,380Overseas Realty (Ceylon) Ltd 500 500 5,000 4,000 5,000 3,750Ceylinco Securities Financial Services Ltd - 6,000 - - 42,000 45,0005,000 4,000 11,678,020 9,605,130b. Non QuotedUnit Trust (NAMAL) 250,000 250,000 2,500,000 3,252,500 2,500,000 2,967,500Total Carrying Value of Equity Investment(Company - Non Current) 2,505,000 3,256,500 14,178,020 12,572,63014.2.1 Investment in Equity Securities - Current Carrying Market value Carrying Market ValueValueValueNo of Shares 2005 2005 2004 2004Quoted 2005 2004 Rs. Rs. Rs. Rs.Lanka Hospitals Ltd 3,400 1,866,400 46,263 54,250 20,595,154 19,130,600Ceylon Hospitals Ltd 50,000 76,500 1,000,000 1,362,500 1,662,500 1,530,000John Keells Holdings Ltd 726 726 48,642 98,373 48,642 80,586Total Carrying Value of Equity Investment(Company - Current) 1,094,905 1,515,123 22,306,296 20,741,186Group15. INVENTORIES 2005 2004Rs.Rs.Raw Materials 167,171,377 141,664,237Work in Progress 14,867,565 163,784,724Finished Goods & Other Stock 547,350,381 496,424,938Goods In Transit 30,446,663 -759,835,986 801,873,899Less: Provision for Unrealized Profit (26,900,000) (20,184,161)732,935,986 781,689,738A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 57

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany16. TRADE AND OTHER RECEIVABLES 2005 2004 2005 2004Rs. Rs. Rs. Rs.16.1 SummaryTrade Debtors 1,955,764,772 1,357,453,823 - -Ceylon Electricity Board 37,363,678 - - -Less: Provision for Doubtful Debts (21,432,134) (8,582,834) - -1,971,696,316 1,348,870,989 - -Other Debtors - Current 106,345,700 63,765,833 3,931,974 336,842Other Debtors - Non-Current - - - 4,525,000Advances and Prepayments 93,274,930 552,577,168 4,487,535 1,213,942Less: Provision for Doubtful Debts (1,029,076) (290,573) - -Loans to Company Officers (16.2) 24,822,282 25,975,043 2,521,258 2,181,676Accrued Income - 259,531 - -2,195,110,152 1,991,157,991 10,940,767 8,257,460GroupCompany16.2 Loans to Company Officers: 2005 2004 2005 2004Rs. Rs. Rs. Rs.SummaryBalance as at the Beginning of the Year 25,975,043 20,625,180 1,873,460 1,873,461Loans Granted During the Year 12,169,452 15,173,763 1,772,725 1,081,957Less: Repayments (13,322,213) (9,823,900) (1,124,927) (773,742)Balance as at the end of the Year 24,822,282 25,975,043 2,521,258 2,181,67616.3 Loans over Rs. 20,000/- were granted to 97 employees (2004-97) within the group. The total balance outstanding from such employeesamounted to Rs. 13,389,175/- (2004 - Rs. 13,665,327/-) as at the balance sheet date.No loans have been given to the Directors of the Company.All non trade receivables from related parties appear under Note 18 to these financial statements.Company17. LOANS DUE FROM RELATED PARTIES 2005 2004Relationship Rs. Rs.Hemas Pharmaceuticals (Pte) Ltd Subsidiary 55,614,011 33,420,000Hemas Healthcare (Pte) Ltd Subsidiary 78,310,000 27,510,000Hemas Corporate Services (Pte) Ltd Subsidiary 28,087,110 22,716,110Hemas Garments (Pte) Ltd Subsidiary - 10,000,000Conventions Asia (Pte) Ltd Subsidiary 500,000 500,000Go Asia Air Lines (Pte) Ltd Subsidiary 1,993,490 1,984,421Hemas Manufacturing (Pte) Ltd Subsidiary - 65,000,000Hemas International Freight (Pte) Ltd Subsidiary 10,000,000 20,000,000174,504,611 181,130,53158H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200518. AMOUNTS DUE FROM RELATED PARTIESGroupCompany2005 2004 2005 2004Relationship Rs. Rs. Rs. Rs.SASH Management & Tourism Ltd Affiliate Company 22,783 7,240 - -Felix Hotels Ltd Affiliate Company 50,587 - - -Casabah Hotels Ltd Affiliate Company 22,783 7,240 - -Hemtours (Pte) Ltd Subsidiary - - 2,249,356 18,038,620Hemas Marketing (Pte) Ltd Subsidiary - - 221,755,409 228,598,662Hemas International Freight (Pte) Ltd Subsidiary - - 218,059 8,269,478Spectrum Marketing (Pte) Ltd Subsidiary - - (214,466) 1,250,222Hemas Pharmaceuticals (Pte) Ltd Subsidiary - - 51,822,014 29,864,187Hemas Corporate Services (Pte) Ltd Subsidiary - - 139,021 -Hemas Developments (Pte) Ltd Subsidiary - - 24,695,685 48,183,722Hemas Healthcare (Pte) Ltd Subsidiary - - 3,506,918 3,525,393Hemas Air Services (Pte) Ltd Subsidiary - - 27,711,356 5,630,424Hemas Garments (Pte) Ltd Associate/Subsidiary 49,315 - 49,315 3,313,033Hemas Travels (Pte) Ltd Subsidiary - - 6,345,098 -Hemas Manufacturing (Pte) Ltd Subsidiary - - 7,151,811 4,336,056Hemas Power (Pte) Ltd Subsidiary - - 14,325,783 8,458,636Forbes Air Services (Pte) Ltd Subsidiary - - 18,459,180 16,427,370Peace Haven Resorts Ltd Subsidiary - - 5,174,427 -Discover The World Marketing (Pvt) Ltd Subsidiary - - (605) -Exchange and Finance Investment Ltd. Subsidiary - - 7,188 -145,468 14,480 383,395,549 375,895,803Company19. SHARE CAPITAL Par Value 2005 2004Rs. Number Number19.1 AuthorisedNumber of Shares Ordinary Shares 100,000,000 100,000,0002005 2004Rs.Rs.Nominal Value Ordinary Shares 10/- 1,000,000,000 1,000,000,000At the Issued for Issued for At thePar Value Beginning Cash During Non cash End19.2 Issued and Fully Paid Rs. of the Year the Year Consideration of the Year01.04.2004 31.03.2005Number Number Number NumberNumber of Shares Ordinary Shares 78,000,000 1,129,550 - 79,129,550Rs. Rs. Rs. Rs.Nominal Value Ordinary Shares 10/- 780,000,000 11,295,500 - 791,295,50019.3 The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share ata meeting of the Company.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 59

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany20. RESERVES 2005 2004 2005 2004Summary Rs. Rs. Rs. Rs.(a) Capital ReserveOpening Balance as Previously Reported 28,495,558 170,445,429 1,684,462 135,548,118Transfer from Revaluation Reserve to- Profit and Loss 326,233,752 (3,108,697) 41,193,306 -Bonus Share Issues - (138,841,174) (138,841,173)Capital Reserve of Subsidiaries - - 580,028,961 4,977,517Transfer from Profit and Loss 473,087,818 - -827,817,128 28,495,558 622,906,729 1,684,462(b) Revenue Reserves 174,285 174,285 - -Total Reserves 827,991,413 28,669,843 622,906,729 1,684,462The above revaluation surplus consists of net surplus resulting from the revaluation of property, plant and equipment as described in Note 10to these financial statements.2005 2005 2004 200421. NON INTEREST BEARING Amount Amount Amount AmountLOANS & BORROWINGS Repayable Repayable 2005 Repayable Repayable 2004Within 1 Year After 1 Year Total Within 1 Year After 1 Year Total21.1 Group Rs. Rs. Rs. Rs. Rs. Rs.Rent Deposits Payable 2,133,285 11,274,897 13,408,182 550,000 7,696,816 8,246,816Other Payable 1,207,000 - 1,207,000 - - -21.2 Company3,340,285 11,274,897 14,615,182 550,000 7,696,816 8,246,816Loans from Related Parties (21.2.1) * - 536,625,644 536,625,644 - 554,220,229 554,220,229- 536,625,644 536,625,644 - 554,220,229 554,220,22921.2.1 Loans from Related Parties As at Loans Repayment As at01.04.2004 Obtained During the year 31.03.2005During the yearRs. Rs. Rs. Rs.Forbes Air Services (Pte) Ltd 44,125,121 27,000,000 (29,000,000) 42,125,121Hemas Marketing (Pte) Ltd 228,280,390 255,000,000 (289,988,737) 193,291,653Hemtours (Pte) Ltd 101,367,483 64,138,019 (67,757,821) 97,747,681Hemas Pharmaceuticals (Pte) Ltd 16,023,000 - (16,023,000) -Hemas Travels (Pte) Ltd 806,235 2,377,083 - 3,183,318Hemas Manufacturing (Pte) Ltd 83,000,000 100,000,000 (50,100,000) 132,900,000Hemas International Freight (Pte) Ltd 3,800,000 - (694,296) 3,105,704Hemas Development (Pte) Ltd 50,018,000 25,000,000 (45,000,000) 30,018,000Hemas Air Services (Pte) Ltd 22,500,000 30,200,000 (22,245,833) 30,454,167Hemas Healthcare (Pte) Ltd 3,800,000 - - 3,800,000Spectrum Marketing (Pte) Ltd 500,000 - (500,000) -554,220,229 503,715,102 (521,309,687) 536,625,644* Terms of repayment are mutually agreed with relevant related parties.No securities are kept in respect of these loans.60H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200522. INTEREST BEARING LOANS & BORROWINGS2005 2005 2004 2004Amount Amount Amount Amount22.1 Group Repayable Repayable 2005 Repayable Repayable 2004Within 1 Year After 1 Year Total Within 1 Year After 1 Year TotalRs. Rs. Rs. Rs. Rs. Rs.Finance Leases 1,243,198 2,105,852 3,349,050 1,335,397 2,448,929 3,784,326Bank Loans (22.1.1) 472,770,820 1,939,174,500 2,411,945,320 509,947,055 1,715,682,335 2,225,629,390Commercial Papersand Promissory Notes (22.2.1) - - - 25,000,000 - 25,000,000Debentures 6,818,182 43,181,818 50,000,000 - 50,000,000 50,000,000Preference Shares (22.1.2) - 100,000,000 100,000,000 - 100,000,000 100,000,000Bank Overdrafts 361,893,231 - 361,893,231 160,172,634 - 160,172,634842,725,431 2,084,462,170 2,927,187,601 696,455,086 1,868,131,264 2,564,586,35022.1.1 Bank Loans As at Loans Obtained Repayments As at01.04.2004 31.03.2005Rs. Rs. Rs. Rs.Bank Loans 2,225,629,390 2,138,550,093 (1,952,234,163) 2,411,945,3202,225,629,390 2,138,550,093 (1,952,234,163) 2,411,945,32022.1.2 Preference Shares12% Cumulative Redeemable Preference Shares has been issued by Heladhanavi Ltd. the jointly controlled entity to the DFCC bank forinitial fund requirement for the construction of the plant.2005 2005 2004 2004Amount Amount Amount Amount22.2 Company Repayable Repayable 2005 Repayable Repayable 2004Within 1 Year After 1 Year Total Within 1 Year After 1 Year TotalRs. Rs. Rs. Rs. Rs. Rs.Commercial Papers andPromissory Notes (22.2.1) - - - 25,000,000 - 25,000,000Bank Overdrafts 48,964 - 48,964 47,427,354 - 47,427,35448,964 - 48,964 72,427,354 - 72,427,354As at Promissory Notes Repayment As at01.04.2004 Obtained 31.03.200522.2.1 Promissory Notes Rs. Rs. Rs. Rs.Mercantile Service Provident Fund (MSPS) 25,000,000 - (25,000,000) -25,000,000 - (25,000,000) -A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 61

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany23. DEFERRED INCOME TAX 2005 2004 2005 2004Rs. Rs. Rs. Rs.Balance as at Beginning of the Year 90,115,751 67,179,676 11,071,290 11,343,848Provision / (Release) made during the Year 1,210,723 22,936,075 (265,749) (272,558)Balance as at the end of the Year 91,326,474 90,115,751 10,805,541 11,071,29024. OTHER DEFERRED LIABILITIESRetirement Benefit Obligation - GratuityBalance as at Beginning of the Year 78,634,094 51,254,244 5,835,658 3,028,668Charge for the Year 24,720,172 32,574,317 1,642,426 2,911,910Payments during the Year (19,270,845) (5,194,467) (441,688) (104,920)Balance as at the end of the Year 84,083,421 78,634,094 7,036,396 5,835,65825. NEGATIVE GOODWILLGroupBalance at the Beginning of the Year 8,019,871 8,181,927 - -Adjustments due to Acquisition of Subsidiary 8,688,353 7,037,705 - -Transferred to Income Statement (5,534,929) (7,199,761) - -Balance at the End of the Year 11,173,295 8,019,871 - -26. TRADE AND OTHER PAYABLESTrade Payables 1,342,703,846 1,305,159,205 7,371,365 5,892,415Tsunami Rehabilitation Fund 5,269,936 - 5,269,936 -Sundry Creditors including Accrued Expenses 562,299,888 568,545,350 4,935,198 2,122,3841,910,273,670 1,873,704,555 17,576,499 8,014,79962H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 2005GroupCompany27. AMOUNTS DUE TO RELATED PARTIES 2005 2004 2005 2004Relationship Rs. Rs. Rs. Rs.Hemas Development (Pte) Ltd Subsidiary - - 30,040,000 26,535,000Hemas Garments (Pte) Ltd Associate/Subsidiary 2,508,933 - 2,508,933 55,400,000Hemas Air Services (Pte) Ltd Subsidiary - - 30,000,000 10,000,000Hemas Pharmaceuticals (Pte) Ltd Subsidiary - - 1,752,217 1,752,217Hemas Corporate Services (Pte) Ltd Subsidiary - - 671,611 10,197,228Discover the World Marketing (Pte) Ltd Subsidiary - - 500,000 500,000Hemas Commodities (Pte) Ltd Subsidiary - - 9,183,865 9,208,864Hemas Healthcare (Pte) Ltd Subsidiary - - 27,268,848 27,268,848Hemas Travels (Pte) Ltd Subsidiary - - 4,388,788 26,836,139Spectrum Marketing (Pte) Ltd Subsidiary - - 46,200,000 5,700,000Hemas Marketing (Pte) Ltd Subsidiary - - 5,922,551 129,757,387Lakdhanavi Ltd Joint Venturer 186,587,397 - - -189,096,330 - 158,436,813 303,155,683GroupCompany28. CASH AND CASH EQUIVALENTS 2005 2004 2005 2004IN CASH FLOW STATEMENT Rs. Rs. Rs. Rs.Components of Cash and Cash Equivalents28.1 Favourable Cash & Cash Equivalents BalancesCash & Bank Balances 657,932,581 471,034,056 170,392,257 6,243,372Treasury Bills and Repo Investments 439,752,239 120,602,249 62,743,210 66,920,3651,097,684,820 591,636,305 233,135,467 73,163,73728.2 Unfavourable Cash & Cash Equivalent BalancesBank Overdraft (Note 22.1/22.2) (361,893,231) (160,172,634) (48,964) (47,427,354)Total Cash and Cash Equivalents for the Purpose ofCash Flow Statement 735,791,589 431,463,671 233,086,503 25,736,383A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 63

Notes to the Financial StatementsYear ended 31 March 200529. ACQUISITION OF SUBSIDIARY AND ASSOCIATES DURING THE YEAR - GroupThe acquisitions had the following effects on the groups Assets & Liabilities2005Rs.(a) Exchange & Finance Investment Ltd.AssetsWritten Down Value of Property, Plant and Equipment 1,667,762Investments 7,282,415Net Current Assets 10,928,239Cash & Cash Equivalents 2,109,65921,988,075LiabilitiesInterest Bearing Liabilities 1,209,234Creditors and Accruals 21,504,95522,714,189Net assets (726,114)Minority Interest - 44% (319,490)Net Assets Acquired (406,624)Goodwill Acquired 5,410,175Cash & cash equivalents (2,109,659)Cash Consideration 2,893,892(b) Peace Haven Resort Ltd 26,570,816(c) Investment in Associates 33,124,912Total Cash Consideration 62,589,620The disposal had the following effect on the Group Assets & LiabilitiesHemas Garments (Pte) LtdAssetsWritten Down Value of Property, Plant and Equipment 211,546,921Inventories 102,372,137Trade and Other Receivables 286,275,512Amounts due from Related Parties 70,000,000Deferred Expenditure 20,000,000690,194,570LiabilitiesTrade and Other Payables 175,896,686Interest Bearing Loans 350,545,642526,442,328Net Assets 163,858,153Cash and cash equivalent 3,336,215167,194,368Transferred to Associate (44,126,591)Proceeds from Disposal 123,067,777The net impact to the Group Cash Flow StatementTotal Proceeds from Disposal of Subsidiary 123,067,777Total Investment in Subsidiaries & Associates (62,589,620)Net Proceeds 60,478,15764H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200530. EVENTS OCCURRING AFTER THE BALANCE SHEET DATEThere have been no events subsequent to the balance sheet date,which would have any material effect on the Company and the Group.31. COMMITMENTS AND CONTINGENCIES31.1 Lease Commitments(a)Serendib Leisure Management LimitedCommitments for minimum lease payments under finance lease and non-cancelable operating leases as at 31st March are as follows:Non CancelableOperating Leases2005 2004Rs.Rs.Not later than 1 year - 930,000Later than one year and not later than 5 years - 527,500Later than 5 Years - -Later than 5 Years - 1,457,500Under the terms to the lease agreements, no contingent rentals are payable.(b)Hemas Corporate Services (Pte) LimitedFinance Leases 2005 2004Rs.Rs.Not later than 1 year - 444,598Later than 1 year and not later than 5 years - -Interest in Suspense - (19,889)- 424,70931.2 Capital Expenditure CommitmentsThe Company and the Group do not have significant capital expenditure commitments as at the balance sheet date, other than thefollowing;The purchase commitments in respect to acquisition of Property, Plant and Equipment incidental to the ordinary course of business asat 31 st March, are as follows:(a)Leisure Asia Investments Limited2005 2004Rs.Rs.Contracted but not provided for 8,353,225 -Authorised by the Board, but not contracted for 6,982,742 160,000,00015,335,967 160,000,000(b)Hemas Manufacturing (Pte) LimitedThe Company has committed through a sale and purchase agreement, a total sum of Rs. 97 million to Nimesha Enterprises (Pvt) Ltd.,for the acquisition of the "Nimex" brand and assets such as buildings and machinery as at the balance sheet date. An amount of Rs. 6.5million was paid as at the year end from the total sum committed, in line with the sale and purchase agreement.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 65

Notes to the Financial StatementsYear ended 31 March 200531. COMMITMENTS AND CONTINGENCIES (Contd.)31.3 Contingencies(a)Hemas Holdings LimitedThe contingent liability as at 31st March 2005 on guarantees given by Hemas Holdings Ltd ., to banks on behalf of subsidiaries andAssociates relating to facilities obtained, are as follows:Rs.USDHemas Pharmaceuticals (Pte) Limited 325,000,000 -Hemas Travels (Pte) Limited 29,000,000 -Hemas Air Services (Pte) Limited 4,000,000 -Hemas International Freight (Pte) Limited 18,000,000 -Hemas Corporate Services (Pte) Limited 5,000,000 -Hemas Healthcare (Pte) Limited 15,000,000 -Exchange & Finance Investments (Pte) Limited 2,500,000 -Hemas Garments (Pte) Limited - 374,400398,500,000 374,400(b)Hemas Manufacturing (Pte) LimitedA civil case has been filed against the Company by Colgate Palmolive Company, seeking a declaration that the Company's RegisteredTrade Mark No. 74941 is null and void and of no force or effect in law from the date of registration of the said Mark.Based on the representations made by the Company Lawyers, the Supreme Court has delivered judgment in favour of the Company.(c ) Hemas Marketing (Pte) LmitedContingent liability as at balance sheet date in respect of guarantees, granted to Spectrum Marketing (Pte) Ltd., amounting toRs.65,000,000/-.(d)Hemas Travels (Pte) Limited(a) The Guarantees given by the Company to third parties in relation to facilities obtained amounting to Rs. 45,000,000/-(b) The Guarantees given by the Company to third parties in relation to facilities obtained by "Discover The World Marketing (Pte) Ltd"amounts to US$ 50,000 and "Gullivers Travels" amounts to GBP 10,000.31.4 Commitments and Contingencies of the Jointly Controlled EntityHeladhanavi Limited - The Group has a 50% share of the following:Operations and Maintenance Agreement with Lakdhanavi LimitedAccording to this agreement, the fixed fee payable after the final completion date is US$ 625,000 per annum paid in equal monthlyinstallments for the period of 10 years.66H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200532. ASSETS PLEDGEDThe following assets have been pledged as security for liabilities as at the balance sheet date.Name of The Company Nature of Assets Nature of Liability Carrying Amount Includedof the AssetsUnderPledged2005 2004Rs.Rs.Forbes Air Services (Pte) Ltd Trade Receivables Pledged as a security to 248,000,000 271,714,046 Trade Debtorsthe extent of bank facilityobtained from StandardChartered Bank.Hemas Manufacturing (Pte) Ltd. Inventories Concurrent Mortgage to 172,100,000 195,800,000 Inventories andTrade Receivables the extent of bank facility Trade Debtorsobtained from HNB & HSBCHeladhanavi Ltd Immovable Assets. US$ 4,000,000 10,190,270 9,540,270 Property ,Plant(The Group has 50% share (Syndicated Loan Facility) & Equipmentof the Assets Pledged)Mortgage of all movable}assets and assignment of 7,091,052,089 4,476,828,570book debts of the company.Share certificates of theUS$ 35,000,0001,200,000,070 1,200,000,070 Share Capital.Company.(Syndicated loan Facility)Assignment of projectdocuments.Immovable Assets. Rs. 30,769,230 10,190,270 9,540,270 Property ,Plant(Rupee Loan Facility)& Equipment.Mortgage of all movableassets and assignment ofbook debts of the company. Rs.269,230,769 7,093,419,330 4,476,828,570 Property ,Plant(Rupee Loan Facility)& Equipment.Share certificates of thecompany. Rs.400,000,000 1,200,000,070 1,200,000,070 Share Capital.(Working Capital Loan)Assignment of projectdocuments.Serendib Hotels Ltd. Land and Buildings Primary Mortgage upto 207,202,952 155,715,594 Property, Plantthe value of Rs 48 million to& EquipmentSeylan BankStafford Hotels Ltd Freehold Land Primary Mortgage upto 50,840,000 214,402,725 Property, Plantthe value of Rs. 55 million to& EquipmentDFCC bank.Primary mortgage overexisting movable items upto the value of Rs. 5 million to DFCCMiami Beach Hotels Ltd. Freehold Land & Buildings Primary Mortgage 136,825,500 140,742,022 Property, Plant& EquipmentA N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 67

Notes to the Financial StatementsYear ended 31 March 200533. DIRECTORS INTEREST IN CONTRACTS AND/OR PROPOSED CONTRACTS WITH THE COMPANYMessers Husein Esufally, Murtaza Esufally, Abbas Esufally, Imtiaz Esufally, Lalith de Mel, Divayaroop Bhatnagar, Simon Scarff, MaithriWickremesinghe and Ms. Serena Fonseka were Directors of the Company for the year ended 31st March 2005.During 2004/2005 Hemas Holdings Ltd., has charged a total of Rs. 45,153,246/- (2004- Rs. 23,431,646/-) in respect of management,consultancy and bank guarantee charges from subsidiary companies within the Group.All interests in contracts with the Company in respect to ordinary course of business have been declared at Board Meetings by the Directorsconcerned. The Directors have no direct or indirect personal interest in any other contracts and/or proposed contracts with the Company.34. RELATED PARTY DISCLOSURESThere were no other related parties transactions other than what is disclosed under Notes 16, 17, 18, 21, 27 and 33 to these financialstatements.34.1 Pricing PoliciesSales and purchases of goods and services to related parties were made at normal trading terms under arms' length basis. managementfees, rental income were made at agreed prices, finance charges / income in respect of borrowings are carried at decided rates ofinterest by the Board of Directors.35. SEGMENTAL INFORMATIONInformation based on the primary segments (Business Segment)2005 2005 2005 2004External Intra Group Total TotalSegment Turnover Rs. Rs. Rs. Rs.FMCG 2,897,597,057 1,284,646,451 4,182,243,508 4,147,440,249Healthcare 2,144,300,996 31,313,202 2,175,614,198 1,727,700,434Leisure 445,431,318 - 445,431,318 482,773,217Transportation 352,982,582 5,471,931 358,454,513 284,057,177Strategic Investment 2,957,568,726 110,189,937 3,067,758,663 1,170,073,3148,797,880,679 1,431,621,521 10,229,502,200 7,812,044,391Intra Group Sales (1,431,621,521) (1,326,622,414)8,797,880,679 6,485,421,977Segment ProfitFMCG 352,812,235 7,687,124 360,499,359 324,303,119Healthcare 103,100,701 12,749,492 115,850,193 92,700,383Leisure 18,562,799 12,041,812 30,604,611 109,738,129Transportation 54,002,649 33,776,305 87,778,954 60,687,317Strategic Investment 271,056,786 483,137,786 754,194,572 345,887,686799,535,170 549,392,519 1,348,927,689 933,316,634Intra Group Profit Elimination (549,392,519) (279,200,606)799,535,170 654,116,028Segment Assets & LiabilitiesTotal AssetsTotal Liabilities2005 2004 2005 2004Rs. Rs. Rs. Rs.FMCG 2,017,091,680 1,759,944,419 699,808,833 642,035,311Healthcare 1,066,402,958 761,173,612 793,726,316 559,592,453Leisure 1,901,971,887 1,595,669,281 685,974,151 580,391,149Transportation 1,178,508,617 914,689,630 911,162,116 702,809,690Strategic Investment 9,413,318,014 7,894,367,727 3,864,969,437 3,804,598,08415,577,293,156 12,925,844,669 6,955,640,853 6,289,426,687Intersector Adjustment (5,925,323,884) (5,052,385,206) (1,527,541,807) (1,590,235,067)9,651,969,272 7,873,459,463 5,428,099,046 4,699,191,62068H E M A S H O L D I N G S L I M I T E D

Notes to the Financial StatementsYear ended 31 March 200536. PROPORTIONATE INTEREST IN JOINT VENTURESThe Group’s proportionate share (50%) of Heladhanavi Ltd’s Income and Expenses, Assets and Liabilities have been included in the Group Incomestatement and Balance Sheet respectively.The aggregate amounts so included are as follows;Group2005 2004Rs.Rs.a) Current Assets 882,761,383 473,029,900b) Non Current Assets 2,831,976,932 2,243,184,420c) Current Liabilities 984,184,674 3,461,113,986d) Non Current Liabilities 1,939,767,821 1,771,026,666e) Income 1,402,691,197 -f) Expenses 38,424,113 952,23637. GROUP COMPANIESAccounts Proportion of Proportion of Proportion of Proportion ofAudited by Ownership Voting Ownership VotingInterest Power Interest Poweras at as at as at as atSubsidiaries 31.03.2005 31.03.2005 31.03.2004 31.03.2004Hemas Travels (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas International Freight (Pte) Ltd. B.R.De Silva & Co 100% 100% 100% 100%Hemas Manufacturing (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Commodities (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Air Services (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Healthcare (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Foods (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Corporate Services (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Discover the World Marketing (Pte) Ltd Ernst & Young 100% 100% 100% 100%Leisure Asia Investments Ltd Ernst & Young 61.5% 61.5% 61.5% 61.5%Hemas Power (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemtours (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Hemas Developments (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Conventions Asia (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Forbes Air Services (Pte) Ltd KPMG Ford Rhodes Thornton & Co. 100% 100% 100% 100%Hemas Marketing (Pte) Ltd. Puvimanasinghe & Co. 100% 100% 100% 100%Spectrum Marketing (Pte) Ltd Puvimanasinghe & Co. 100% 100% 100% 100%Hemas Pharmaceuticals (Pte) Ltd. Puvimanasinghe & Co. 100% 100% 100% 100%Hemas Garments (Pte) Ltd. Puvimanasinghe & Co. - - 100% 100%Peace Haven Resorts Ltd. H.L.B. Edirisinghe & Co. 88% 88% 71% 71%Exchange & Finance Investment (Pte) Ltd. Tudor V. Perera & Co. 56% 56% - -Hemas Aviation (Pte) Ltd. B. R . De Silva & Co 100% 100% 100% 100%Go Asia Air Lines (Pte) Ltd. B. R.De Silva & Co. 100% 100% 100% 100%Hotel Sigiriya Ltd., a subsidiary of Leisure Asia Investment Ltd., was audited by PriceWaterHouseCoopers.Associate CompaniesMowbray Hotels Ltd. H.L.B. Edirisinghe & Co. 39.60% 39.60% 39.60% 39.60%Brushco (Pvt) Ltd. Puvimanasinghe & Co. 40% 40% 40% 40%Associated Hotels Ltd. Ernst & Young 47% 47% 47% 47%Hemas Garments (Pte) Ltd. Puvimanasinghe & Co. 30% 30% - -Jointly Controlled EntityHeladhanavi Ltd. Ernst & Young 50% 50% 50% 50%A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 69

Five Year SummaryYear Ended 31st March 2005 2004 2003 2002 2001Rs'000Operating ResultsGroup Revenue 8,797,881 6,485,422 5,290,102 4,250,435 3,864,154Profit Before Taxation 1,024,678 834,183 556,030 315,608 322,983Taxation 225,143 180,067 133,243 101,090 83,407Profit After Taxation 799,535 654,116 422,786 214,518 239,576Profit Attributable To Hemas Group 803,973 612,514 401,199 203,747 207,986Equity & LiabilitiesShare Capital 791,296 780,000 400,000 300,000 300,000Reserves 1,171,881 326,058 170,620 286,186 295,541Accumulated Profits 1,578,796 1,521,830 1,114,919 792,412 653,741Minority Interest 681,897 546,380 506,803 483,570 486,833Non-Current Liabilities 2,282,320 2,059,218 147,115 161,426 193,126Current Liabilities 3,145,779 2,639,974 1,708,812 1,457,681 1,376,3889,651,969 7,873,460 4,048,269 3,481,274 3,305,629AssetsProperty, Plant & Equipment 5,333,306 4,290,932 1,669,964 1,628,787 1,653,434Intangible Assets 40,336 8,013 2,379 4,020 5,661Investments (Associates and others) 233,259 195,745 193,734 185,086 99,285Other Receivables - 1,672 567 47,826 851Current Assets 4,045,068 3,377,097 2,181,626 1,615,555 1,546,3989,651,969 7,873,459 4,048,269 3,481,274 3,305,629Key IndicatorsEarnings Per Share (Rs.) 10.11 8.3 5.7 2.9 3.0Effective Rate Of Dividend (%) 30.0 25.0 33.3 25.0 24.3Dividend Cover (No. of times) 3.7 4.2 4.0 2.7 2.9Interest Cover (No. of Times) 7.6 17.9 14.3 6.5 6.5Net Asset Per Share (Rs.) 44.8 33.7 21.6 17.7 16.0Cash From Operating Activities (Rs'000) 1,182,366 574,317 357,025 230,363 312,464Current Ratio (No. of times) 1.3 1.3 1.3 1.1 1.1Debt / Equity (%) 82.6 97.6 24.5 29.1 31.8ROE (%) 25.9 28.4 26.2 15.5 17.670H E M A S H O L D I N G S L I M I T E D

Shareholder InformationSTOCK EXCHANGE LISTINGHemas Holdings Limited (HHL) was listed as a Public Quoted Company on the Colombo Stock Exchange on 15th October 2003.ANALYSIS OF SHAREHOLDERS - AS PER THE NUMBER OF SHARES AS AT 31.03.05RESIDENT NON RESIDENT TOTALShareholdings Number of Number of Number ofShareholders No of Shares (%) Shareholders No of Shares (%) Shareholders No of shares (%)1 to 1000 Shares 3,311 594,250 0.75 18 5,500 0.01 3,329 599,750 0.761001 to 5,000 Shares 171 371,417 0.47 9 25,100 0.03 180 396,517 0.505,001 to 10,000 Shares 37 264,900 0.33 1 5,900 0.01 38 270,800 0.3410,001 to 50,000 Shares 40 868,250 1.10 3 83,600 0.11 43 951,850 1.2150,001 to 100,000 Shares 8 550,700 0.70 2 126,600 0.16 10 677,300 0.86100,001 to 500,000 Shares 13 2,673,000 3.38 2 728,500 0.92 15 3,401,500 4.30500,001 to 1000,000 Shares 0 0 0 2 1,388,800 1.76 2 1,388,800 1.76Over 1,000,000 Shares 9 67,373,933 85.13 2 4,069,100 5.14 11 71,443,033 90.273,589 72,696,450 91.86 39 6,433,100 8.14 3,628 79,129,550 100.00As at 31st March 2004 4,954 72,541,500 93,01 54 5,458,500 6.99 5,008 78,000,000 100.00SHARE TRADINGNo. of transactions for the period to 31st March 2005 - 3,868 (2004 - 12,077)No. of shares traded - 7,676,100 (2004 - 15,361,800)Value of the shares traded - Rs. 738 million (2004 - Rs. 1,315 million)Market PriceHighest - Rs. 110.00 (24th March 2005)Lowest - Rs. 75.00 (06th April 2004)As at year ended - Rs. 109.00Issue Price - Rs. 50.00Market Capitalisation as at 31th March 2005 - Rs. 8,625 million (2004 - Rs. 6,884 million)TWENTY LARGEST SHAREHOLDERS OF THE COMPANY2005 2004No. of Shares % No. of Shares %A Z Holdings (Private) Limited 14,522,060 18.35 14,522,060 18.62Saraz Investments (Private) Limited 13,823,366 17.47 13,823,366 17.72Blueberry Investments (Private) Limited 13,725,000 17.34 13,725,000 17.60Amagroup (Private) Limited 13,724,907 17.34 13,724,907 17.60HSBC Intl NOM LTD - SNFE - Arisaig India Fund Limited 2,995,500 3.79 1,853,700 2.38Mr. I. A. H. Esufally 2,530,600 3.20 2,500,000 3.21Mr. A. N. Esufally 2,504,900 3.17 2,500,000 3.21Mr. H. N. Esufally 2,500,000 3.16 2,500,000 3.21Mr. M. A. H. Esufally 2,500,000 3.16 2,500,000 3.21Employees Provident Fund 1,573,700 1.99 - -HSBC Intl NOM LTD - MSIL - Asian Smaller Companies Plus Ltd. 1,073,600 1.36 1,073,600 1.38Mr R. Rajaratnam 768,500 0.97 998,000 1.28Voyager Capital (International) Limited 620,300 0.78 419,000 0.54DFCC Bank 485,700 0.61 - -Gold Investment Limited 377,000 0.48 382,000 0.49Explorer Capital (Intl) Services Ltd 351,500 0.44 - -Cocoshell Activated Carbon Company Limited 318,400 0.40 298,700 0.38MJF Exports Ltd 272,800 0.34 - -Lanka Ventures Limited 223,600 0.28 210,800 0.27Hatton National Bank Limited 216,100 0.27 252,000 0.32The Percentage of shares held by the Public as at 31st March 2005 - 16.64%A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 71

GlossaryCAPITAL EMPLOYEDTotal shareholders' funds plus debt and minority interest.CAPITAL RESERVESReserves identified for specific purposes and considered notavailable for distribution.CURRENT RATIOCurrent assets divided by current liabilities.CONTINGENT LIABILITIESConditions or situations at the Balance Sheet date, thefinancial effect of which are to be determined by futureevents which may or may not occur.DEBTInterest bearing long term loans plus short term loans andoverdrafts.DEBT EQUITY RATIOTotal interest bearing borrowings divided by the total ofshareholders' funds.DEFERRED INCOME TAXThe net tax effect on items which have been included in theincome statement, which would only qualify for inclusionon a tax return at a future date.DIVIDEND COVERNet profit attributable to the ordinary shareholders dividedby the total dividend paid and proposed.ESOP (Employee Share Option Plan)The right but not the obligation to purchase an accruednumber of shares at a fixed price within a pre-determinedtime period.EQUITYTotal shareholders' funds.EFFECTIVE RATE OF TAXATIONIncome tax, including deferred income tax over profit beforetax.INTEREST COVEROperating profit before interest and tax divided by the totalfinance cost.MARKET CAPITALISATIONThe number of ordinary shares in issue multiplied by themarket price per share as at the reported date.MINORITY INTERESTPart of the net results of operations and of net assets of asubsidiary attributable to interests which are not owned,directly or indirectly, through Subsidiaries, by the Parent.NET ASSETS PER SHAREShareholders funds divided by the number of ordinary sharesin issue as at the end of the year.PRICE EARNINGS RATIOMarket price per share divided by the earnings per share.RETURN ON EQUITYProfit after tax, minority interest and extra ordinary itemsdivided by average shareholders’ funds at the beginning andend of the year.REVENUE RESERVESReserves set aside for future distributions and Investments.SEGMENTConstituent business units grouped in terms of similarity ofoperations and strategy.SHAREHOLDERS’ FUNDSTotal of share capital, capital reserves and revenue reservesless preliminary and deferred Expenses.EARNINGS PER SHAREProfit attributable to ordinary shareholders divided by theweighted average number of ordinary shares in issue duringthe year.EBITEarnings before interest and tax.72H E M A S H O L D I N G S L I M I T E D

Notice of MeetingNOTICE IS HEREBY GIVEN that the Annual General Meeting of HEMAS HOLDINGS LIMITED, will be held at the Auditoriumof The Ceylon Chamber of Commerce, No.50, Navam Mawatha, Colombo 2, on 30th June, 2005, at 3.30 p.m. for the followingpurpose:• To receive and consider the Report of the Directors, Statement of Accounts and the Balance Sheet of the Company, forthe year ended 31st March 2005, together with the Report of the Auditors thereon.• o re-elect Mr. Husein N Esufally, Director who retires by rotation and being eligible offers himself for re-election in termsof Article No.89 of the Articles of Association of the Company.• To re-elect Mr. Abbasally N Esufally, Director who retires by rotation and being eligible offers himself for re-election interms of Article No.89 of the Articles of Association of the Company.• To re-elect Mr. Imtiaz A H Esufally , Director who retires by rotation and being eligible offers himself for re-election interms of Article No.89 of the Articles of Association of the Company.• To re-appoint M/s Ernst and Young, Chartered Accountants, as auditors of the Company and authorise the Directors todetermine their remuneration.By order of the BoardHEMAS CORPORATE SERVICES (PTE) LTD(Sgd)SecretariesColombo.20th May, 2005.Note:1. A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend and vote instead of him/her.2. A proxy need not be a member of the Company.3. A Form of Proxy accompanies this notice.A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 73

Notes74H E M A S H O L D I N G S L I M I T E D

Form of ProxyI/We ..................................................................................................................................................................... of....................................................................................................................................................................................being * a member/members of HEMAS HOLDINGS LIMITED, do hereby appoint1. Mr. Husein N Esufally of Colombo or failing him,2. Mr. Abbasally N Esufally of Colombo or failing him,3. Mr . Imtiaz A H Esufally of Colombo or failing him,4. Mr. Murtaza A H Esufally of Colombo or failing him,5. Mrs. M Serena Fonseka of Colombo or failing her,6. Mr. Lalith De Mel of Colombo or failing him,7. Mr. Divyaroop Bhatnagar of Colombo or failing him,8. Mr. Simon J Scarff of Colombo or failing him,9. Mr. Maithri E Wickremesinghe of Colombo or failing him,Mr./Mrs ........................................................................................................................................................................of ................................................................................................................................................................. as*my/our Proxy to vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING of the Company to be held on 30thJune, 2005, and at any adjournment thereof.ForAgainst(1) To receive and consider the Report of Directors, Statement of Accounts andthe Balance Sheet of the Company for the year ended 31st March,2005,together with the Report of the Auditors thereon.(2) To re-elect Mr. Husein N Esufally, Director who retires by rotation and beingeligible offers himself for re-election in terms of Article No.89 of theArticles of Association of the Company.(3) To re-elect Mr. Abbasally N Esufally, Director who retires by rotation andbeing eligible offers himself for re-election in terms of Article No.89 of theArticles of Association of the Company.(4) To re-elect Mr.Imtiaz A H Esufally, Director who retires by rotation andbeing eligible offers himself for re-election in terms of Article No.89 of theArticles of Association of the Company.(5) To re-appoint M/s Ernst and Young, Chartered Accountants, as auditors ofthe Company and authorise the Directors to determine their remuneration.*Mark your preference with “X” signed on this………day of……………….Two Thousand and Five...................................................Signature of ShareholderA N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 75

Form of ProxyNote:1. *Please delete the inappropriate words.2. Instructions as to completion are noted on the reverse hereof.3. If you wish your proxy to speak at the meeting you should interpolate the words "and to speak" immediately after thewords "to vote".Instructions as to Completion1. Kindly perfect the Form of Proxy after filling in legibly your name in full and address and by signing in the space asprovided. Please fill in the date of signature.2. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy who need not be a member, to attendand vote instead of him. The Proxy may not speak at the meeting unless expressly authorized by the instrument appointinghim.3. In the case of Corporate Member, the Form of Proxy must be completed under its Common Seal, which should be affixedand attested in the manner prescribed by the Articles of Association.4. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Formof Proxy, in the manner prescribed by the Articles of Association.5. The completed Form of Proxy should be deposited at the registered office of the Company, No.36, Bristol Street, Colombo 1,not less than forty eight (48) hours before the appointed time for the Meeting.76H E M A S H O L D I N G S L I M I T E D