Annual Report 2010/11 - Eastern Merchants

Resilient...A Brief History .................................. 2Financial Highlights .......................... 3Chairman’s Statement ....................... 4The Board of Directors...................... 6Directors’ Report .............................. 7Principal Activities of the Group ..... 12Independent Auditor’s Report ......... 13Income Statement ........................... 14Balance Sheet ................................. 15Statement of Changes in Equity ....... 16Cash Flow Statement ...................... 17Notes to the Financial Statements ... 18Shareholder Information ................. 39Notice of Meeting ........................... 42Form of Proxy ................................. 43Corporate Information ...................IBC

Financial HighlightsSalesRs.Mn7,0006,0005,0004,0003,0002,0001,000Net Profit After TaxationRs.Mn80706050403020100-10-20Dividend Payout Ratio*%5040302010006/07 07/08 08/09 09/10 10/11-3006/07 07/08 08/09 09/10 10/11006/07 07/08 08/09 09/10 10/112006/07 2007/08 2008/09 2009/10 2010/11Performance ParametresSales (Rs. Mn.) 2,730 3,457 2,744 3,954 6,084Gross Profit (Rs. Mn.) 221 209 93 214 175Net Profit Before Taxation (Rs. Mn.) 66 39 (26) 66 34Net Profit After Taxation (Rs. Mn.) 43 19 (28) 63 24Shareholder Funds (Rs. Mn.) 119 130 119 884 903Earnings per Share (Rs.) 26.58 13.14 (13.05) 40.60 15.48Dividend per Share (Rs.) 3.50 6.50 2.85 3.00 3.00Dividend Payout Ratio* (%) 13.2 49.5 - 7.4 19.4P/E Ratio 6.13 12.94 - 3.90 38.76Net Assets per Share (Rs.) 70.68 71.88 60.65 544.76 556.29Current Ratio 1.11 1.07 1.03 1.05 1.07Share PriceHighest Recorded (Rs.) 163 178 240 151 850Lowest Recorded (Rs.) 50 125 102 151 235Value as at Year End (Rs.) 163 170 150 151 600* The proportion of earnings per share paid to shareholders in dividends.Eastern Merchants PLC - Annual Report 2010/113

“2011 marks thedawn of a newera at EasternMerchants, withthe Companyproactivelyengaged insearching for newopportunities tomove forward”.Volumes in the desiccated coconut business have droppedsubstantially in 2010/11 as a result of the prevailing debtcrisis in Europe. Two key traditional markets of EasternMerchants, namely Spain and Portugal, are amongst theworse affected and are expected to remain in a fragilestate over the short term. The eventual recovery of theseeconomies would result in much improved export volumesof desiccated coconut.Looking AheadThough the first two quarters of 2011/12 are likely to betesting, we are confident in our ability to forge ahead andenhance profitability and shareholder value over the next12 months. An impending drop in historically-high rubberprices and reduced volatility/uncertainty in internationalmarkets is expected to result in significantly better and morestable trading conditions for the Company. The completionof a new 25,000 sq.ft warehouse (in mid-2011) at our storescomplex at Sapugaskanda would put us in a strong positionto capitalise on these improved conditions.As the old saying goes, the important thing in this worldis not where we stand, but what direction we are moving.2011 marks the dawn of a new era at Eastern Merchants,with the Company proactively engaged in searching for newopportunities to move forward.As a first step, the Company’s two subsidiaries, namely AsiaBrush (Pvt) Ltd., and Eamel Exports (Pvt) Ltd., as well as itsassociate company, Asian Woodware Company (Pvt) Ltd.,will be critically examined to uncover any underutilisedpotential and future growth prospects. It is our view thatthese entities have much to offer and should be moreactively involved in shaping the future of the Company.Furthermore, having been negatively impacted by ballooningfinance expenses during the year under review, it is clearto us that improving the working capital requirements ofEastern Merchants is essential to ensure future stability andgrowth. Possible avenues to strengthen the working capitalreserves of the Company are currently being explored, withinitial investigations yielding encouraging results.AppreciationsAt Eastern Merchants, we firmly believe that one of themost valuable assets we possess is our human capital. Weare extremely proud of the culture we have been able todevelop over the last 65 years, with all employees beingtreated as part of a close-knit family. Many employees havebeen with the Company for over 25 years, which serves asthe best testament to our commitment to nurture a healthyculture within our organization.I extend my sincere thanks to each and every member inour workforce – from the workers who work tirelessly atour stores complexes, to the senior management who areinstrumental in forging the success of the Company. Theirloyalty and commitment towards Eastern Merchants overthe years has been outstanding and quite humbling. Aspecial vote of thanks goes out to the Board of Directorsat the Company, whose guidance and support have beenexceptional in these testing times.J.B.L. de SilvaChairman3rd August 2011Eastern Merchants PLC - Annual Report 2010/115

The Board of DirectorsThe Board of Directors is the central institution in thegovernance of any company, and an outstanding team ofindividuals from diverse backgrounds has been the key tothe success and corporate stability at Eastern Merchants fordecades.Currently, the Board of Directors at the Company consists ofnine members including two independent Directors. Briefdescriptions of each of the Directors holding office duringthe financial year are set out below.Mr. J.B.L. de SilvaLl.B., Attorney-at-lawChairmanA lawyer by profession, Mr. de Silva has substantialexperience in the corporate world. He has held the officeof Chairman of the Company since 1983 and has servedon the Boards of quite a few prominent Public and PrivateCompanies. He presently serves as a Director of CT HoldingPLC & Associated Electrical Corporation Ltd.Mr. A. KarunaratneManaging DirectorHaving joined the Company after his school career atRoyal College, Mr. Karunaratne has acquired an almostunparalleled first hand knowledge of natural rubber and thetrading of it internationally, in his career spanning almost40 years. Instrumental in the Company’s success, he wasappointed the Managing Director in 2006.Mr. S. JayakodyB.Com.Spl., FCA, FCMADirector - FinanceMr. Jayakody joined the Company in 1993 as an Accountantafter having completed his Bachelor of Commerce Degreeat the University of Sri Jayewardenepura. Now a FellowMember of The Institute of Chartered Accountants ofSri Lankan, he was appointed to the Board of Directorsin 1999.Mr. H.J. de SilvaB.Sc.DirectorHaving completed his Bachelors Degree in the US andworking at MAS Holdings for three years, he is the first of thethird generation of the founding family on the Board. Mr. deSilva is currently engaged in the trading of all commoditiesfor the Company.Mr. S.A. ChandraratneDirector - LogisticsJoining the Company directly out of school, Mr. Chandraratnewas in charge of the shipping activities of the Company forsome 30 years. Thereafter he was appointed to the Board in1992 and is now responsible for all activities at our storescomplex in Sapugaskanda.Mr. N.K.L. TilakaratnaB.Sc.(Eng.), C.Eng., MBA., M.I. Mech.E., M.I.E.(Sri Lanka)DirectorAn engineer by profession, Mr. Tilakaratna heads theoperations of Asia Brush (Pvt) Ltd. and Asia WoodwareCompany (Pvt) Ltd., both subsidiaries/associate companiesof Eastern Merchants.Mrs. C.I. TilakaratnaB.A.(Hons.), M.A.DirectorThe daughter of one of the founders of the Company,she has served on the Board as a Non-executive Directorsince 1989.Mrs. R.L. NanayakkaraB.A.(Hons.), FIB, FIM (SL)Independent DirectorMrs. Nanayakkara requires no special introduction. Beinga board member of companies too numerous to recounthere, she possesses unparalleled corporate and managementexperience spanning over 50 years.Mr. H.P.J. de SilvaB.Sc., MBA, FCA, FCMA, FIBIndependent DirectorFormerly employed in the State Sector as the DeputyGeneral Manager/Corporate Advisor of the Bank of Ceylon,Mr. de Silva thereafter served as the Chief Executive Office/Managing Director of Sampath Bank and Union Bank, aswell as the Director of Operations at American Express.6Eastern Merchants PLC - Annual Report 2010/11

Directors’ ReportThe Year in ReviewIn our view, the after-tax profit of Rs. 23.8 million for theyear ending 31st March 2011 is an extremely commendableresult for the Company given the testing conditionsexperienced over the last 12 months.The export of natural rubber once again was our top revenuegenerator, with the supporting operations in desiccatedcoconut, cinnamon and fibre providing mixed returns.Our general sentiments relating to the performance of theCompany in 2010/11 are resonant in the Chairman’s reviewon pages 4-5 of this report. Nevertheless, it is importantto understand the principal factor which impacted ourprofitability during the year under review, namely, thevolatile natural rubber prices that reached historical highs.The graph below illustrates the average monthly priceof the Ribbed Smoked Sheet 3 (RSS 3) grade of naturalrubber, as quoted on the Singapore Commodity Exchange(SICOM) over the last five years. The RSS 3 grade accountsfor the majority of natural rubber shipped by the Companyand is an appropriate proxy to be utilised to track marketmovements of other natural rubber grades in general. Theprices illustrated below are provided on a Free On Board(FOB) basis and are expressed in US cents (USC) perkilogram.As shown, the price of natural rubber has been relativelystable at around USC 200-300 per kilogram over the period2006-08, but took a sharp dive towards the end of 2008 asa result of the global financial crisis. Since then, there hasbeen an exponential rise in the price of rubber accompaniedby periods of extreme volatility, especially in mid 2010 andearly 2011. Uncertainty in any line of business is far fromideal, and these volatile periods adversely impacted theprofitability of Eastern Merchants.Perhaps the main contributing factors to the dramaticupward trend in natural rubber prices was the rising priceof synthetic rubber, which is derived from crude oil. Recordbreaking oil prices resulted in extremely high price levelsfor synthetic rubber, and therefore, consumers opted to shiftto its close substitute - natural rubber. This in turn enhanceddemand for natural rubber, and thus sparked the sharpincrease in price. Other major factors which fueled naturalrubber prices include undesirable weather conditions,the weakening US dollar relative to the currencies of themajor exporting countries (Indonesia, Malaysia, etc) andspeculation in the futures markets.Along with an unprecedented rise in natural rubber pricesemerged a new challenge for the Company, in the formof bulging finance costs. The cost of a kilogram of rubberAverage Monthly SICOM RSS 3 Prices700600500USC per KG400300200Apr - 06Jul - 06Oct - 06Jan - 07Apr - 07Jul - 07Oct - 07Jan - 08Apr - 08Jul - 08Oct - 08Jan - 09Apr - 09Jul - 09Oct - 09Jan - 10Apr - 10Jul - 10Oct - 10Jan - 11Apr - 111000Eastern Merchants PLC - Annual Report 2010/117

Director’s Reportincreased by two to three fold by early 2011 (in a spanof less than two years) and demanded a much largerinvestment by the Company, which was funded by creditfacilities at the bank. As a result, the financing costs of theCompany increased dramatically from Rs. 24.3 million in2009/10 to Rs. 35.7 million in 2010/11, representing anincrease of 46.7%.The Company expects continued volatility in the naturalrubber market over the short-term, but however, believe thatthe prices will stabilise at more reasonable levels within thenext 12 months. Stability at lower levels will no doubt helptrading conditions and drastically reduce financing costs,enhancing the profitability of the Company.The FutureThough it is appropriate to maintain a degree of cautionregarding the prospects for the Company, especially inthe first half of the coming year, Eastern Merchants iswell placed to capitalise on improving market conditionswith the addition of a new state of the art warehouse atSapugaskanda. This facility is currently under constructionand will add significant capacity to the export operationonce completed in mid-2011.As mentioned previously in the Chairman’s review, theCompany is also in the process of gearing for substantialgrowth over the next few years. The Board of Directors isactively involved in investigating untapped potential withinthe Company in the form of its subsidiaries and associatecompanies, which we feel can be better utilised in the futureto generate additional income. The possibility of improvingthe working capital of the Company is also being explored.The Board of Directors is looking forward to what lies aheadfor Eastern Merchants with excitement and confidence. TheCompany has reached an important juncture in its 65 yearold history and we are honoured and proud to be a part ofits next stage of evolution.Shareholder ReturnEarnings per share (EPS) of the Company in 2010/11 was Rs.15.48, which is lower than the EPS of Rs. 40.60 in 2009/10.However, the Company’s commitment to maintain a soliddividend policy to preserve shareholder value, even intesting times, ensured the recommendation of a Rs. 3.00 pershare dividend for the year under review.Stated CapitalAs at March 31st 2011, the stated capital of Company wasRs. 16,778,000. The number of ordinary shares issued atthat date was 1,677,800, which is identical to the number ofshares in issue at the end of the preceding financial year.Directors’ Interest in ContractsThe Directors have no other interests in the Company orits subsidiaries and associate companies other than thosedisclosed in Note 21 of the accounts.In accordance with Article numbers 83 and 84 of the Articlesof Association of the Company, Mr. N.K.L. Tilakaratna andMr. S. Jayakody are to retire from the Board of Directors.However, both of them are eligible for reelection and havetherefore been nominated to be reelected.TaxationIn accordance with the amended Inland Revenue Act No38 of 2000, the Company is liable to pay income tax at therate of 35% and 15% on qualified exports. No tax provisionswere made by Eamel Exports Ltd. due to taxable losses, butAsia Brush (Pvt) Ltd. had to pay Rs. 56,923 as tax on interestincome for the period.Corporate GovernanceThe Board of Directors at Eastern Merchants believes thatthe Company’s success is dependent on our ability toimpose the highest standards of corporate governance andbusiness conduct across all operations. Eastern Merchantsis committed to promoting investor confidence and creatingvalue for shareholders, through prudent risk managementand a culture which encourages ethical conduct and soundbusiness practices.Eastern Merchants has a flat management structure whichsimplifies the task of ensuring best standards across theboard. Accountability is encouraged at every level withinthe Company, and in this respect, the Board Members takeresponsibility for the preparation of the Financial Statementsof the Company to reflect a true and fair view of the state ofits affairs.8Eastern Merchants PLC - Annual Report 2010/11

Share Holding of DirectorsAs at the 31st of March 2011, the relevant interests of the Directors in the shares of the Company are detailed below.Name of Director As at 31.03.2011 As at 31.03.2010Shares % Shares %J. B. L. de Silva 462,604 27.57 462,604 27.57H. J. de Silva 230,302 13.73 230,102 13.71C. I. Tilakaratna 216,952 12.93 216,952 12.93A. Karunaratne 40,800 2.43 40,800 2.43N. K. L. Tilakaratna 10,024 0.60 10,024 0.60S. Jayakody 534 0.03 3,334 0.20S. A. Chandraratne 500 0.03 500 0.03R. L. Nanayakkara - - - -H. P. J. de Silva - - - -Eastern Merchants PLC - Annual Report 2010/119

Audit Committee ReportThe principal purpose of the audit committee is to assistthe Board to fulfill its responsibilities related to financialaccounting practices, including external financial reporting,financial risk management and internal control, as well asthe internal and external audit function of the Company. Thecommittee also ensures that the Company is compliant withlaws and regulations relating to these areas of responsibility.The Audit Committee of Eastern Merchants PLC comprisestwo Independent Non-executive Directors as follows:Mr. H.P.J. de Silva – ChairmanMrs. R.L. Nanayakkara – MemberThe audit committee held three meeting during the last12 months and evaluated the adequacy and effectivenessof the Company’s internal control system and reviewedall financial statements in compliance with the relevantstatutory requirements to determine their accuracy.Additionally, the impact of changes in legislation affectingthe activities of the Company was also addressed.Messrs. D.H.P Munaweera & Co. were appointed as theexternal auditors of the Company at the 2010 AnnualGeneral Meeting, effective from the beginning of the2010/11 financial year. The audit committee reviewed thenature of the services provided by the external auditorand found them to be satisfactory and independent of anyinfluences of Eastern Merchants.Therefore, the audit committee recommended reappointingMessrs. D.H.P Munaweera & Co. as the external auditor ofthe Company for the financial year commencing 1st April2011.H.P.J. de SilvaChairman – Audit Committee3rd August 2011Eastern Merchants PLC - Annual Report 2010/1111

Principal Activities of the GroupAll Companies in the Group whose Financial Statements have been included in the Consolidated Financial Statements are asfollows:Name of the Company Business Activityi) Eastern Merchants PLC Export of traditional and non-traditional productsii) Eamel Exports Ltd. Export of traditional and non-traditional productsiii) Asia Brush (Pvt) Ltd. Manufacturing and export of industrial brushes/broomsDirectorsi) Eastern Merchants PLCMr. J.B.L. de Silva, Mr. A. Karunaratne, Mr. S.A. Chandraratne, Mrs. C.I. Tilakaratna, Mr. N.K.L. Tilakaratna,Mr. S. Jayakody, Mr. H.J. de Silva, Mrs. R.L. Nanayakkara and Mr. H.P.J. de Silva.Registered Office and Principal Place of Business – No. 341, Union Place, Colombo 2.ii)Eamel Exports Ltd.Mr. J.B.L. de Silva, Mr. A. Karunaratne, Mr. S.A. Chandraratne, Mr. N.K.L. Tilakaratna, Mr. S. Jayakodyand Mr. H.J. de Silva.Registered Office and Principal Place of Business – No. 341, Union Place, Colombo 2.iii)Asia Brush (Pvt) Ltd.Mr. J.B.L. de Silva, Mr. N.K.L. Tilakaratna, Mr. S.A.L. Tilakaratna, Mrs. C.I. Tilakaratna, Mr. C.W. Bentlyand Mr. R.W. Bently.Registered Office and Principal Place of Business – No. 341, Union Place, Colombo 2.12Eastern Merchants PLC - Annual Report 2010/11

Independent Auditor’s ReportTO THE SHAREHOLDERS OF EASTERN MERCHANTS PLCReport on the Financial StatementWe have audited the accompanying financial statements of Eastern Merchants PLC, the consolidated financial statements ofthe company and its subsidiaries as at 31st March 2011, which comprise the balance sheets as at that date and the incomestatements, statement of changes in equity and cash flow statements for the year then ended and a summary of significantaccounting policies and other explanatory notes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance withSri Lanka Accounting Standards. This responsibility includes designing, implementing and maintaining internal controlrelevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether dueto fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonablein the circumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our auditin accordance with Sri Lanka Auditing Standards. Those Standards require that we plan and perform the audit to obtainreasonable assurance whether the financial statements are free from material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation.We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for thepurpose 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 maintained proper accounting records for the yearended 31st March 2011 and the financial statements give a true and fair view of the Company’s state of affairs as at31st March 2011 and its Profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards.In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31st March 2011 andthe profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, of the Company and itssubsidiaries dealt with thereby, so far as concerns the members of the Company.Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Section 151(2) and 153(2) to (153(7) of the CompaniesAct No. 07 of 2007.D.H.P. MUNAWEERA & CO.CHARTERED ACCOUNTANTS.3rd August 2011ColomboEastern Merchants PLC - Annual Report 2010/1113

Income StatementCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Note Rs.’000 Rs.’000 Rs.’000 Rs.’000RestatedRestatedRevenue 6,028,398 3,892,888 6,084,852 3,954,188Cost of Sales (5,865,393) (3,692,586) (5,910,330) (3,740,086)Gross Profit 163,005 200,302 174,522 214,102Other Operating Income 3 13,040 13,809 14,072 14,453176,045 214,111 188,594 228,555Administrative Expenses 4 (104,862) (164,304) (112,744) (172,634)Distribution Expenses 4 (451) (183) (1,790) (1,429)Other Operating Expenses 4 (12,827) (7,784) (15,066) (9,776)Profit from Operations 57,905 41,840 58,994 44,716Finance Expenses 5 (33,392) (19,879) (35,717) (24,342)24,513 21,961 23,277 20,374Change in fair value of Investment Property 10,997 47,503 10,997 47,503Share of Results of Associates 291 (1,266)Profit/(Loss) before Taxation 35,510 69,464 34,565 66,611Taxation 6 (10,509) (3,903) (10,576) (4,047)Profit/ (Loss) for the Year 25,001 65,561 23,989 62,564Attributable toEquity holders of the parent 24,419 64,051Minority Interest (430) (1,487)23,989 62,564Earnings Per Share-Basic 7 14.90 39.07 15.48 40.60Dividend per share 3.00 - 3.00 -The Accounting Policies and Notes on pages 18 through 38 form an integral part of the Financial Statements.14Eastern Merchants PLC - Annual Report 2010/11

Balance SheetCompanyGroupAs at 31st March 2011 2010 2011 2010Note Rs.’000 Rs.’000 Rs.’000 Rs.’000RestatedRestatedAssetsNon Current AssetsProperty, Plant & Equipment 8 781,893 792,621 822,935 835,402Capital Work-in-progress 1,368 - 1,588 -Investment Property 9 58,500 47,503 58,500 47,503Investments 10 12,695 11,847 14,304 12,217854,456 851,971 897,327 895,122Current AssetsInventories 11 253,386 161,243 264,120 166,875Trade & Other Receivables 12 258,716 249,474 293,483 284,945Amounts due from Related Parties 1,000 1,000 - -Cash in Hand & At Bank 62,212 56,863 63,582 59,174575,314 468,580 621,185 510,994Total Assets 1,429,770 1,320,551 1,518,512 1,406,116Equity & LiabilitiesCapital & ReservesStated Capital 13 16,778 16,778 16,528 16,528Capital Reserves 14 695,145 695,145 714,385 714,385Revenue Reserves 15 182,948 162,980 172,511 152,825894,871 874,903 903,424 883,738Minority Interest - - 16,127 16,752Total Equity 894,871 874,903 919,551 900,490Non Current LiabilitiesInterest Bearing Borrowings 16 - - 1,135Deferred Tax 17 1,440 1,716 1,440 1,716Retirement Benefit Obligations 18 16,601 14,173 18,694 15,99818,041 15,889 20,134 18,849Current LiabilitiesTrade & Other Payables 19 16,532 20,420 48,976 51,729Amounts due to Related Parties 1,437 1,746 - -Interest Bearing Borrowings 16 498,889 407,593 529,851 435,048516,858 429,759 578,827 486,777Total Equity & Liabilities 1,429,770 1,320,551 1,518,512 1,406,116I certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 7 of 2007.S. JayakodyDirector - Finance / SecretaryThe Board of Directors is responsible for the preparation and presentation of these financial statements,Approved and Signed for and on behalf of the Board by:J.B.L. de SilvaChairman3rd August 2011A. KarunarathneManaging DirectorThe Accounting Policies and Notes on pages 18 through 38 form an integral part of the Financial Statements.Eastern Merchants PLC - Annual Report 2010/1115

Statement of Changes in EquityCompanyOther AccumulatedStated Revaluation Revenue Profit/ TotalCapital Reserve Reserves (Loss) EquityRs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Balance as at 31st March 2009 16,778 15,717 11,416 65,620 109,531Retrospective Restatement 20,383 20,383Balance as at 01st April 2009 - Restated 16,778 15,717 11,416 86,003 129,914Revaluation Surplus - 679,428 - - 679,428Net Profit/(Loss) for the year - - - 65,561 65,561Balance as at 31st March 2010 16,778 695,145 11,416 151,564 874,903Net Profit/(Loss) for the year - - - 25,001 25,001Dividend Paid (5,033) (5,033)Balance as at 31st March 2011 16,778 695,145 11,416 171,532 894,871GroupOtherOther AccumulatedStated Capital Revaluation Revenue Profit/ Minority TotalCapital Reserves Reserves Reserves (Loss) Total Interest EquityRs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Balance as at 31st March 2009 16,528 1,032 33,925 11,871 56,389 119,745 18,119 137,864Retrospective Restatement – 22 -A - - - - 20,383 20,383 - 20,383Retrospective Restatement – 22 - B 131 131 120 251Balance as at 01st April 2009 - Restated 16,528 1,032 33,925 11,871 76,903 140,259 18,239 158,498Revaluation Surplus - - 679,428 - - 679,428 - 679,428Profit/(Loss) for the year - - - - 64,051 64,051 (1,487) 62,564Balance as at 31st March 2010 16,528 1,032 713,353 11,871 140,954 883,738 16,752 900,490Profit/(Loss) for the year - - - - 24,419 24,419 (430) 23,989Dividend Paid (4,733) (4,733) (195) (4,928)Balance as at 31st March 2011 16,528 1,032 713,353 11,871 160,640 903,424 16,127 919,551The Accounting Policies and Notes on pages 18 through 38 form an integral part of the Financial Statements.16Eastern Merchants PLC - Annual Report 2010/11

Cash Flow StatementCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000RestatedRestatedCash Flows from Operating ActivitiesNet Profit/(Loss) before Tax 35,510 69,464 34,565 66,611Adjustments forFinance Costs 33,392 19,879 35,717 24,342Dividend Received (873) (721) (1,199) (808)Depreciation 15,540 12,189 17,832 14,486Share of Results of Associates - - (291) 1,266(Profit)/Loss on Sale of Property, Plant & Equipment - (1,317) - (1,317)Change in fair value of Investment Property (10,997) (47,503) (10,997) (47,503)Provision for Gratuity 2,773 986 3,158 1,194Operating Profit/(Loss) before Working Capital Changes 75,345 52,977 78,785 58,271(Increase)/Decrease in Inventories (92,143) (122,661) (97,245) (122,689)(Increase)/Decrease in Debtors & Other Receivables (3,057) (182,577) (2,240) (193,360)Increase/(Decrease) in Trade & Other Payables (4,196) 6,877 (2,735) 21,633Cash Generated from Operations (24,051) (245,384) (23,435) (236,145)Finance Costs Paid (33,392) (19,879) (35,717) (24,342)Defined Benefit Plan Cost Paid (345) (191) (462) (255)Income Tax Paid (16,970) (10,997) (17,168) (11,054)Cash Flows from/(used in) Operating Activities (74,758) (276,451) (76,782) (271,796)Cash Flows from/(used in) Investing ActivitiesAcquisition of Property, Plant & Equipment (6,179) (10,674) (6,953) (11,776)Proceeds from Sale of Property, Plant & Equipment - 3,608 - 3,608Proceeds from Sale of Investments - - - 1,781Acquisition of Investment (849) (710) (1,796) (713)Dividend Received 873 721 1,199 808Cash Flows from/(used in) Investing Activities (6,155) (7,055) (7,550) (6,292)Cash Flows from/(used in) Financing ActivitiesRepayment of Interest Bearing Loans and Borrowings (2,671,924) (1,461,398) (2,721,250) (1,513,466)Proceeds from Interest Bearing Loans and Borrowings 2,784,495 1,601,155 2,833,660 1,650,444Dividend Paid (5,033) - (4,928) -Principal payment Under Finance Lease Liabilities - - (1,224) (1,283)Net Cash flows from/(used in) Financing Activities 107,538 139,757 106,258 135,695Net Increase/(Decrease) in Cash & Cash Equivalents 26,625 (143,749) 21,926 (142,393)Cash & Cash Equivalent at the beginning of the year (151,638) (7,889) (159,530) (17,137)Cash & Cash Equivalent at the end of the year (125,013) (151,638) (137,604) (159,530)Cash & Cash Equivalent:Cash in hand & at Bank 62,211 56,862 63,582 59,174Bank Overdrafts (187,224) (208,500) (201,186) (218,704)Cash and Cash Equivalents at the end of the year (125,013) (151,638) (137,604) (159,530)The Accounting Policies and Notes on pages 18 through 38 form an integral part of the Financial Statements.Eastern Merchants PLC - Annual Report 2010/1117

Notes to the Financial Statements1. General1.1 Eastern Merchants PLC (the Company) is a Companyincorporated and domiciled in Sri Lanka and listedon the Colombo Stock Exchange. The registeredoffice and the principal place of the business of theCompany is located at 341, Union Place,Colombo 2.In the report of the Board of Directors and in theFinancial Statements “The Company” refers to EasternMerchants PLC as the Holding Company and the“Group” refers to the Companies whose accountshave been consolidated therein. The financialstatements for the year ended 31 March 2011 wereauthorised for issue by the Directors on 3rd August2011.1.2 The Notes to the Financial Statements on pages 18 to38 form an integral part of the Financial Statements.1.3 All values presented in the Financial Statementsare in Sri Lanka Rupees Thousands (Rs’000) unlessotherwise indicated.1.4 The principal activities of the Group are stated onpage 12 as at 31st March 2011. The Group employed114 personnel (121 as at 31st March, 2010).2. General Policies2.1 Statement of ComplianceThe Balance Sheet, Statement of Income, Statementof Changes in Equity and the Cash Flow Statement,together with the Accounting Policies and Notes(the “Financial Statements”) have been preparedin compliance with the Sri Lanka AccountingStandards (SLAS) issued by the Institute of CharteredAccountants of Sri Lanka and the requirement of theCompanies Act No. 7 of 2007.2.2 Basis of PreparationThe Financial Statements presented in Sri LankaRupees have been prepared on an accrual basisunder the historical cost convention unless statedotherwise.2.3 Significant accounting judgements, estimatesand assumptions.The preparation of group consolidated and companyfinancial statements in conformity with SLAS requiresmanagement to make judgements, estimates andassumptions that affect the application of accountingpolicies and the reported amounts of assets,liabilities, income and expenses and the disclosure ofcontingent liabilities at the reporting date. Howeveruncertainty about these assumptions and estimatescould result in outcomes that require materialadjustments to the carrying amounts of the assets orliabilities affected in future periods.The estimates and underling assumptions arebased on historical experience and various otherfactors that are believed to be reasonable under thecircumstances, the results of which form the basis ofmaking the judgements about the carrying amount ofassets and liabilities that are not readily apparent fromother sources.The estimates and underling assumptions arereviewed on an ongoing basis. Revision toaccounting estimates are recognized in the periodin which the estimate is revised if the revision affectsonly that period, or in the period of the revision andfuture periods if the revision affects both current andfuture periods.2.4 Changes in accounting policiesThe Accounting Policies adopted are consistent withthose of the previous financial year.Comparative InformationPrevious year’s figures and phrases have been rearranged,wherever necessary to confirm the currentyear’s presentation.2.5 Events after the Balance Sheet dateAll material post-Balance Sheet events havebeen considered and appropriate adjustments ordisclosures have been made in the respective notes tothe Financial Statements.18Eastern Merchants PLC - Annual Report 2010/11

2.6. Consolidation PolicyBasis of ConsolidationThe consolidated financial statements include thefinancial statements of the company, its subsidiariesover which it has control and have been prepared incompliance with group’s accounting policies.(ii)The consolidated cash flow statement includes thecash flows of the company and its subsidiaries.Financial YearAll Companies in the Group have a commonfinancial year which ends on 31st March.(i)All inter group balances, income and expensesand profit and losses resulting from inter grouptransactions that are recognized in assets, liabilities,income and expenses are eliminated in full.SubsidiariesSubsidiaries are those enterprises controlled by theparent. Control exists when the parent holds morethan 50% of the voting rights or otherwise has acontrolling interest.The following company with equity control less 50%has been consolidated as subsidiary based on thepower to govern the financial and operating policiesof that entity.% HoldingEamel Export (Pvt) Ltd 35The percentage holding of the other companyconsolidated is given bellow.% HoldingAsia Brush (Pvt) Ltd 52.25Subsidiaries are consolidated from the date the parentobtains control until the date the control ceases.The total profits and losses for the period of thecompany and of its subsidiaries included inconsolidation, and all assets and liabilities ofthe company and of its subsidiaries included inconsolidation, are shown in the consolidated incomestatement and balance sheet respectively.Minority interest which represents the portion ofprofit or losses and net assets not held by the groupare shown as a component of profit for the period inthe income statement and as a component of equityin the consolidated balance sheet separately fromparent share holders equity.2.7 Foreign Currency TransactionAll Foreign exchange transactions are converted toSri Lanka Rupees, which is the reporting currencyat the rates of exchange prevailing at the time thetransactions were effected. Monetary assets andliabilities denominated in foreign currencies aretranslated to Sri Lanka Rupee equivalents using yearend spot foreign exchange rates. The resulting gainsand losses are accounted for in the Income Statement.2.8 Taxation(i) Current TaxesThe Provision for Income Tax is based on theelements of Income and Expenditure as reportedin the Financial Statements and computed inaccordance with the provisions of the relevant TaxStatutes.(ii)Deferred TaxationDeferred taxation is the tax attributable to thetemporary differences that arise when taxationauthorities recognize and measure assets andliabilities with rules that differ from those of theconsolidated financial statements.Deferred tax is provided using the liability methodon temporary differences at the balance sheetdate between the tax bases of assets and liabilitiesand their carrying amounts for financial reportingpurposes.Deferred tax liabilities are recognized for all taxabletemporary differences.Deferred tax assets are recognized for all deductibletemporary differences, unused tax credits and taxlosses carried forward to the extent that it is probablethat taxable profit will be available against whichthe deductible temporary differences, the unused taxcredits and tax losses carried forward can be utilized.Eastern Merchants PLC - Annual Report 2010/1119

Notes to the Financial Statements(iii)The carrying amount of deferred tax assets isreviewed at each balance sheet date and reduced tothe extent that it is no longer probable that sufficienttaxable profit will be available to allow all or part ofthe deferred tax assets to be utilized. Unrecognizeddeferred tax assets are reassessed at each balancesheet date and are recognized to the extent that it hasbecome probable that future taxable profit will allowthe deferred tax asset to be recovered.Deferred tax assets and liabilities are measured attax rates that are expected to apply to the year whenthe asset is realized or liability is settled, based onthe tax rates and tax laws that have been enacted orsubstantively enacted as at the balance sheet date.Turnover based taxesTurnover based taxes include Value Added Tax (VAT),Economic Service Charge (E.S.C.), Turnover Tax/NBT, in respect of trading activities. Companies inthe Group pay such taxes in accordance with therespective statutes.2.9 Borrowing CostsBorrowing Costs are recognized as an expense in theperiod in which they are incurred.2.10 Valuation of Assets and their MeasurementBases2.10.1 InventoriesInventories are valued at the lower of actual costand estimated net realizable value after making dueallowance for obsolete and slow moving items. Netrealizable value is the price at which inventories canbe sold in the ordinary course of business, less theestimated cost of completion and the estimated costnecessary to make the sale.The cost incurred in bringing inventories to itspresent location and condition is accounted using thefollowing cost formulae:Raw MaterialsAt actual cost on weighted average cost basis.Finished Goods & Work-in-ProgressAt the cost of direct materials, direct labour andappropriate proportion of fixed variable andproduction overheads based on normal operatingCapacity.Packing MaterialsAt actual cost.Consumables & SparesAt actual cost.2.10.2 Trade and Other ReceivablesTrade and Other Receivables are stated at theamounts they are estimated to realize net of bad debtswritten off during the year.2.10.3 Cash & Cash EquivalentsCash & Cash equivalents are comprised as cash inhand and at Banks and short term deposits. For thepurpose of Cash Flow Statement, Cash and Cashequivalents consist of cash in hand and Deposits inbanks net of outstanding Bank Overdrafts.2.10.4 Property, Plant & EquipmentProperty, Plant and equipment are stated at cost orfair value less accumulated depreciation and anyaccumulated impairment in value.The carrying value of property, plant and equipmentare reviewed for impairment when events or changesin circumstances indicate that the carrying value maynot be recoverable.All items of Property, Plant & Equipment are initiallyrecorded at cost. Where Property, Plant & Equipmentare subsequently revalued, the entire class of suchassets is usually revalued.Subsequent to the initial recognition as assets at cost,Property, Plant & Equipment are carried at revaluedamounts less any subsequent depreciation thereon.All other Property, Plant & Equipment are stated athistorical cost less depreciation.When an asset is revalued, any increase in thecarrying amount is credited directly to a revaluationreserve, unless it reverses a previous deficit onthe same asset recognized as on expenses. Anyrevaluation deficit directly offsetting a previoussurplus in the same assets is directly offset against the20Eastern Merchants PLC - Annual Report 2010/11

Notes to the Financial Statements2.12 InvestmentsAll quoted and unquoted securities which are heldas long term investments, are valued at cost. Thecarrying amount of long term investments is reducedto recognize a decline, which is other than temporary,in the value of investments determined on anindividual Investment basis.2.13 Liabilities & Provisions(i) Defined Benefit Plan – GratuityThe liability recognized in the Balance Sheet ispresent value of the defined benefit obligation atthe Balance sheet date using the Gratuity formulamethod, as discussed in Appendix E of the SLAS 16(revised 2006) Employee Benefits.Net Gains and Losses of a revenue nature on thedisposal of Property, Plant & Equipment has beenaccounted for in the Income Statement havingdeducted from proceeds on disposal, the carryingamount of the asset and related selling expenses.2.14.2 Expenditure Recognition(a) All expenditure incurred in the running of thebusiness and in maintaining the Property, Plant &Equipment in a state of efficiency has been charged toincome in arriving at the Profit or Loss for the year.(b)All Interest and other costs incurred in connectionwith borrowings are charged to Income statements.Borrowings costs are recognized as expenses in theyear in which they are incurred.However, as per the payment of Gratuity Act No. 12of 1983, this liability only arises upon completion ofFive (5) years of continued service.The Gratuity liability is neither externally funded noractuarially valued.(ii)(iii)Defined Contribution Plans - Employees’ ProvidentFund and Employees’ Trust FundEmployees are eligible for Employees’ ProvidentFund contributions and Employees’ Trust FundContributions in line with respective statutes andregulations.Trade and Other PayablesTrade and other payables are stated at their cost.2.14 Income Statement2.14.1 Revenue RecognitionRevenue is recognized to the extent that is probablethat the economic benefits will flow to the Groupand the revenue and associated cost incurred orto be incurred can be reliably measured. Revenueis measured at the fair value of the considerationreceived or receivable.The following specific criteria are used for thepurpose of recognition of Revenue.22Eastern Merchants PLC - Annual Report 2010/11

3 Other IncomeCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Interest - - 247 557Rent 12,108 11,771 12,108 11,771Dividend 873 721 1,199 808Profit on Sale of Property, Plant & Equipment - 1,317 - 1,317Exchange Gain 59 - 168 -Creditors Written Back - - 350 -Total 13,040 13,809 14,072 14,4534 Profit from Operations Before InterestCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Profit from Operations is stated after charging allexpenses including the following;Depreciation 15,540 12,189 17,832 14,486Directors’ Emoluments 11,116 67,448 11,116 68,053Auditors’ Remuneration 503 467 702 663Charity & Donations 281 445 287 467Defined Benefit Plan Cost - Gratuity 2,773 986 3,158 1,192Defined Benefit Plan Cost - E.P.F. & E.T.F. 2,645 2,171 2,682 2,211Staff Expenses 42,997 49,625 45,619 52,8995 Finance ExpensesCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Interest on Loans & Leases 33,392 19,879 35,717 24,342Total 33,392 19,879 35,717 24,3426 Income Tax ExpensesCompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’0006.1 Current Income TaxIncome Tax 10,786 5,505 10,843 5,64910% Withholding Tax on inter company Dividends - - 10 -Total 10,786 5,505 10,853 5,6496.2 Deferred Income TaxRelating to origination and reversal of temporary differences (277) (1,602) (277) (1,602)(277) (1,602) (277) (1,602)Total 10,509 3,903 10,576 4,047Eastern Merchants PLC - Annual Report 2010/1123

Notes to the Financial Statements6 Income Tax Expenses (Contd.)CompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’0006.3 Reconciliation between tax expense and the accounting profitProfit / (loss) before tax 35,510 69,464 34,565 66,611Dividend (873) (721) (1,199) (808)Accounting profit/(loss) chargeable to income tax 34,637 68,743 33,366 65,803Tax effect on chargeable profits 6,738 22,608 6,824 22,750Tax effect on non deductible expenses 7,472 6,389 7,473 6,389Tax effect on deductions claimed (3,583) (23,573) (3,613) (23,573)Net tax effect of unrecognized deferred tax assetsand liabilities for the year (277) (1,602) (277) (1,602)Other income based taxes - -Social Responsibility levy 159 81 159 8310% Withholding Tax on inter Company -Dividends - - 10 -Total 10,509 3,903 10,576 4,047Income tax charged atStandard Rate 35% 10,564 5,325 10,620 5,464Concessionary rate of 15% 63 99 63 10210,627 5,424 10,683 5,566Deferred tax charge / (reverse) (277) (1,602) (277) (1,602)Other income based taxesSocial Responsibility levy 159 81 160 8310% Withholding Tax on inter companyDividends - - 10 -Total Income Tax expense 10,509 3,903 10,576 4,0477 Earnings Per ShareBasic earnings per share is calculated by dividing the Net Profit for the year attributable to ordinary shareholders of theCompany by the weighted average Number of Ordinary Shares.The following reflects the Income and Share data used in the basic earnings per share computation.CompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Amount used as the NumeratorNet Profit Attributable to OrdinaryShareholders of the Company 25,001 65,561 24,419 64,051Amount used as the DenominatorWeighted Average Number of Ordinary Shares 1,678 1,678 1,578 1,57824Eastern Merchants PLC - Annual Report 2010/11

8 Property, Plant & Equipment8.1 CompanyDisposals/Additions TransfersAs at during the during the As at01/04/2010 year year 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000At Cost:Plant & Machinery 13,789 4,283 - 18,072Motor Vehicles 64,851 - - 64,851Furniture & Fittings 4,436 - - 4,436Office Equipment 7,097 20 - 7,117Stores & Other Equipment 7,492 304 - 7,796Computers 4,762 205 - 4,967Total 102,427 4,812 - 107,239At ValuationLand 618,257 - - 618,257Buildings 112,240 - 112,240Total 730,497 - - 730,497Total Value of Assets 832,924 4,812 - 837,736DepreciationDisposalsAs at Charge for during the As at01/04/2010 the year year 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000At Cost:Plant & Machinery 10,547 556 - 11,103Motor Vehicles 12,162 8,106 20,268Furniture & Fittings 2,858 223 - 3,081Office Equipment 5,103 301 - 5,404Stores & Other Equipment 5,975 277 - 6,252Computers 3,658 465 - 4,123Total 40,303 9,928 - 50,231On Valuation:Buildings - 5,612 - 5,612Total - 5,612 - 5,612Total Depreciation 40,303 15,540 - 55,843Net Book Value of Assets:At Cost 62,124 57,008At Valuation 730,497 724,885Total 792,621 781,893Eastern Merchants PLC - Annual Report 2010/1125

Notes to the Financial Statements8 Property, Plant & Equipment (Contd.)8.2 GroupAdditions/ Disposals/As at Transfers Transfers01/04/2010 during the during the As atRestated year year 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000At Cost:Plant & Machinery 40,423 4,782 - 45,205Motor Vehicles 64,972 - - 64,972Furniture & Fittings 5,013 - - 5,013Office Equipment 7,885 20 - 7,905Stores & Other Equipment 10,211 317 - 10,528Computers 6,456 246 - 6,702Total 134,960 5,365 - 140,325At ValuationLand 647,497 - - 647,497Buildings 129,144 - 129,144Total 776,641 - - 776,641On Finance Lease:Plant & Machinery 1,320 - - 1,320Motor Vehicles 6,818 - - 6,818Total 8,138 - - 8,138Total Value of Assets 919,739 5,365 - 925,104DepreciationAs atDisposals01/04/2010 Charge for during the As atRestated the year year 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000On Cost:Plant & Machinery 33,264 1,062 - 34,326Motor Vehicles 12,240 8,106 - 20,346Furniture & Fittings 3,435 223 - 3,658Office Equipment 5,887 306 - 6,193Stores & Other Equipment 8,425 333 - 8,758Computers 5,240 525 - 5,765Total 68,491 10,555 - 79,046On Valuation:Buildings 9,080 6,447 - 15,527Total 9,080 6,447 - 15,52726Eastern Merchants PLC - Annual Report 2010/11

8 Property, Plant & Equipment (Contd.)8.2 GroupAs atDisposals01/04/2010 Charge for during the As atRestated the year year 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000On Finance Lease:Plant & Machinery 5,446 830 - 6,276Motor Vehicles 1,320 - - 1,320Total 6,766 830 - 7,596Total Depreciation 84,337 17,832 - 102,169Net Book Value of Assets:At Cost 66,469 61,279At Valuation 767,561 761,114On Finance Leases 1,372 542Total 835,402 822,9358.3 Revaluation of AssetsDetails of Group’s Land and Buildings stated at valuation are indicated below.Method ofValuationEffectiveDate ofValuationPropertyEastern Merchants PLCLand & Buildings at 341, Union Place, Colombo 2 Open Market 31/03/2010Value MethodLand & Buildings at No. 101, Gonawela Road, Open Market 31/03/2010Heiyantuduwa, Sapugaskanda.Value MethodLand & Buildings at Atakalan Estate, Open Market 31/03/2010Baddagama Road, Ampegama.Value MethodAsia Brush (pvt) LtdLand & Buildings Open Market 25/03/2009Value MethodThe carrying amount of revalued assets if they were carried at cost less depreciation would be as follows:Accumulated Net Book Net BookCost Depreciation Value As at Value As atAs at 31/03/2011 As at 31/03/2011 31/03/2011 31/03/2010Rs.’000 Rs.’000 Rs.’000 Rs.’000CompanyLand 24,114 - 24,114 24,114Buildings 64,524 40,794 23,730 26,956Total 88,638 40,794 47,844 51,070Eastern Merchants PLC - Annual Report 2010/1127

Notes to the Financial Statements8.3 Revaluation of Assets (Contd.)Accumulated Net Book Net BookCost Depreciation Value As at Value As atAs at 31/03/2011 As at 31/03/2011 31/03/2011 31/03/2010Rs.’000 Rs.’000 Rs.’000 Rs.’000GroupLand 24,662 - 24,662 24,662Buildings 71,465 45,765 25,700 29,273Total 96,127 45,765 50,362 53,9359 Investment PropertyCompanyGroup2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000At CostCost at the beginning of the year 47,503 12,236 47,503 12,236Accumulated Depreciation at the beginning of the year - (12,236) - (12,236)Change in Fair Value during the year 10,997 47,503 10,997 47,503Balance at the end of the year 58,500 47,503 58,500 47,5039.1 The Board of Directors has adopted the fair value model to value the investment properties of the Company.Consequently the property at No. 341, Union Place, Colombo 02 was valued by Dr. Gaminda Heagoda, who is anincorporated valuer.9.2 Rental Income earned from investment property by the Company and the Group was Rs. 12 Million. (2010 - Rs. 12Million) Direct operating expenses incurred by the company and the group was Rs. 366,000. (Rs. 366,000 in 2010)10 InvestmentsCompanyGroupAs at 31 March 2011 2010 2011 2010Note Rs.’000 Rs.’000 Rs.’000 Rs.’000RestatedSummary of InvestmentsInvestments in subsidiariesUnquoted - Consolidated 10.1 6,849 6,849 - -Investments in Associate 10.2 - - 1,476 1,185Other InvestmentsInvestments in Companies Outside the Group 10.3 5,846 4,998 9,605 8,025Fixed Deposits - - 3,223 3,007Total 12,695 11,847 14,304 12,21728Eastern Merchants PLC - Annual Report 2010/11

10 Investments (Contd.)10.1 Investments held by the Company in subsidiariesCompany31/03/2011 31/03/2010No. of Shares Book Value No. of Shares Book ValueRs.’000Rs.’000Unquoted - ConsolidatedEamel Exports Ltd. 17,500 116 17,500 116Asia Brush (Pvt) Ltd 501,665 6,733 501,665 6,733Total 6,849 6,84910.2 Investments in associate companyCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000RestatedAsian Woodware (Pvt) Ltd. - - 2,200 2,200Profit/(Loss) accruing to the group net of Dividend - - (7,130) (7,421)Adjustment on account of associate company share of net assets - - 6,406 6,406Total - - 1,476 1,185Summarized Financial Information of AssociatesGroupFor the year ended 31st March 2011 2010Rs.’000 Rs.’000Group Share of:Revenue 13,771 10,739Operating Expenses (13,185) (11,631)Finance Expenses (204) (374)Income Tax (91) -Profit / (Loss) for the year 291 (1,266)GroupAs at 31st March 2011 2010Rs.’000 Rs.’000Group Share of:Total Assets 17,945 17,438Total Liabilities 16,451 16,235Eastern Merchants PLC - Annual Report 2010/1129

11 InventoriesCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Raw Materials - - 4,222 4,205Work-in-progress - - 2,652 440Goods in Transits - - 81 -Finished Goods 248,081 155,836 251,499 156,823Packing Materials 5,305 5,407 5,666 5,407Total 253,386 161,243 264,120 166,87512 Trade Debtors & Other ReceivablesCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Trade Debtors 219,138 218,912 224,540 224,989Other Debtors 14,996 12,711 18,031 15,766Advances & Prepayments 3,245 1,933 3,890 2,343Loans to Company Officers 300 559 372 679Advances Paid to Constructors 2,115 2,621 2,209 2,715Amounts Due from Associate Company - - 24,989 25,299Commissioner General of Inland Revenue 18,922 12,738 19,452 13,154Total 258,716 249,474 293,483 284,94513 Stated CapitalCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Issued & Fully Paid 16,778 16,778 16,528 16,528Eamel Exports Ltd. has acquired 25,000 Shares of Eastern Merchants PLC prior to 21st May 1982. Subsequently numberof shares has increased up to 100,000 as a result of a bonus issue made by Eastern Merchants PLC on 24th June 1997.14 Capital ReservesCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Capital ReservesOther Capital Reserves - - 1,032 1,032Revaluation Reserve 695,145 695,145 713,353 713,353Total Capital Reserve 695,145 695,145 714,385 714,385Eastern Merchants PLC - Annual Report 2010/1131

Notes to the Financial Statements15 Revenue ReservesCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000General & Other Reserves:Other Revenue Reserves 11,416 11,416 11,871 11,871Profit & Loss BalanceBalance - As per Equity Statement 171,532 151,564 160,640 140,954Total Revenue Reserves 182,948 162,980 172,511 152,82516 Interest Bearing Borrowings16.1 CompanyAs at 31st March 2011 2011 2011 2010 2010 2010Amount Amount Total Amount Amount TotalRepayable Repayable Repayable Repayablewithin After within After1 year 1 year 1 year 1 yearRs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Bank Loans (16.1.1) 311,665 - 311,665 199,093 - 199,093Bank Overdrafts 187,224 - 187,224 208,500 - 208,500Total 498,889 - 498,889 407,593 - 407,59316.1.1 Bank LoansAs at Loans As at01/04/2010 obtained Repayment 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000Short Term Loans 199,093 2,784,495 (2,671,923) 311,665Total 199,093 2,784,495 (2,671,923) 311,66516.2 GroupAs at 31st March 2011 2011 2011 2010 2010 2010Amount Amount Total Amount Amount TotalRepayable Repayable Repayable Repayablewithin After within After1 year 1 year 1 year 1 yearRs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Finance Leases (16.2.1) 1,135 - 1,135 1,224 1,135 2,359Bank Loans (16.2.2) 327,530 - 327,530 215,120 - 215,120Bank Overdraft 201,186 - 201,186 218,704 - 218,704Total 529,851 - 529,851 435,048 1,135 436,18332Eastern Merchants PLC - Annual Report 2010/11

16.2.1 Finance LeaseAs at New Leases As at01/04/2010 Obtained Repayments 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000L.O.L.C. 2,359 - 1,224 1,135Total 2,359 - 1,224 1,135Gross Liability 3,647 1,699Finance Charges allocated to Future Periods (1,288) (564)Total 2,359 1,13516.2.2 Bank LoansAs at New Loans As at01/04/2010 Obtained Repayments 31/03/2011Rs.’000 Rs.’000 Rs.’000 Rs.’000Short Term Loans 215,120 2,833,660 (2,721,250) 327,53017 Deferred TaxCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Balance at the beginning of the year - Note 17.1 1,716 3,318 1,716 3,318Charge/(Reversal) for the year - Note 17.2 (276) (1,602) (276) (1,602)Balance at the end of the year 1,440 1,716 1,440 1,71617.1 Recognized Deferred Tax assets and liabilities.Deferred Tax assets and liabilities are attributable to the following:Assets Liabilities NetAs at 31st March 2011 2010 2011 2010 2011 2010Rs Rs. Rs Rs. Rs Rs.Property, Plant and Equipment - - 7,250 7,429 7,250 7,429Employee Benefits (5,810) (4,961) - - (5,810) (4,961)Other - (752) - - - (752)Net Tax (Assets)/ liabilities (5,810) (5,713) 7,250 7,429 1,440 1,71617.2 Movement in temporary difference during the yearBalance as Recognized Balance as Recognized Balance asat 01 April in income at 31 March in income at 31 March2009 Statement 2010 Statement 2011Property, Plant and Equipment 7,784 (355) 7,429 (179) 7,250Employee Benefits (4,466) (495) (4,961) (849) (5,810)Other - (752) (752) 752 -Total 3,318 (1,602) 1,716 (276) 1,440Eastern Merchants PLC - Annual Report 2010/1133

Notes to the Financial Statements18 Retirement Benefit ObligationsCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Balance at the beginning of the year 14,173 13,377 15,998 15,059Provision for the year 777 681 1,162 888Interest for the year 1,389 1,340 1,389 1,340Deficit/ (Surplus) Charge for the year 607 (1,034) 607 (1,034)Payments made during the year (345) (191) (462) (255)Balance at the end of the year 16,601 14,173 18,694 15,998The Employee benefit liability of the Company is based on the gratuity formula in Appendix E of SLAS 16, Employee benefit.The expenses are recognised as Administrative Expenses in the Income Statement.Principal assumptions at the reporting date (expressed as weighted averages) are as follows:Expected Annual Average Salary Increment : 10% 10%Discount Rate / Interest Rate : 10% 10%Staff Turnover Factor : 2% 2%The maximum retirement age is assumed as 65 years.19 Trade & Other PayablesCompanyGroupAs at 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Trade Creditors including Accrued Expenses 16,532 20,420 48,976 51,729Total 16,532 20,420 48,976 51,72934Eastern Merchants PLC - Annual Report 2010/11

20 Assets PledgedThe following Assets have been pledged as Security for Liabilities:AmountName of Institution Nature of Nature of Amount of as at 31/03/2011Granting Facility Assets Liability Facility PledgedRs.Rs.Included inHong Kong and Primary Mortgage O/D and cash 218,000,000Shanghai Banking at 341, Union Place, line facility.Corporation Ltd. Colombo forRs. 85 Mn &Stocks in TradeRs. 40 Mn.Hatton National Primary Mortgage O/D and cash 150,000,000Bank PLC over property at 100/1Gonawala Road,Sapugaskanda forRs. 85 Mn.Seylan Bank PLC 1). Secondary O/D and cash 170,000,000 Property,mortgage over line facility. 724,885,224 Plant &property at No. 341EquipmentUnion Placefor Rs. 65 Mn. andan additionalmortgage for Rs.105 Mn. oversame Property.2). Mortgageover stocks andbook debtsfor Rs. 50 Mn.in PlaceNational Mortgage O/D and cash 100,000,000Development over stocks line facility.Bank PLCand bookdebts forRs. 100 Mn.Nations Mortgage over O/D and cash 75,000,000 253,386,479 InventoriesTrust Bank stocks and line facility.PLC book debts 253,055,741 Trade Debtorsfor Rs. 75 Mn.DFCC Bank PLC Mortgage over O/D and cash 250,000,000stocks andline facilitybook debtsfor Rs. 250 Mn.Eastern Merchants PLC - Annual Report 2010/1135

Notes to the Financial Statements21 Director’s Interest In Contracts /Related Party Transactions21.1 The Directors of the Company are also Directors of the following related Companies:Name of the CompanyAsianEamel WoodwareAsia Brush Exports CompanyName of the Directors (Pvt) Ltd. Ltd. (Pvt) Ltd.J.B.L. de Silva Y Y YA. Karunaratne - Y -N.K.L. Thilakaratne Y Y YS.A. Chandraratne - Y -C.I. Thilakaratne Y - YS. Jayakody - Y -H.J. de Silva - Y -21.2 Details of significant related Party transactions are as follows:Transactions with subsidiariesEamel Exports Ltd.CompanyGroup2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Nature of TransactionsPayments on behalf of Eamel Export Ltd. 308 305 - -21.3 Transactions with key managerial personsKey Management Persons (KMPs) are defined as those persons having authority and responsibility for planning,directing and controlling the activities of the Company. Such KMPs includes the Board of Directors of the Companyand of its subsidiary and other personnel who involve in above activities. Transactions with close family members ofthe KMPs, if any, have also been taken in to consideration in the following disclosure.Compensation of Key Management Persons of the CompanyThe following is the compensation of Directors and Key Management:CompanyGroupFor the year ended 31st March 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000Short term employee benefitsDirector’s Remuneration 11,116 67,449 11,116 68,05436Eastern Merchants PLC - Annual Report 2010/11

22 Retrospective RestatementsAMotor vehicles of the Company are depreciated at the rate of 25% per year and as a result, most of the Motor Vehicleswere fully depreciated even though usable. Thus the Management decided to reduce the rate of depreciation to 12.5%per year with effect from 01/04/2010 and adjust the effects retrospectively in the Financial Statements.BResults of associate company had not been brought into the account in the previous years financial statements.Thus the management decided to amend the Financial Statement and adjust the effects retrospectively.1 April 2010Effect of RetrospectiveAs Reported Restatement RestatedNote Previously A B BalanceBalance SheetProperty, Plant & Equipment 1Accumulated Depreciation on Motor Vehicles 36,313 (24,151) - 12,162Retained Earnings As at 01/04/2009 56,389 20,383 131 76,903Net Effect 92,702 (3,768) 131 89,065Income StatementDepreciation 15,957 (3,768) 12,189Share of Results of Associates - - 1,266 1,266Total 15,957 (3,768) 1,266 13,45523 Capital Commitments and ContingenciesThe Group does not have significant commitments and contingencies as at the Balance Sheet date, that requiresadjustment to or disclosure in the Financial Statements.24. Post Balance Sheet EventsThe Board of Directors of the Company has recommended the declaration of a final dividend of Rs. 3.00 per share forthe financial year ended 31st March 2011.As required by Section 56 (2) of the Companies Act No. 7 of 2007, the Board of Directors has confirmed that theCompany satisfies the Solvency Test in accordance with Section 57 of the Companies Act No. 7 of 2007 and hasobtained a Certificate from Auditors prior to declaring a final dividend.In accordance with Sri Lanka Accounting Standards 12 (Revised 2005) ‘Events After the Balance Sheet Date’, the finaldividend has not been recognized as a liability in the financial statements as at 31st March 2011.Eastern Merchants PLC - Annual Report 2010/1137

Notes to the Financial Statements25 Segment InformationInformation based on the Primary Segments (Business Segment)Manufacturing Traditional & Other Group Total& Export ofExport ofCoir & Rubber Non-traditionalwood brushesProductsAs at 31st March 2011 2010 2011 2010 2011 2010 2011 2010Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Total Sales 56,454 61,300 6,028,398 3,892,888 - - 6,084,852 3,954,188Other Income - - - - 14,072 14,453 14,072 14,453Segment Revenue 56,454 61,300 6,028,398 3,892,888 14,072 14,453 6,098,924 3,968,641Segment Results 2,339 3,472 44,865 28,031 11,790 13,213 58,994 44,716Finance Expenses (35,717) (24,342)Change in fair value ofInvestment Property 10,997 47,503Share of Results of Associates 291 (1,266)Profit before Taxation 34,565 66,611Tax Provision (10,576) (4,047)Profit for the year 23,989 62,564Attributable ToEquity holders of the company 24,419 64,051Minority Interest (430) (1,487)Profit for the year 23,989 62,564AssetsSegment Assets 86,871 84,498 1,418,337 1,313,039 - 3,442 1,505,208 1,400,979Other Investments 5,423 5,207 15,980 13,859 - 3,279 21,403 22,345Total Assets 92,294 89,705 1,434,317 1,326,898 - 6,721 1,526,611 1,423,324Inter Group Adjustment - - - - - - (8,099) (17,208)Total Assets 1,518,512 1,406,116LiabilitiesSegment Liabilities 33,387 32,133 17,026 22,165 - 89 50,413 54,387Interest bearing borrowings 30,961 28,680 498,890 407,593 - - 529,851 436,273Deferred Tax Liabilities - - 1,440 1,716 - - 1,440 1,716Retirement benefit obligations 2,092 1,824 16,602 14,173 - - 18,694 15,997Total Liabilities 66,440 62,637 533,958 445,647 - 89 600,398 508,373Inter Group Adjustment - - - - - - (1,437) (2,747)Total Liabilities 598,961 505,62638Eastern Merchants PLC - Annual Report 2010/11

Shareholder InformationShareholder analysis as at 31st March 2011No. of No. of No. of %Shares Held Shareholders SharesLess than 500 181 14,199 0.85500 - 5,000 34 65,534 3.905,001 - 10,000 02 16,667 0.9910,001 - 20,000 03 44,024 2.6220,001 - 30,000 02 56,000 3.3430,001 - 40,000 - - -40,001 - 50,000 02 82,800 4.9450,001 - 100,000 01 100,000 5.96100,001 - 1,000,000 05 1,298,576 77.40230 1,677,800 100.00Top Twenty Shareholders as at 31st March 2011Name of Shareholder No. of Shares %J. B. L. de Silva 462,604 27.57H. J. de Silva 230,302 13.73C. I. Tilakaratna 216,952 12.93C. S. L. de Silva 208,302 12.42N. S. Karunaratne 180,416 10.75Eamel Exports Ltd. 100,000 5.96S. de A. Rajapakse 42,000 2.50A. Karunaratne 40,800 2.43M. de A. Rajapakse 28,000 1.67D. E. Perera 28,000 1.67Gunawardena Yogasrama Charitable Trust 20,000 1.19E. D. Rodrigo 14,000 0.83N. K. L. Tilakaratna 10,024 0.60K. A. G. Ranasinghe 10,000 0.60H. M. Udeshi 6,667 0.40N. D. Jayasekera 5,000 0.30A. H. Rodrigo 4,600 0.27E. N. J. N. P. Kuranage 4,000 0.24M. M. Senaratne 4,000 0.24T. G. Mendis 4,000 0.24Public Shareholding232,566 Ordinary Shares were held by the public as at 31st March 2011, representing 13.86% of total Ordinary Sharesissued. The corresponding figure for the year ending 31st March 2010 was 227,966 Ordinary Shares, representing 13.59%of the total number of Ordinary Shares in issue as at that date.Eastern Merchants PLC - Annual Report 2010/1139

Notes40Eastern Merchants PLC - Annual Report 2010/11

Eastern Merchants PLC - Annual Report 2010/11 41

Notice of MeetingNOTICE IS HEREBY GIVEN that the 65th Annual General Meeting of Eastern Merchants will be held at the Registered Officeof the Company (No 341, Union Place, Colombo 02) on 16th September 2011, at 2.30 p.m.AGENDA1. To read the notice convening the meeting.2. To confirm the minutes of the 64th Annual General meeting held on the 8th of October 2010.3. To receive, consider and adopt the Report of the Directors and the Statement of Accounts and Balance Sheet of theCompany for the year ended 31st March 2011.4. To resolve that Mr. N.K.L. Tilakaratna and Mr. S. Jayakody who retire in terms of Article Nos. 83 and 84 of the Articles ofAssociation of the Company be reelected as Directors of the Company.5. To elect Auditors in terms of Article No.125 of the Articles of Association of the Company and authorize an appropriatefee structure.6. To declare a dividend for the year ending March 31st 2011.7. To transact any other business of which due notice has been given.By order of the BoardS. JayakodyDirector - Finance / SecretaryNotes:(a) A member who is entitled to attend and vote at a meeting may appoint a proxy to do so Instead, and such a proxy neednot be a shareholder of the Company. The Form of Proxy of the Company is attached on the last page of this report.(b) Shareholders/proxy holders should bring with them their National Identity Card or any form of valid identification whenattending the meeting.42Eastern Merchants PLC - Annual Report 2010/11

Form of ProxyI/We, .........................................................................................................................................................................................of .................................................................................................................................................................................. being amember/members of Eastern Merchants PLC hereby appoint:J. B. L. de Silva of Colombo 03, Whom failingA. Karunaratne of Nawala, Whom failingN. K. L. Tilakaratna of Colombo 05, Whom failingC. I. Tilakaratna of Colombo 05, Whom failingS. A. Chandraratne of Colombo 15, Whom failingS. Jayakody of Ja-Ela, Whom failingH. J. de Silva of Colombo 3, Whom failingR. L. Nanayakkara of Rajagiriya, Whom failingH. P. J. de Silva of Rajagiriya, Whom failing........................................................................................................................................................................................... of......................................................................................................................................... as my /our proxy to represent me/usand vote for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 16th September, 2011 at2.30 p.m. and at any adjournment thereof. As witness my/our hand (s) this ............................. day of ………………. 2011.............................................Signature of the ShareholderNote: Instructions as to the completion of the Form of the Proxy are noted on the next page.Eastern Merchants PLC - Annual Report 2010/1143

Instructions for the completion of the Form of ProxyPlease perfect the Form of Proxy overleaf, after filling in legibly your full name and address and by signing in the spaceprovided and filling the date of signature.The completed Form of Proxy should be deposited at the Head Office of the Company at No. 341, Union Place, Colombo 2,not less than 48 hours before the meeting commences.If the Form of Proxy has been signed by an Attorney, the relative Power of Attorney should also accompany the completedForm of Proxy for registration, if such Power of Attorney has not already been registered with the Company.In the case of a corporate member, the form of Proxy should be executed under its Common Seal in accordance with itsArticle of Association or Constitution.If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of Proxy has beencompleted, no vote will be recorded by the Form of Proxy.44Eastern Merchants PLC - Annual Report 2010/11

Corporate InformationCompany Name: Eastern Merchants PLCCompany Number : PQ 153Registered Office : 341, Union Place, Colombo 2Stores Complexes: 101, Gonawala Road, SapugaskandaMaswila, AmpegamaLegal Form: A quoted public company with limited liability incorporatedin Sri Lanka and listed with the Colombo Stock Exchange.Principal Activities: Export of traditional and non-traditional commodities.Subsidiaries: Asia Brush (Pvt) Ltd.Eamel Exports Ltd.Associate Companies : Asian Woodware Company (Pvt) Ltd.Chairman: J.B.L. de SilvaManaging Director: A. KarunaratneBoard of Directors: S. JayakodyH. J. de SilvaS. A. ChandraratneN.K.L. TilakaratnaC.I. TilakaratnaR.L. NanaykkaraH.P.J. de SilvaSecretary: S. JayakodyAuditors: Messrs. D.H.P. Munaweera and Co.Bankers: Hong Kong and Shanghai Banking Corporation Ltd.Seylan Bank PLCHatton National Bank PLCNations Trust Bank PLCNational Development Bank PLCDFCC Bank PLCDesigned & Produced byColour separations by Imageline (Pvt) Ltd.Printed by Printage (Pvt) Ltd.

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