Annual Report 2009/2010 - Colombo Stock Exchange

Environmental Resources Investment PLC 2009/2010 Annual ReportSteps were taken to acquire a 100% share holding of Environmental Resources Limited (ERL) a company registered in the BritishVirgin Islands for a sum not exceeding Rs. 76 Million USD. This investment will help ERI to participate in opportunities arising inthe global market. Currently ERL has focused on investing in the natural resources sectors in Africa. Other investments of our company,added during the course of the year include, Namal Acuity Fund and Peoples Merchant Bank.Rs. 2.8 billion worthof new investmentsIn widening our scope, our Investment Committee has been focusing mainly in the Manufacturing and Information & Technologysectors. As a result, subsequent to the financial year, our Board of Directors took necessary steps to acquire, South Asia TextileIndustries Lanka (Pvt) Ltd, Dankotuwa Porcelain (Subject to regulatory approvals) and also to invest in securities of Olancom (Pvt)Ltd and Enterprise Technology (Pvt) Ltd. The details of the new investments are discussed under “New Ventures” on page 37. A newconcept being developed by our Board of Directors is that of Micro Investment Banking, the idea of investment banking structured toaccommodate the needs of very small companies. Using the idea and success of Micro Finance Banking, ERI hopes, by offering thisnew concept it will allow new businesses to access the Sri Lankan capital markets. Our Board is optimistic that the bold and courageoussteps taken would enhance the shareholder value of the Company, whose vision is to become one of the most valued companies in theisland.The upcoming year will be a monumental milestone as the Company moves in to its 100th year in operation. Continuing withthe growth of our holdings and group expansions, we look to do so with a mind for social responsibility. We are truly excited about theopportunities that lie ahead.Let me conclude by offering my gratitude to my fellow Board Directors, for giving their insight and proper guidance to completea successful year. Also I would like to thank all our valued Shareholders who have kept their faith and confidence in us, for theenthusiasm shown all of which have been a great encouragement to us. On behalf of the Board of Directors I wish to thank the Governmentof Sri Lanka , all regulatory authorities, our trusted loyal clients and business partners for the continued support and cooperationextended .(Sgd.)Lalith HeengamaChairman27th August 20105.

Environmental Resources Investment PLC 2009/2010 Annual Report11.

Environmental Resources Investment PLC 2009/2010 Annual ReportCeylon Leather Products PLC (CLPL)Ceylon Leather Products PLC is a leather products manufacturing company which is listed in the Colombo StockExchange, trading symbol: CLPL.N0000. CLPL is the leading leather footwear manufacturer in Sri Lanka. It is equipped with SriLanka’s largest Leather Processing Tannery and employes more than 450 employees in both factories. In the last financial year 88% ofthe turnover of CLPL was based on footwear. The rest was contributed by processed leather and leather accessories.SUBSIDIARY HIGHLIGHTSRatios 2007/08 2008/09 2009/10Turnover 438,813,341 368,327,214 564,033,773PBT 33,871,309 (39,280,795) 62,650,661PAT 41,219,556 (24,151,630) 35,897,780Total Assets 1,025,009,473 1,332,248,216 1,242,463,881Total Equity 712,904,659 929,139,827 874,808,918Total Debt 312,104,814 403,108,388 367,654,963Profitability 9.39% (6.56%) 6.36%Current Ratio 1.38 1.28 1.67Acid Test 1.05 1 1.14Debt Equity Ratio 4.73% 9.19% 17.15%EPS 3.3 (1.93%) 2.87Return on Capital Employed 4.54% (3.87%) 2.74%NAV per Share 57.03 74.33 69.98No. of Employees 487 430 462Return on Assets 4.02% (1.81%) 2.89FutureCurrently CLPL is focusing on creating high-end leather products which will initially be introduced to the local market and then beexported to different regions around the world at a later stage. Also CLPL is focused on investing in potential manufacturing companiesin order to expand its investment portfolio.13.

Environmental Resources Investment PLC 2009/2010 Annual Report• All members of the Board are collectively held responsible for the decisions made on behalf of our shareholdersand the company.• Constant monitoring of systems of compliance and governance.• Formal, rigorous and transparent procedures to appoint Directors followed by annual evaluation ofthe performance of the Board, Committees and Directors.• Approval of major acquisitions, disposals and capital expenditure.• Approving annual budgets and strategic plans.• Providing timely and quality information to the Board.• Ensuring satisfactory dialogue is maintained with shareholders keeping them informed of decisionsmade by the Board to maximize shareholder wealth.• Appointing and reviewing the performance of the Chairman.• Delegation of AuthorityAs a holding company, the Board is involved in taking many critical decisions that affect the interests of the shareholders. To ensure allcompany stakeholders are benefited by every investment related decision taken by the Board, its authority is delegated to themanagement to assist the Board in making quality and timely decisions. Though the Board makes high level strategic decisions andsets the overall policy framework for the Group, its effectiveness is decided on the level of delegation.This financial year was a turning point for us as we started a new journey by transforming from a company to a Group position. Henceaccuracy of the Board decisions taken with regards to stakeholders, strategy, planning and finance and the speed at which the decisionsare made and the mode of implementation was reviewed and revised to reflect the current needs of the Group.The Board has delegated certain responsibilities to the Board Committees while retaining the final decision pertaining to matters underthe purview of these Committees. The Audit and Remuneration Committees are composed of independent Directors.• Board meetings and attendance of DirectorsBoard meetings are scheduled to consider among other matters, the performance and financial statements for the period and to approveroutine capital expenditure. Special Board meetings are held as and when required to discuss urgent matters.Attendance at the Board and sub Committee meetings is set out below.Name Of Directors Directorship Status Main Board Audit CommitteeRemunerationCommitteeMr.Lalith Heengama Non Executive/Non Independent 5/6 N/A -Dr.Kosala Heengama Non Executive/Non Independent 6/6 3/3 -Mr.Gregory Scott Newsome Non Executive/Non Independent 4/6 2/3 -Mr.Heen Bandara Dissanayake Non Executive/ Independent 6/6 3/3 -Mr.Gamini Sarath Munasinghe Non Executive/ Independent 5/6 N/A -Total No. of Meetings Held 6 3 -15.

Environmental Resources Investment PLC 2009/2010 Annual ReportManagement Discussion and AnalysisMAKING it work19.

Environmental Resources Investment PLC 2009/2010 Annual ReportINCOME STATEMENT ANALYSIS2009/10(‘000)2008/09(‘000)Revenue 233.72 1.61Explanatory Highlights• Includes the revenue of CLPL amounting to Rs.139 million (Subsidiaryprofit of two months), Rs.21.16 million of DNH (Subsidiary profit for 6months) and ERI’s profit of 73 million through sale of shares.• CLPL has experienced a 53.13% growth in revenue.• DNH has experienced a decline in revenue of 30.12% from last quarter tothis quarter.Cost of Sales 77.31 -• Includes the COS components of CLPL & DNH showing an increment of20.28% (as a result of increased production) and a reduction of 35.09%respectively.• Includes the negative goodwill arising from the CLPL investment of Rs.84million.Other Income 89.29 -• A 19.26% increment in other income of CLPL due to the sale of a companyowned vehicle.• Comparing the last two quarters a significant change in the other incomeof DNH can be seen as a result of the increased Interest income.Selling & Distribution Cost 22.65 -• Primarily consists of expenses relating to CLPL.• A 63.69% increment in CLPL & 99.97% reduction of that in DNH.Administration Expenses 91.16 10.10• Resulted from the increment in all 3 companies as a result of increasedlevel of activity.Finance Cost - - • Highlights the reduced level of debt financing of all 03 companiesProfits on sale of Investment - 35.04 • Includes the sale of Walker & Greig (PVT) Ltd.Share of Profits from Associates 2.85 -• Derived from CLPL, of it’s two months of associates profits resulted froma 29% of ownership.PBT 134.71 26.55 • Prominent increment as a result of the investments in CLPL and DNHIncome Tax 25.90 4.78 • Primarily due to the income tax components of CLPL and DNH.Minority Interest 5.01 -• Derived from CLPL from its 49.81% investment. Hence minority interestamounting to 50.19%PAT 108.81 21.77 • Prominent increment as a result of the investments in CLPL and DNH.20.

Environmental Resources Investment PLC 2009/2010 Annual ReportSplendour of Sri Lanka – An Economic OverviewWith the 3 decades long war coming to an end, Sri Lanka’s potential as a lucrative investment destination in the region hasgrown manifold. Sri Lanka is in the world spotlight due to many reasons; key amongst them being a boost in confidence levels whichhas resulted in investors making a beeline to invest in the various lucrative business sectors in Sri Lanka. Sri Lanka achieved apositive growth rate of 3.5% during 2009 even with the ravaging war and global economic recession whereas the world economyshrunk by 0.8% during the same period. Sri Lanka achieved a remarkable growth rate of 6.2% during the last quarter of 2009 largelyas a result of the steady recovery of the economy due to the cessation of the war and other external factors. This incredible growth rateindicates the strength of the Sri Lanka economy and its resiliency to external influences.The war and the instability that came with it precluded Sri Lanka from exploiting the advantages of its geographical locationand highly literate and easily trainable workforce to attract the much needed Foreign Direct Investment (FDI). Tourism, Infrastructure(telecommunications, power, hospitals, township development, and construction of houses/industrial zones/IT parks), BusinessProcess Outsourcing/KPO/Education/IT and IT enabled services and the manufacturing sectors (electronic and electrical equipment)are key sectors that could attract Foreign Direct Investment. The badly affected Tourism sector was one of the first and foremostsectors which benefitted from the end of the war, which is now leading the resurgence of our economy.In 2009, FDI was US$602 million as against US$888 million in 2008 partly due to the then prevailing global recession whichwas at its peak. It is interesting to note that of the cumulative US$5,600 million in FDI since 1978, more than 50% has been receivedduring the 2006-09 period even with the negative effects of the war. The major investors in 2009 comprised of China, UK, India,Hong Kong and Malaysia and the foremost projects undertaken during this period was the Hambantota Port and the Norachcholaipower plant which are expected to have far reaching contributions to the new economy. Out of the total projects in 2010 over 50% hasshown interest for projects in the services sector including hotels, BPO and IT enabled services. The next most sought after projectswhich attract FDI are the food processing and the apparel sectors.The investment climate in Sri Lanka is now at its peak with a strong mandate for the President and the parliament to makeSri Lanka an investor and investment friendly country with policies beneficial to investors being drawn up to facilitate the rapid flowof FDI into the country. Coupled with the ever resilient private sector which showed its might even during the war, the rapid flowof FDI to boost Sri Lanka’s economy and stature as a regional player has been strengthened. The private sector in Sri Lanka, as theengine of growth, contributes a significant 85% to the GDP and is recognized as the strongest amongst the South East Asian nations.Further strengthening Sri Lanka’s claim of being the most attractive investment destination, the Colombo Stock Exchange became theworld’s best performing stock exchange and boosted its main index – All Share Price Index (ASPI) to reach a remarkable 5000 markin July 2010.In 2008, the economy expanded by 0.1%. Assuming the rising productivity and higher capital base, the country’s GDP isexpected to rise 7-7.5% in 2010. The 1st quarter of 2010 showed a growth of 7% as a result of resilient domestic demand and thegradual recovery of global economic conditions. Agriculture, industry, services grew by 9%, 6.9% and 6.7% respectively. Theeconomy grew by 6.2% during the last quarter in 2009 while a growth of 7-8% is forecasted for 2010 thanks to the favorableconditions prevailing in the country. The macroeconomic environment, political stability and the cessation of the war are the keyfactors in this significant resurgence of the economy.The value addition in the industry sector expanded by 6.9% in the 1st quarter of 2010 compared to a mere 1.9% growth in thesame quarter of 2009. The industry sector accounted for 28.4% of the GDP in 1st quarter 2010 mainly driven by favorable conditionsfrom all sectors namely manufacturing, mining & quarrying, construction, electricity & gas and water. Despite the declining externaldemand and high cost of production, the textile wearing apparel and leather products sector grew by 1% in the 1st quarter of 2010.Over 45% of Sri Lanka’s exports are attributed to the apparel and textile sector. The factory industry grew by 5.4% in the 1st quarterof 2010 in comparison to the 3.3% growth in the same quarter in 2009; recovering gradually since the latter part of 2009 with therevival of external demand and increase in domestic demand due to the access of the new markets in the northern and eastern regions.The services sector expanded by 6.7% in the 1st quarter of 2010 compared to the 1% in the same period of 2009, contributing 57.7%of GDP. Wholesale, retail, hotels and restaurants, tourism sector services and transport services are included in the services sector.The export sector grew by 7.1% in the 1st quarter 2010 with the export earning reaching US$1,764 million against US$1,647million in the same quarter of 2009. Agricultural and mineral exports recorded significant growth rates of 29% and 33% over the 2corresponding quarters.22.

Environmental Resources Investment PLC 2009/2010 Annual ReportThe hotels and restaurants sector recorded a buoyant 61% growth in the 1st quarter 2010 versus 16.7% growth in the samequarter of 2009. Tourist arrivals increased to 160,409 from 106,702 during the same period reflecting 50% growth while the earningsfrom tourism related activities grew by 70%. The room occupancy rate climbed by 89% whilst the earnings from the tourism sectorduring the period January-April 2010 climbed to US$175 million.The unemployment rate of 8.8% in 2002 dropped to a low of 5.2% in 2008 while increasing to 5.7% in 2009 due to shrinkingexternal demand which settled down to 5.4% in the 1st quarter of 2010. The annual average inflation declined to a record seven-yearlow of 3.1 percent in the months of January and February 2010 from a peak of 28.2 percent in June 2008. Point to point inflationdeclined to 5.3 percent in May 2010, reflecting the supply side improvements particularly the significant growth in paddy productionin the 2009/2010 ‘Maha’ season coupled with the slowing down of price pressure in the international market in key commodities.The performance indicators of the economy such as growth rates, unemployment rates, poverty levels and inflation rates indicate avery positive future ahead for Sri Lanka as highlighted in this review positioning Sri Lanka in the spotlight as the most attractivedestination for investment in the new world economy.23.

Environmental Resources Investment PLC 2009/2010 Annual ReportINVESTOR INFORMATIONBackgroundWith the end of the 30 year atrocious conflict the country went through, the Colombo Stock Exchange, was rated as one of the best stockmarkets in the world. Although the impact of global economic downturn exerted some pressure, strong capital positions and the constantflow of foreign and local investments helped the All Share Price Index (ASP) and the Milanka Price Index (MPI) to thrive, recording apercentage increase of 127% and 146% respectively compared to last year.Stock PerformanceAs of 31st March 2010, ERI’s capital structure comprised of one preference share, one ordinary share, trading symbol: GREG.N0000and two warrants, trading symbol: GREG.W0000 and GREG.W0001 listed for trading (except preference shares) in the Colombo StockExchange (CSE).As of 31st March 2010 the company has issued 139,088,640 ordinary shares, 170,625 preferences and 104,316,480 warrants each from2010 and 2011. Ordinary shares were distributed among more than 2,500 shareholders and there were more than 2,200 warrants holdersat end of the financial year.Ordinary ShareERI’s ordinary share performed exceptionally in the year ending 31st March 2010. Starting at a price of Rs. 22.75,reaching the peak at Rs. 274.50 in March 2010 and later settling at a price of Rs.102.50, the ordinary share created enthusiasm andbrought a smile to all our valued shareholders. This is an astounding 350% increase of the share price in comparison to last year’s closingprice. Market capitalization reached Rs.14 billion at the end the financial year from Rs.790 million last year. This turnaround was mainlydue to the investment decisions made by ERI’s Board of Directors.Performance of the ordinary share compared to key indicatorsThe significant drop in the price of the ordinary share on 30th March 2010 is due to the ex-rights date of the second rights issue.24.

Environmental Resources Investment PLC 2009/2010 Annual ReportMarket Values of Ordinary Share - QuarterlyPeriod 2010 2009High Low Close High Low Close01st Quarter 30.50 29.50 30.00 37.50 36.50 36.5002nd Quarter 39.50 38.75 39.50 37.50 28.75 29.5003rd Quarter 63.25 28.25 62.75 29.50 14.75 20.0004th Quarter 274.50 56.50 102.50 28.75 18.00 22.75Trading Statistics of Ordinary Share - QuarterlyQuarter 2009/2010 2008/2009No. of TradesNo. of SharesGeneratedTurnoverDays Traded No. of Trades No. of SharesGeneratedTurnoverDays Traded01st Quarter 2,084 2,297,400 67,247,550 58 11,753 13,411,500 398,664,875 5802nd Quarter 11,541 17,292,700 631,628,600 62 1,544 1,579,300 53,770,125 6503rd Quarter 8,913 11,727,200 555,616,325 62 2,189 2,360,700 47,503,700 5604th Quarter 32,255 25,005,500 4,197,934,225 58 2,352 2,444,500 56,001,600 57Year 54,793 563,228,000 5,452,426,700 240 17,838 19,796,000 555,940,300 23625.

Environmental Resources Investment PLC 2009/2010 Annual ReportIn finance, a warrant is a derivative security that entitlesthe holder/s to purchase securities of the issueing company at aspecified price within a certain time period.Warrant is a fairly new financial instrument to the Sri Lankan Market. Only a handful of Sri Lankan companies have issued warrantsto the market. However, none of those issues generated as much enthusiasm and curiosity among investors as did ERI’s warrant issue.Following is a description about warrants and how it works.FeaturesWarrants and Options have smiliarities where both grant the holder/s a special right to buy securities. Both are discretionary and haveexpiration dates. The main difference between a warrant and an option is that warrants are issued and guaranteed by the company,whereas options are exchange instruments and are not issued by the company. Apart from that, the lifetimes of warrants are measured inyears whereas options are measured in months.Warrants are frequently attached to bonds or a stock as a sweetener, to make them more attractive to potential buyers. Warrants can alsobe used in private equity deals. Warrants are detachable, and can be sold independent of the bond or stock.• Exercising: A warrant is exercised when the holder informs the issuer of their intention to purchase the shares underlyingthe warrant.• Expiration Date: This is the date the warrant expire. If the holder/s plans on exercising the warrant they must do sobefore the expiration date. The more time remaining until expiry, the more time there is for the underlying security to appreciate/depreciate, which, in turn, will increase/decrease the price of the warrant. Hence, the expiry date is the date on which the right toexercise the warrant no longer exists.• Restrictions on exercise: Like options, there are different exercise types associated with warrants such as American style(holder/s can exercise anytime before expiration) or European style (holder/s can only exercise on expiration date).Secondary marketThere are instances where the warrant issuer establishes a market for the warrant and lists it in an exchange. Warrants can be easily identifiedby the “W” after the company’s ticker symbol to check the warrant’s price (ex: GREG.W0001).Once the warrants are listed in an exchange, they can be purchased through a broker like all normal shares. On or before the exercise datethe holder/s should inform the issuer of the intent to exercise the warrant. Frequently this is done the same way a right issue should besubscribed to. If not exercised before the expiration date the warrant will not have any validity from that point onwards. Also, warrantscannot be subscribed additionally and only the warrant holder has the right to exercise.PricingThere are various methods (models) of evaluation available to value warrants theoretically, including the Black-Scholes evaluation model.However, it is important to have some understanding of the various influences on warrant prices. The market value of a warrant can bedivided into two components:• Intrinsic value: This is simply the difference between the exercise (strike) price and the underlying stock price.o If the market price of a stock is Rs. 100 and the warrant exercise prices is Rs. 30, the intrinsic value ofthe warrant is Rs. 70 (100-30=70)o If the market price of a stock is lower than the exercise price of a warrant, that warrant has no intrinsicvalue.26.

Environmental Resources Investment PLC 2009/2010 Annual Report• Time value: Time value can be considered as the value of the continuing exposure to the movement in the underlying securitythat the warrant provides. Time value declines as the expiry of the warrant gets closer. This erosion of time value is calledtime decay. It is not constant, but increases rapidly towards expiry. A warrant’s time value is affected mainly by two factors:o Time to expiry: The longer the time to expiry, the greater the time value of the warrant. This is becausethe price of the underlying asset has a greater probability of having intrinsic value which makes the warrantmore valuable.o Volatility: The more volatile the underlying instrument, the higher the price of the warrant will be (as thewarrant is more likely to end up with an intrinsic value).As of 31st March 2010, ERI had two warrants listed in the Colombo Stock Exchange.GREG.W0000 - This was issued to the share holders along with the second rights issue of the company. 104,316,480warrants were issued at a price of Rs. 22/=.GREG.W0001 - This was issued to the share holders along with second rights issue of the company. 104,316,480warrants were issued at price of Rs. 24/=Following the path of the ordinary share 2010 and 2011 warrants reached a peak at Rs. 177.50 and 179.50 respectively. The Listing priceof the 2010 warrant was Rs. 14 while the listing price of 2011 was Rs. 12.The significant drop in the price of the two warrants on 30th March 2010 are due to the ex-rights date of the second rights issue.Market Values of Warrants – QuarterlyPeriod GREG.W0000 GREG.W0001High Low Close High Low Close01st Quarter - - - - - -02nd Quarter 29.00 28.50 28.50 30.00 30.00 30.0003rd Quarter 36.00 21.00 35.25 38.00 23.00 37.2504th Quarter 177.50 33.50 69.75 179.50 34.00 63.0027.

Environmental Resources Investment PLC 2009/2010 Annual ReportTrading Statistics of Warrants - QuarterlyQuarter 2010 Warrant 2011 WarrantNo. of TradesNo. of SharesGeneratedTurnoverDays Traded No. of Trades No. of SharesGeneratedTurnoverDays Traded01st Quarter - - - - - - - -02nd Quarter 7,185 21,149,800 447,338,975 28 7,346 21,564,300 449,186,900 2803rd Quarter 2,999 5,560,300 165,409,200 58 1,982 3,697,900 112,460,950 6004th Quarter 18,983 21,419,200 2,381,168,650 58 21,396 24,047,400 2,672,274,225 58Year 29,167 48,129,300 2,993,916,825 144 30,724 49,309,600 3,233,922,075 146GHcoAlong with the third rights issue, which was completed in May 2010, the company issued another three attached warrants. More than 1 billionwarrants was distributed to the shareholders and previous warrant holders at a price of Rs. 33/=, 36/=, 39/= respectively.28.

Environmental Resources Investment PLC 2009/2010 Annual ReportGroup Financial Position and LiquidityHighlights -A DRAMATIC change in the financial and liquidity position of Environmental Resources Investment PLC’s financialscan be seen as it turned a new page in its operational history by transforming from a company into the positionof a GROUP in its third quarter.• Total assets increased to Rs.3,396 million from Rs. 385 million from the previous year.• Cash and short term investments increased to Rs.1,579 million from Rs.357 million in the previous year.• Total shareholder funds increased to Rs.2,544 million from Rs.373 million.• Total debt increased to Rs.414 million from Rs.11 million.• A debt to equity ratio is 5.62%29.

Environmental Resources Investment PLC 2009/2010 Annual Report2009/2010(‘000)2008/2009(‘000)Change(‘000)FIXED ASSETSProperty, Plant & Equipment 880,138 119 880,019Explanatory Highlights• The increase in PPE is due to the investments inCLPL & DNH Stock Brokers.• PPE of CLP is Rs. 868 million.Investment in AssociateCompany6,515 - 6,515CURRENT ASSETS• PPE of DNH Stock Brokers is Rs. 0.8 million.• 47.90% Investment of CLPL in its associate TANLanka.• 29% Investment of ERI in CLPL for a duration of twomonths.Inventories 114,981 - 114,981 • Highlights Inventories of CLPL.Current Investments 136,934 - 136,934Trade & Other Recievables 750,901 27,000 723,901Cash in Hand 1,441,758 357,636 1,084,122SHAREHOLDERS FUNDSShareholders Fund 2,545,518 373,544 2,171,974Interest Bearing Loans andBorrowingsLONG TERM LIABILITIES49,129 - 49,129SHORT TERM LIABILITIES• Investments in Namal Acuity Value Fund of Rs.75million.• Investment in People’s Merchant Bank of Rs. 98.97million.• Increase in receivables of ERI as a result of provisionof financial aid for certain companies in the form ofconvertible loans• Rs.2,086,329,600 worth of funds were raisedthrough a Three to One right issue during this financialyear and the utilization of these funds are explained ata later stage of this report• 104,316,480 shares were issued at Rs.20 through aThree to One right issue during the financial year.• Depicts the loan facilities of CLPL.• ERI PLC & DNH Stock Brokers do not have anydebts as at 31st March 2010Trade & Other Payables 89,093 7,246 81,847 • Increase due to trade payables in CLP PLC andDNH Stock BrokersInterest BearingLoans & Borrowings147,249 - 147,249 • Loan amount of the two subsidiariesDISTRIBUTION30.

Environmental Resources Investment PLC 2009/2010 Annual ReportActivity and Liquidity2009/10 2008/09Current Ratio 9.02 34.32Quick Ratio 8.59 34.32Net Working Capital (Rs. Mn) 1,136 16Asset Turnover 0.07 0Return on Capital Employed 5.01% 7.11%Total Debt (Rs. Mn) 414 11Debt/Equity ratio (%) 5.62% N/ALong Term Debt to Total Debt (%) 34.53% N/ADebt/Total Assets (%) 4.21% N/ALiquidity of a company reflects the degree to which an asset or a security canbe bought or sold in the market without affecting the asset’s price.The above table shows the flow of liquidity position of ERI PLC as it transformed from a company to a Group. As acompany ERI was an equity financed company with zero long term debt. However with the acquisitions of CLP PLC and DNH financialslong term debt was introduced to the capital structure of ERI PLC.Current RatioMeasuring the short term liquidity, current ratio in 2008 was 34.32 and in 2009 has reduced to 9.02. This is mainly due to the increasedamount of current liabilities from Rs.11.21 million in 2008 to Rs.272 million in 2009. Payables of ERI has increased as a result of itsinvesting activities. Current liabilities of CLP PLC during the year amount to Rs.217 million and that of DNH amounts to Rs.35 million.Current assets increased from Rs.385 million to Rs. 2,445 million in 2009. Contributing to this increase is the current investments of Rs.137 million from ERI and trade receivables of Rs.751 million as a result of financial aid provided to different entities, Rs.363 million fromCLPL and Rs.125 million from DNH.Quick RatioThis indicator has an impact only on CLP PLC as it is the only manufacturing based company within the Group. CLP PLC’sstock levels have increased to Rs.115 million from Rs.88 million as a result of increased level of production during thefinancial year.However considering the fact that converting inventory into cash in many businesses is significantly higher than other current assets, ourGroup has reordered a higher conversion ratio reflecting the efficiency of the working capital cycle.Net Working CapitalA striking change in the net working capital is reflected as a result of the consolidation of three companies. ERI’s net working capital hasincreased from Rs.16 million to Rs.405 million. CLPL’s net working capital has increased from Rs.199 million to Rs.284 million and thatof DNH has increased from Rs.59 million to Rs.65 million. Increased levels of production have resulted in these increased amounts.31.

Environmental Resources Investment PLC 2009/2010 Annual ReportAsset TurnoverA measure that reflects how efficiently the company assets are being utilized. Two months of operations of CLPL as an associate, twomonths of operations of CLPL as a subsidiary and 6 months of operations of DNH Financials has been considered in the constructionof the consolidation of ERI’s financials.Enthusiastic turns in the investment activities were initiated only during the latter stage of the financial year of 2009/2010 where thecompany generated revenue of Rs.73 million through the sale of shares. Whereas revenue was a mere 1.6 million in the previous financialyear.However in this financial year the asset turnover is 0.07 resulting from a group turnover of Rs.233 million and total asset value ofRs.3,397 million which implies for every one rupee the Group invested, it had generated a revenue of Rupees 0.07 within a short periodof six months.Return on Capital EmployedProfitability of the Group in relation to sources of long term financing of the company is reflected through this measurement method.ERI as a company has recorded a ROCE of 7.11% and as a group has recorded a ROCE of 5.01%. Shown below is the ROCE of thesubsidiaries and the holding company in order to obtain a broader view.ERI ( The Company) CLP PLC DNHROCE 0.62% 2.74% 10.27%CLPL, a manufacturing company, has recorded a negative ROCE in the previous financial year as a result of the impact caused by ahigh rate of borrowings amounting to Rs.151 million and a relatively lower revenue of Rs.368 million. However with the investmentof ERI along with proper financial and operational controls CLPL increased its revenue by 53% recording a higher ROCE of 2.74%DNH operated with a very high debt amount of Rs.4.5 million in the financial year of 2008/09, which caused a negative impact of 1.73%on its ROCE. As it became a subsidiary of ERI on the 01st of October 2009 a dramatic change in its long term liabilities were seen witha reduction of an approximate 100%, resulting in a higher ROCE of 11.04% operating over a short period of 6 months.32.

Environmental Resources Investment PLC 2009/2010 Annual ReportCapital StructureCapital structure of ERI (the Group) consists of shareholders funds amounting to 75% of financing of the total assets,13% of minorityinterest, 4% long term debt and 8% of short term financing.DebtDebt component of the total Group amounted to Rs. 414 million which has increased from Rs. 11 million since the last financial year.This increase is a result of the liabilities of the subsidiary companies. CLPL total debt amounts of Rs.367 million and that of DNH is Rs.36 million. However a point to be noted is that the debt component of CLPL has reduced by 8% while that of DNH has increased as aresult of an increase in its interest bearing borrowings.Cash FlowA striking increase in the cash in hand from a Rs.358 million in the previous financial year to a Rs.1,441 million in the current financialyear is mainly due to the cash in hand of the two subsidiaries, (Rs.16 million of CLPL and Rs. 42 million of DNH) and the funds raisedthrough the rights issue held during the financial year.33.

Environmental Resources Investment PLC 2009/2010 Annual ReportStatement of Utilization of Funds Raised through the Rights IssueRs ’000Total capital raised (Issuing 104,316,480 shares at Rs. 20) 2,086,329Expenses related to rights issue (19,820)Namal Acuity (75,000)Peoples Merchant Bank (98,970)Ceylon Leather Products PLC (344,678)DNH Financials (156,016)Investment in Government Securities (1,391,845)34.

Environmental Resources Investment PLC 2009/2010 Annual ReportThe following charts explain thes company’s liquidity during the operational years of 2009 and 2008.Liquidity Management35.

Environmental Resources Investment PLC 2009/2010 Annual ReportBalance Sheet StructureAssetsLiabilityRs. '0002009/08 2010/093,000,0002,400,0001,800,0001,200,000600,000-EquityAttributableto ParentMinorityInterestInterestBearingLoans &BorrowingsDeferredLiabiltiesCurrentPayablesIncome Tax36..

Environmental Resources Investment PLC 2009/2010 Annual ReportNew VenturesOverviewRather than creating new businesses, the Board of Directors have focused on investing in potential companies which are affected by theglobal downturn and in desperate need of the infusion of funds. With the motto of ‘We make it work’ the Management uses new methodsand techniques introduced by the Board, to turn around such companies.Environmental Resources Limited – ERLERL is a private company incorporated in the British Virgin Islands under BVI business Companies Act, 2004. ERI signed the purchaseagreement to aquire 100% of ERL on the 15th of January 2010. As per the agreement ERI will pay a sum not more than 76 million USDas the purchase price of ERL and will follow a ten tranche payment schedule. As of 31 July 2010 the company paid Rs. 1,453,224,720which is a 16.7% stake of the company. (More information about the ERL payment is on page 81 (Under Post Balance Sheet Events)The main activity of ERL is to act as an investment holding company, which will be used by ERI to participate inopportunities, arising in the global market. Currently ERL is concentrating on investing in the commodity sector. Following is the list ofinvestments ERL has entered in to as of 31st March 2010.Security No. of Shares Price as atTotal Value (USD)31st March 2010 (USD)Eastern Platinum Limited 24,048,760 1.48 35,592,164.80Mukuba Resources Limited 5,047,553 0.40 2,019,021.20Ferrox Holdings Limited 103,598,553 0.42 43,511,392.26South Asia Textile Industries Lanka (Pvt) Ltd (SATL) – PV 3574On 3rd June 2010, ERI finalized the agreement to acquire 8% of SATL through a private placement by infusing Rs. 160 million whilethe company’s subsidiary Ceylon Leather Products PLC agreed to acquire 51% of SATL for a consideration of Rs. 660 million.SAT Industries Lanka (Pvt) Ltd is a manufacturing company with a ultra modern manufacturing plant, producing exceptional qualityknitted fabric and specializes in printing, brushing, sueding and anti pilling.SAT has a high production capability, with the current capacity of production being 1.5 million lbs of knitted fabrics per month. Thecompany recorded positive results from the inception and recorded an annual turnover of Rs. 3,597,958,290 and Rs. 4,016,483,280 inthe year 2007 and 2008 respectively.Board of Directors of SATL includes Jonathan Ker Uei Yang - Chairman, Prithiv Dorai - CEO/Director, Ker Uei Ming - Director andKer Uei Chang - Director.Registered Office: - South Asia Textile Industries Lanka (Pvt) Ltd - PV 3574Apt #1701, Hilton Colombo Residencies,200, Union Place, Colombo 2,Sri Lanka.37..

Environmental Resources Investment PLC 2009/2010 Annual ReportDankotuwa Porcelain PLC (DPL) - PQ79On 24th June 2010, ERI entered in to an agreement to invest Rs. 379 million in DPL through a private placement which represents58.36% of the company. While the company’s subsidiary, Ceylon Leather Products PLC will invest Rs. 54 million representing aholding of 8.31%.DPL is a manufacturing company producing high quality porcelain products by a skilled and experienced work force, for export aswell as for the domestic market and is a company listed in the Colombo Stock Exchange: Trading Symbol: DPL.N0000.The Board of Directors of DPL includes Sunil G. Wijesinha Chairman/Managing Director, Mitsuharu Fujisawa - Director, KenSawayama – Director, Nihal Abeysekara–Director, Y. Hara – Director, Ryuei Izumi – Director, Jun-ichiro Asano – Director, Dr. BandulaPerera - Director, Richard Ebell - Director.Registered Office: -Dankotuwa Porcelain PLC – PQ79No 283, Galle Road, Colombo 03,Sri Lankawww.dankotuwa.comOlancom (Pvt) Ltd - (OPL)On 30th June 2010, ERI finalized the agreement to invest Rs. 200 million in 20 million newly issued preferred shares of Olancom(Pvt) Ltd, formerly known as Roomsnet International (Pvt) Ltd, with a 12% coupon and an option to convert to ordinary shares.Olancom is the largest e-commerce operator, based in Sri Lanka having transacted nearly Rs 10 billion in online sales globally over thepast few years and is also a leading provider of enterprise technology solutions to businesses and organizations in Sri Lanka.Director Board of Olancom consists of Mr. E.B. Wikramanayake – Chairman/CEO, Mr. Kithsiri Gunesekara - Director.Registered Office: - Olancom (Pvt) Ltd – PV 11036Level 8, Millennium House,46/58 Nawam Mawatha,Colombo 02, Sri Lankawww.olancom.comEnterprise Technology (Pvt) Ltd – (ETPL)On 30th June 2010, ERI finalized the agreement to invest Rs. 100 million in 10 million newly issued preferred shares of ETPL, (a fullyowned subsidiary of Olancom (Pvt) Ltd) with a 12% coupon and an option to convert to ordinary shares.ETPL consist of an award winning highly skilled staff who are professionals in providing state-of-the-art communication systems anddesigning network systems which enhances the productivity of businesses.Director Board of ETPL consists of Mr. E.B. Wikramanayake – Chairman/CEO, Mr. Kithsiri Gunesekara - Director.Registered Office: -Enterprise Technology (Pvt) Ltd,16th Floor, West Tower,World Trade Center, Echelon Square,Colombo 01, Sri Lankawww.enterprisetl.com38.

Environmental Resources Investment PLC 2009/2010 Annual ReportRisk Assessment and Management“Risk” is a common factor faced by any business entity, in it’s day to day operations, which has undoubtedly become a challenge forus in achieving our goal of “WE MAKE IT WORK”. Every decision made has a certain level of uncertainty which could influence theachievement of the organizations strategic, operational and financial objectives. Hence it is the responsibility of our Directors to adapta system which effectively identifies the risk faced by the company, quantify the impact and follow a suitable risk mitigation strategyensuring organizational objectives are leased affected.• ERI’S Risk Assessment and Management Framework39.

Environmental Resources Investment PLC 2009/2010 Annual ReportRisk Appetite of ERIAs a public quoted holding company Environmental Resources Investment PLC shoulders a responsibility towards itsshareholders in ensuring to maximize their value in every decision taken by the Board. Hence our risk managementpolicies revolve around what shareholders value most in the Group and identifying the risks around those key shareholder value drivers.The Risk Appetite of ERI is derived on the level of risk the Group is willing to accept in pursuit of those factors valued by shareholders.It should be an acceptable balance between growth, risk and return. ERI’s risk appetite is IMPLICIT which is derived through analysisof decisions and actions and the judgment of our Board of Directors equipped with their extensive level of experience and knowledge.Shown below are some of the risks that have challenged our Group, analyzed using our risk management framework.Risk Scenario Impact Risk TreatmentBusiness Risk – Acquiring Companieswith Poor Financial PerformanceDirect Impact as it is the essence of thebusiness of ERI• Due diligence process carried outbefore acquisition.• Strict financial and operational controls.Operational RiskFinancial Risk – Credit, Liquidity andInterest Rate RiskDirect Impact as failure of the systemsand people to adapt to new structurewould affect the entire acquisitionRisks faced by our subsidiaries. Henceit directly impacts the overall operationsaffecting profitability• Close monitoring of the entire process.• Adopting a planned change proceduregiving time for systems and people of thenewly acquired companies to settle downwith the new structure.• Unfreeze-Change-Re freeze.• Providing financial aid.• Directing on proper cash flow management.• Improving the efficiency of the workingcapital cycle by negotiating better termswith customers and suppliers.Regulatory RiskReputational RiskIT RiskExchange Control RiskAs a public quoted company regulationsimplemented by the Companies Act,CSE, SEC etc. will have a direct impactAs a public quoted company any badpublicity will dramatically affect the sharepricesAccurate, timely and quality informationis of vital importance to company operations.Direct exposure mainly due to the investmentin Environmental Resources Limited(BVI)• Gradual settlement of overdue paymentsto creditors and banks to obtainbetter facilities.• Conducting an annual compliance auditin order to ensure all regulatory requirementsare met and up to date.• Maintaining transparency of its operationsand investment decisions throughdisclosing all relevant information to itsstakeholders.• Implementation of IT policies along withproper controls• Conducting Annual IT Audits and continuoussystems updates.• Obtaining all required approvals fromthe governing bodies and ensuringconstant monitoring of adherence to allregulations.40.

Environmental Resources Investment PLC 2009/2010 Annual ReportSustainability ReportOur contribution41.

Environmental Resources Investment PLC 2009/2010 Annual ReportCorporate Social ResponsibilitiesWith the 30 year ethnic war ending, we anticipate an era of unprecedented economic growth in Sri Lanka, and ERI is determined to be aprominent stakeholder in achieving this economic growth.As economies in the world are fast becoming inter-dependent due to the rapid globalization, the success of a country to create neweconomic opportunities and generate wealth and improve the quality of life of its people depends on the enhancement of trade,knowledge sharing and providing easy access to technology. Therefore, one of the key challenges of sustainability development for ERIis that it demands new and innovative choices and ideas that can increase stakeholder value. ERI also recognizes the importance ofsocial responsibility, environment and adhering to the public policy, when contributing to the developments in knowledge andtechnology based growth in the economy.Therefore, transparency in sustainability reporting for ERI’s activities is of interest to a diverse range of stakeholders including businesses,labour, non-governmental organizations, investors, accountancy and others.The company has taken in to account general guidelines as given in the Global Reporting Initiatives (GRI) when preparing this report.Accordingly, the content of the report therefore confirms to those guidelines as depicted in the following decision tree.ExcludeNONODoes ERI haveinfluence?YesDoes it havesignificantimpacts?NODoes ERI havesignificantinfluence?Does it havesignificantimpacts?YesYesNONONotNecessaryTo ReportDoes ERI haveControl over theentity?YesDoes it havesignificantimpacts?YesNONotNecessaryTo ReportNotNecessaryTo reportYesReportPerformamce dataReportDisclosures on management approachReportNarrative reporting on issues and events42.

Environmental Resources Investment PLC 2009/2010 Annual ReportOrganizational ProfileThis report covers the activities of Environmental Resources Investment PLC for the year ended March 31, 2010.ERI SubsidiariesName of the Company Holding % Principle business activityCeylon Leather Products PLC 49.81% Manufacturing of leather goodsDNH Financials (Pvt) Limited 100% Stock BrokeringShareholdersThe Board of Directors encourages the participation of shareholders at the Annual General Meetings and ExtraordinaryGeneral Meetings. The AGM is the main forum where shareholders have the opportunity to discuss the performance ofthe company, returns to their investments, financial statements, appointments and other matters. The heads of the RiskManagement Committee, Audit Committee are present at the AGM to respond to any queries raised by the shareholders.Contributing to the environmental conservation activities by promoting paperless office concept within the ERI Group ofcompanies, energy conservation measures, best operational practices are treated as paramount importance in sustainabilityreporting.Society CommunityCorporate social responsibility remains an integral part of sustainability. While ERI creates economic benefits for thestakeholders, we manage and mitigate the social impact to the society by having zero laying off policy of the companiesthat we acquire under the ERI umbrella.Other StakeholdersERI takes every effort to ensure transparency, fairness and accountability, in transactions and building long term relationships,which is based on trust with all the stakeholders of the company.43.

Environmental Resources Investment PLC 2009/2010 Annual ReportFinancial ReportWe MADE it work!44.

Annual Report of the DirectorsEnvironmental Resources Investment PLC 2009/2010 Annual ReportThe Directors of Environmental Resources Investment PLC take pleasure in presenting their Annual Report and the Audited FinancialStatement for the year ended 31st March 2010.PRINCIPAL ACTIVITYThe principal activity of Environmental Resources Investment PLC is investment Holding. The company converted to a Group stateon the 09th of October 2009 through the acquisition of DNH Financials and later CLP PLC.Principal activities of CLP PLC is manufacturing and selling of Leather, Leather footwear and Leather Goods, and that of DNH Financialsis functioning as a stock broker in the Colombo Stock Exchange.REVIEW OF THE BUSINESSA complete review of the Group’s operations, its performance during the year along with an analysis of current year financials andfuture prospects, is contained in the Chairman’s Statement. The Directors to their knowledge and belief confirm that the Group has notengaged in any activity that would breach laws and regulations.FINANCIAL STATEMENTSFinancial Statements of Environmental Resources Investment PLC for the year ended 31st March 2010, inclusive of the profit and lossstatement, Balance Sheet, Cash Flow Statement and statement of changes in equity is given from page 51 to 54.CORPORATE GOVERNANCEThe report on Corporate Governance is given on page 14 of the Annual Report.PROPERTY, PLANT & EQUIPMENT AND DEPRECIATIONThe book value of the Group’s Property, Plant & Equipment as at 31st March 2010 amounts to Rs.880,138,828, the main contributorbeing CLPL with its Property, Plant & Equipment for the current financial year being Rs. 868,060,012.Given below is a detailed description of the valuation done on the lands owned by CLP PLCLocation Land Extent Building Area (Sq.ft.) Valuation Rs’000 Year Of ValuationMattakkuliya 4.3 Acres 74,180 437,000 2007/2008Belummahara 2.3 Acres 71,850 357,666 2008/200945.

Environmental Resources Investment PLC 2009/2010 Annual ReportPOST BALANCE SHEET EVENTSPost balance sheet events are more fully described in Note 31 of the Financial Statements on page 79 of the annual report.DirectorsDirectors of the company as at 31st March 2010 were:Mr. Lalith Heengama - ChairmanMr. H.B.Dissanayaka - DirectorMr. Gamini S. Munasinghe - DirectorMr. Kosala Heengama - DirectorMr. Gregory Scott Newsome - DirectorThe profiles of the Directors are given on page 06.DIRECTORS REMUNERATIONThe Directors remunerations in respect of the Company and the Group for the financial year of 2010 are given inNote 30.2 to the financial statements.DIRECTORS SHAREHOLDINGThe Board of Directors of Environmental Resources Investment PLC has no shareholding of the Group as at the year ended 31stMarch 2010.Name Of Director As at 31st March 2010 As at 31st March 2009Mr. Lalith Heengama Nil NilDr. Kosala Heengama Nil NilMr. Heen Banda Dissanayaka Nil NilMr. Gamini S Munasinghe Nil NilMr. Gregory Scott Newsome Nil NilRELATED PARTY TRANSACTIONSRelated party transactions of the Group and the Company for the financial year ended 31st March 2010 are given in Note 30 for thefinancial statements on page 78 of the Annual Report.DIRECTORS’ RESPONSIBILITIES FOR FINANCIAL REPORTINGThe Directors are responsibile for the preparation of the financial statements of the Group to reflect a true and fair view of the state of itsaffaires. The Directors confirm that these financial statements are prepared in accordance with the requirements of the Sri LankaAccounting Standards, the companies Act No.07 of 2007 and the listing rules of the Colombo Stock Exchange.BOARD COMMITTEESAudit Committee - Consists of 3 Non-executive Directors, including two Independent Directors.Mr. H.B Dissanayake - ChairmanMr. Gamini S. MunasingheMr. Gregory Scott Newsome46.

Environmental Resources Investment PLC 2009/2010 Annual ReportRemuneration Committee - Consists of 3 Non-executive Directors, including two independent Directors.Mr. Gamini S. Munasinghe - ChairmanMr. H.B DissanayakaDr. Kosala HeengamaInvestment Committee - Consists of two Non-executive Directors.Dr. Kosala HeengamaMr. Gregory Scott NewsomeAUDITORSThe accounts for the year have been audited by M/s Ernst & Young, Chartered Accountants. They have acceptedto continue as Auditors for the current year.The Auditors, M/s Ernst &Young were paid Rs.475,000, for the year ended 31st March 2010 as Audit Fees by thecompany.As per the knowledge of the Directors, the Auditors did not have any relationship or any interest with the companyand the Group that would affect their independence.Summarized Financial Information2009/10Rs. ‘0002008/09Rs. ‘000Profit/(Loss) before Tax 134,718 26,553Income Tax (25,905) (4,785)Profit/(Loss) Continuing Operations 108,814 21,768Loss on Discontinued Operations - (8,088)Profit/(Loss)after Tax 108,814 13,680INVESTMENTSInformation related to the investments of the Group during the financial year will be given in Note 27 to thefinancial statement in page 77 of the annual report.COMPLIANCE2009/10Rs. ‘0002008/09Rs. ‘000Stated Capital 2,469,164 382,835Revenue Reserves 3,320 3,320Retained Earnings 71,346 (12,610)The Group has not engaged in any activity which is detrimental to the environment, where further details arediscussed under the sustainability report in page no.42.47.

Environmental Resources Investment PLC 2009/2010 Annual ReportSHARE INFORMATIONInformation relating to shareholders and share trading will be discussed on page 82 of the annual report.MARKET VALUE OF COMPANY’S ORDINARY SHARESThe market value of the company’s ordinary shares as at 31st March 2010 was Rs.102.50 in comparison to Rs. 22.75 as at 31st March2009.ANNUAL REPORTThe Board of Directors approved the consolidated Financial Statements on 12th of August 2010. The appropriate number of copies ofthis report will be submitted to the Colombo Stock Exchange and to the Sri Lanka Accounting and Audit Standards Monitoring Board.ANNUAL GENERAL MEETING.The Annual General Meeting will be held on the 30th of September 2010 at the Galle Face Hotel Grand Ball Room at10:00 am. The Notice of Meeting relating to the 99th Annual General Meeting is given under Supplementary Information on Page 90This annual report is signed for and on behalf of the Board of Directors.By Order of the Board.Environmental Resources Investment PLC(sgd)Secretaries & Registrars (Pvt) LimitedSecretariesColombo27th August 201048.

Environmental Resources Investment PLC 2009/2010 Annual ReportStatement of Directors’ ResponsibilityThe responsibility of the Directors in relation to the financial statements of the Company is set out in the following statement.The responsibility of the Auditors, in relation to the financial statements, prepared in accordance with the provisionof the Companies Act No. 07 of 2007, is set out in the Independent Auditors’ report appearing on page 50.The Companies Act 07 of 2007 stipulates that Directors are responsible for the preparation of financial statements for eachfinancial year and place before a general meeting financial statements, comprising a Profit and Loss Account and a BalanceSheet which presents a true and fair view of the state of affairs of the Company as at the end of the financial year and whichcomply with the requirements of the above Act.The financial statements have been prepared and presented in accordance with Sri Lanka Accounting Standards. In preparingthe financial statements appropriate accounting policies have been selected and applied consistently, whilst reasonableand prudent judgments and estimates have been made.As per Section 148 of the Act, the Directors are required to maintain sufficient accounting records to disclose with reasonableaccuracy the financial position of the Company and to ensure that the financial statements presented comply with therequirements of the Companies Act.The Directors are also responsible for devising proper internal controls for safeguarding the assets of the Company againstunauthorized use or disposition and prevention and detection of fraud and for reliability of financial information usedwithin the business or publication.The Directors continue to adopt the going concern basis in preparing accounts and after makinginquiries and following a review of the Company’s budget for the financial year 2010/2011 including cash flows and borrowingfacilities, consider that the company has adequate resources to continue in operation.The Board of Directors is of the opinion that Board has discharged its responsibilities as set out above.By order of the Board ofEnvironmental Resources Investment PLC(sgd)Secretaries & Registrars (Pvt) LimitedSecretariesColombo27th August 201049.

Environmental Resources Investment PLC 2009/2010 Annual ReportINDEPENDENT AUDITOR’S REPORTTO THE SHAREHOLDERS OF ENVIRONMENTAL RESOURCESINVESTMENT PLCReport on the Financial StatementsWe have audited the accompanying financial statements of EnvironmentalResources Investment PLC (“Company”), the consolidated financialstatements of the Company and its subsidiaries (“the Group”)which comprise the balance sheets as at 31 March 2010, and the incomestatements, statements of changes in equity and cash flow statementsfor the year then ended, and a summary of significant accountingpolicies and other explanatory notes.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentationof these financial statements in accordance with Sri Lanka AccountingStandards. This responsibility includes: designing, implementingand maintaining internal controls relevant to the preparation and fairpresentation of financial statements that are free from material misstatement,whether due to fraud or error; selecting and applying appropriateaccounting policies; and making accounting estimates thatare reasonable in the circumstances.Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financial statementsbased on our audit. Except for matters discussed in paragraphs1 and 2 below, we conducted our audit in accordance with Sri LankaAuditing Standards. Those standards require that we plan and performthe audit to obtain reasonable assurance whether the financial statementsare free from material misstatement.An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financialstatement presentation.Except for matters discussed in paragraphs 1 and 2 below, we have obtainedall the information and explanations which to the best of ourknowledge and belief were necessary for the purposes of our audit.We therefore believe that our audit provides a reasonable basis for ouropinion.OpinionCompany1.Value Added Tax (VAT) payable Included under Other payables differby Rs. 1,397,683/- with that of the VAT Return. We were unable to reconcilethis difference due to non availability of adequate records.In our opinion, except for the effects for adjustments, if any, as mighthave been determined to be necessary had we been able to satisfy ourselveswith regard to the matters referred to in paragraph 1 above, sofar as appears from our examination, the Company maintained properaccounting records for the year ended 31 March 2010 and the financialstatements give a true and fair view of the Company’s state of affairs asat 31 March 2010 and its profit and cash flows for the year then endedin accordance with Sri Lanka Accounting Standards.Group2.We were unable to ascertain the reasonability of the Goodwillamounting to Rs.53,243,537/= reflected in the consolidated FinancialStatements of the Group as required by Sri Lanka Accounting Standard25 - Business Combination due to insufficient information in relationto the net assets acquired of DNH Financial (Pvt) Ltd as at the acquisitiondate.In our opinion, except for the effects for adjustments, if any, as mighthave been determined to be necessary had we been able to satisfyourselves with regard to the matters referred to in paragraph 1 and 2above the consolidated financial statements give a true and fair viewof the state of affairs as at 31 March 2010 and the profit and cash flowsfor the year then ended, in accordance with Sri Lanka Accounting Standards,of the Company and its subsidiaries dealt with thereby, so far asconcerns the shareholders of the Company.Report on Other Legal and Regulatory RequirementsIn our opinion, these financial statements also comply with the requirementsof Sections 151(2) and 153(2) to 153(7) of the Companies Act No.07 of 2007.(Sgd)Ernst & YoungChartered Accountants12th August 2010Colombo.50.

BALANCE SHEETAs at 31 March 2010Environmental Resources Investment PLC 2009/2010 Annual ReportGroupCompanyNote 2010 2010 2009Rs. Rs. Rs.ASSETSNon-Current AssetsProperty, Plant & Equipment 4 880,138,828 11,236,563 118,800Intangible Assets 5 56,008,537 - -Investment in Subsidiaries 6 - 499,099,275 -Investment in Associates 7 6,514,751 - -Other Investments 8 1,954,440 - -Other Non-Current Assets 9 7,790,000 - -Deferred Tax Asset 16 - 5,189,122 -952,406,556 515,524,960 118,800Current AssetsInventories 10 114,980,792 - -Trade and Other Receivables 12 750,900,887 437,164,948 27,000,000Current Investments 11 136,934,147 136,934,147 -Cash and Bank Balances 26 1,441,758,278 1,383,637,009 357,635,8862,444,574,104 1,957,736,104 384,635,886TOTAL ASSETS 3,396,980,660 2,473,261,064 384,754,686EQUITY AND LIABILITIESEquity attributable to equity holders of the parentStated Capital 13 2,469,164,200 2,469,164,200 382,834,600Other Reserves 14 3,320,140 3,320,140 3,320,140Retained Earnings/ (Losses) 71,346,312 (23,794,017) (12,610,333)2,543,830,652 2,448,690,323 373,544,407Minority Interests 439,073,198 - -Total Equity 2,982,903,850 2,448,690,323 373,544,407Non-Current LiabilitiesInterest Bearing Loans & Borrowings 15 49,129,245 - -Deferred Tax Liability 16 63,520,997 - -Other Deferred Liabilities 17 30,329,723 - -142,979,965 - -Current LiabilitiesTrade and Other Payables 18 89,093,495 13,166,042 7,245,802Income Tax Payable 34,390,619 11,041,133 3,624,850Current portion of Interest Bearing Loans & Borrowings 15 147,249,165 - -Dividend Payable 19 363,566 363,566 339,626271,096,845 24,570,741 11,210,278Total Equity and Liabilities 3,396,980,660 2,473,261,064 384,754,686I certify that these Financial Statements are in compliance with the requirements of the Companies Act No: 07 of 2007.Head of FinanceThe Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Boardby:ChairmanDirectorThe accounting policies and notes on pages 55 through 79 form an integral part of the financial statements.12th August 2010, Colombo51.

Environmental Resources Investment PLC 2009/2010 Annual ReportINCOME STATEMENTYear ended 31 March 2010 Group CompanyContinuing operationsGroupCompanyNote 2010 2010 2009Rs. Rs. Rs.Revenue 3 233,722,221 73,431,965 1,613,829Cost of Sales (77,317,761) - -Gross Profit 156,404,460 73,431,965 1,613,829Other Income 20 89,295,126 7,635,960 -Selling & Distribution Expenses (22,645,813) - -Administrative Expenses (91,161,020) (65,923,816) (10,104,576)Finance Cost 21 (28,691) - -Disposal Profit of Sale of Investment 22 - - 35,043,987Share of Profit of Associate 7 2,853,493 - -Profit before Tax 134,717,554 15,144,109 26,553,241Income Tax Expense 23 (25,903,928) (6,483,718) (4,785,171)Profit for the Year from Continuing Operations 24 108,813,626 8,660,391 21,768,069Discontinued OperationLoss for the Year from Discontinued Operation 22 - - (8,088,278)Profit for the Year 108,813,626 8,660,391 13,679,791Attributable to:Equity Holders of the Parent 103,800,720Minority Interests 5,012,906108,813,626Earnings Per Share- Basic (Rs) 25 0.60- Diluted (Rs) 25 0.13The accounting policies and notes on pages 55 through 79 form an integral part of the financial statements.52.

Environmental Resources Investment PLC 2009/2010 Annual ReportRights Issue of Ordinary Shares 13 2,086,329,600 - - - 2,086,329,600 - 2,086,329,600Direct Cost on Share Issue - - - (19,820,135) (19,820,135) - (19,820,135)Acqusition of Subsididiary - - - - - 434,060,292 434,060,292Profit for the Year - - - 103,800,720 103,800,720 5,012,906 108,813,626Preference Dividend - - - (23,940) (23,940) -(23,940)Balance as at 31 March 2010 2,469,164,200 - 3,320,140 71,346,3122,543,830,652 439,073,198 2,982,903,850STATEMENT OF CHANGES IN EQUITYYear ended 31 March 2010Attributable to equity holders of the parentGroupRevaluationRe-Earnings/TotalOtherRetainedStatedMinority TotalInterest EquityNoteCapitalReserves serves(Losses)Rs. Rs. Rs. Rs. Rs. Rs.Rs.Balance as at 01 April 2009 382,834,600- 3,320,140 (12,610,333) 373,544,407 - 373,544,407CompanyRevalua-OtherRetainedStatedtion Re-Re-Earnings/ TotalNote Capitalservesserves(Losses)Rs. Rs. Rs. Rs. Rs.Balance as at 1 April 2008 35,113,000 85,750 3,320,140 (26,850,324)11,668,566Rights Issue of Ordinary Shares 13 347,721,600 -- - 347,721,600Revaluation Surplus/(Decline)in Investments- (86,130) -- (86,130)Realised Revaluation Loss - 380 -(380) -Defined Benefit Plan Gain 17 - - -584,465 584,465Profit for the Year - - - 13,679,79113,679,791Preference Dividend - - -(23,885) (23,885)Balance as at 31 March 2009 382,834,600 - 3,320,140 (12,610,333)373,544,407Rights Issue of Ordinary Shares 13 2,086,329,600 - -- 2,086,329,600Direct Cost on Share Issue - - - (19,820,135)(19,820,135)Profit for the Year - -- 8,660,391 8,660,391Preference Dividend - - - (23,940)(23,940)Balance as at 31 March 2010 2,469,164,200 - 3,320,140 (23,794,017) 2,448,690,323The accounting policies and notes on pages 55 through 79 form an integral part of the financial statements.53.

Environmental Resources Investment PLC 2009/2010 Annual ReportCASH FLOW STATEMENTSYear ended 31 March 2010 Group CompanyNote 2010 2010 2009Cash Flows From / (Used in) Operating Activities Rs. Rs. Rs.Cash Flow from Operating ActivitiesProfit before tax from continuing operations 134,717,554 15,144,109 26,553,241Profit/(Loss) before tax from discontinued operations - - (8,088,278)Adjustments forDepreciation 4 9,894,320 1,323,821 316,179Amortisation of Intangible assets 5 65,000 - -(Profit)/Loss on Sale of Property, Plant and Equipment 20 (300,451) - (512,000)(Profit)/Loss from Disposal of Investment 22 - - (35,043,987)Provision for Fall in Value of Current Investments 24 34,828,787 34,828,787 -Share of Profits from Associate (2,853,493) - -Provision for Defined Benefit Plans 17 1,859,871 - 664,498Investment & Sundry Income 20 (1,155,045) - -Negative Goodwill 20 (84,824,076) - -Finance Cost 21 28,691 - 3,020,312Operating Profit/(Loss) Before Working Capital Changes 92,261,158 51,296,716 (13,090,035)(Increase)/Decrease in Inventories (30,628,257) - 11,077,137(Increase)/Decrease in Trade and Other Receivables (412,333,804) (410,164,948) 6,902,166Increase/(Decrease) in Trade and Other Payables (30,250,876) 5,920,240 (10,660,149)Cash Generated (used) in Operations (380,951,779) (352,947,992) (5,770,881)Defined Benefit Plan Costs paid net of transfers 17 655,083 - (366,750)Interest Paid 21 (28,691) - (3,020,312)Income Tax Paid (5,900,420) (4,256,558) (58,747)Cash Flow used in Operating Activities (386,225,806) (357,204,550) (9,216,690)Cash Flow from Investing ActivitiesAcquisition of Property, Plant & Equipment 4 (15,745,484) (12,441,584) (219,255)Proceeds from sale of Investments - - 10,453,882Proceeds from Sale of Property, Plant and Equipment 300,451 - -Investment & Sundry Income Received 1,155,045 - -Investment in Subsidiary 27 (226,228,282) (499,099,275) -Other Investments (199,998,047) - 512,000Purchase of current investments (171,762,934) (171,762,934) -Net Cash Flows used in Investing Activities (612,279,251) (683,303,793) 10,746,627Cash Flow from Financing ActivitiesProceeds from Rights Issue 13 2,086,329,600 2,086,329,600 347,721,600Direct Share Issue Cost (19,820,135) (19,820,135) -Net Proceeds from Non-Interest Bearing Loans & Borrowings 593,106 - 16,381,697Repayment of Non-Interest Bearing Loans & Borrowings - - (2,300,000)Principal Payment under Finance Lease Liabilities - - (141,973)Dividend Paid - - (5,750)Net Cash Flows from Financing Activities 2,067,102,571 2,066,509,465 361,655,574Net Increase in Cash & Cash Equivalents 1,068,597,514 1,026,001,123 363,185,511Cash & Cash Equivalent at the beginning of the year 26 357,635,886 357,635,886 (5,549,625)Cash & Cash Equivalent at the end of the year 26 1,426,233,400 1,383,637,009 357,635,88654.The accounting policies and notes on pages 55 through 79 form an integral part of the financial statements.

Notes to the Financial StatementsAs at 31st March 2010Environmental Resources Investment PLC 2009/2010 Annual Report1.0 CORPORATE INFORMATIONEnvironmental Resources Investment PLC is a public limited liability Company incorporated and domiciled inSri Lanka and listed on the Colombo Stock Exchange. The registered office is located at 450, Taj Samudra Hotel, 25Galle Face Centre Road, Colombo 03 and the principal place of business of is located at Level 16, West Tower, WorldTrade Centre, Echelon Square, Colombo 01.In the consolidated financial statements, “the Company” refers to Environmental Resources Investment PLC, as theholding company and “the group” refers to the companies whose accounts have been consolidated therein. Thefinancial statements for the year ended 31 March 2010 were authorised for issue by the directors on 12 August 2010.1.1 Parent EntityThe Company’s Parent undertaking is Lionhart Investments Limited, which is a company incorporated in the UnitedKingdom.1.2 Principal Activities & Nature of OperationsCompanyThe Company operated as the Investment Holding Company of the Group, and is presently engaged in carrying outsuch activities.Subsidiary – Ceylon Leather Products PLCDuring the period, the principal activities of the Company were manufacturing and selling of Leather, LeatherFootwear and Leather Goods.Sub-subsidiary through Ceylon Leather Products PLC - Ceylon Leather Products Distributors (Pvt) LtdDuring the period, the principal activity of the Company was retail selling of Leather Footwear and Leather Goods.Indirect Associate through Ceylon Leather Products PLC - Tan Lanka Ltd.During the period, the principal activity of the Company was renting of machinery.Subsidiary – DNH Financial (Pvt) Ltd (Formerly HNB Stockbrokers (Pvt) Ltd)During the period, the principal activity of the Company was functioning as a stock broker in the Colombo StockExchange.2.1 BASIS OF PREPARATIONThe financial statements, presented in Sri Lankan Rupees, have been prepared on an accrual basis and under thehistorical cost convention unless stated otherwise. The preparation and presentation of these Financial Statementsis in compliance with the Companies Act No. 07 of 2007.2.2 Use of estimates and judgementsThe preparation of financial statements in conformity with SLAS, requires management to make judgements, estimatesand assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, incomeand expenses.The estimates and underlying assumptions are based on historical experience and various other factors that are believedto be reasonable under the circumstances, the results of which form the basis of making the judgements about thecarrying amount of assets and liabilities that are not readily apparent from other sources.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognised in the period in which the estimate is revised if the revision affects only that period or in the period of therevision and future periods if the revision affects both current and future periods.55.

Environmental Resources Investment PLC 2009/2010 Annual ReportJudgements made by management in the application of SLAS that have a significant effect on the financial statementsare mentioned below.PolicyNoteProperty, Plant and EquipmentValuation and depreciation2.6.8 4.9Valuation of intangible assets2.6.9 5Deferred tax2.6.2.(b) 16Employee benefit liabilities2.6.14.(a) 172.3 Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year.2.4 Comparative InformationThe accounting policies have been consistently applied by the Company with those used in the previous year. Nocomparative information for the Group has been provided in the Financial Statements, due to non-existence of aGroup as at the previous financial year ended 31 March 2009.2.5 Consolidation Policy2.5.1 Basis of ConsolidationThe consolidated financial statements include the financial statements of the Company, its subsidiaries and othercompanies over which it has control. The group’s financial statements comprise of the consolidated financial statementsof the Company and the group which have been prepared in compliance with the group’s accounting policies. All intragroup balances, income and expenses and profits and losses resulting from intra group transactions are eliminatedin full.2.5.2 Acquisitions and divestmentsAcquisitions of subsidiaries are accounted for using the purchase method of accounting. The results of subsidiaries, andassociates acquired or incorporated during the year have been included from the date of acquisition, or incorporationwhile results of subsidiaries, and associates disposed have been included up to the date of disposal.2.5.3 SubsidiariesSubsidiaries are those enterprises controlled by the parent. Control exists when the parent holds more than 50% ofthe voting rights or otherwise has a controlling interest.Subsidiaries are consolidated from the date the parent obtains control until the date that control ceases.Subsidiaries consolidated have been listed in Note 6 to the financial statements.The following subsidiaries have been incorporated in Sri Lanka:Name% Holding as at 31 March 2010Ceylon Leather Products PLC49.81%DNH Financial (Pvt) Ltd (Formerly HNB Stockbrokers (Pvt) Ltd)100%The total profits and losses for the period, of the Company and of its subsidiaries included in consolidation and allassets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the consolidatedincome statement and balance sheet respectively.Minority interests which represents the portion of profit or loss and net assets not held by the group, are shown as acomponent of profit for the period in the income statement and as a component of equity in the consolidatedbalance sheet, separately from parent shareholders’ equity. The consolidated cash flow statement includes the cashflows of the Company and its subsidiaries.*The Group consolidates as subsidiary, its investment in Ceylon Leather Products PLC, in terms of Paragraph 13 (b) ofSLAS 26 - Consolidated Financial Statements and Accounting for Investments in Subsidiaries, as in the opinion of theDirectors the Group is able to govern the financial and operating policies of the said company.56.

2.5.4 AssociatesEnvironmental Resources Investment PLC 2009/2010 Annual ReportAssociates are those investments over which the group has significant influence and holds 20% to 50% of the equityand which are neither subsidiaries nor joint ventures of the group.Associate companies of the group which have been accounted for under the equity method of accounting are:Name% Holding as at 31 March 2010Tan Lanka Ltd47.9%The Investments in Associates are carried in the balance sheet at cost plus post acquisition changes in the group’sshare of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of theinvestment. After application of the equity method, the group determines whether it is necessary to recognize anyadditional impairment loss with respect to the group’s net investment in the associate. The income statement reflectsthe share of the results of operations of the associate. Where there has been a change recognised directly in theequity of the associate, the group recognises its share of any changes in the statement of changes in equity.When the group’s share of losses in an associate equals or exceeds the interest in the undertaking, the group does notrecognise further losses unless it has incurred obligations or made payments on behalf of the entity.The group ceases to use the equity method of accounting on the date from which it no longer has significant influencein the associate. The accounting policies of associate companies conform to those used for similar transactions of thegroup.2.5.5 GoodwillGoodwill acquired in a business combination is initially measured at cost being the excess of the cost of the businesscombination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewedfor impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value maybe impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from theacquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of thecombination.Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwillrelates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss isrecognised. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit andthen to the other assets pro-rata to the carrying amount of each asset in the unit. Goodwill and fair value adjustmentsarising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation andtranslated at the closing rate.Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, thegoodwill associated with the operation disposed of is included in the carrying amount of the operation whendetermining the gain or loss on disposal of the operation.2.5.6 Financial yearAs per the group policy, results of all subsidiaries, and associates with alternate year ends are treated as follows:Subsidiaries: 12 month period drawn up to 31 MarchAssociates: 12 month period using the associate’s year endIn the case of Subsidiary/Associate, where the reporting dates are different to group reporting dates, adjustments aremade for any significant transactions or events up to 31 March.2.6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES2.6.1 Foreign currency transactionsThe consolidated financial statements are presented in Sri Lanka rupees, which is the Company’s functional andpresentation currency. The functional currency is the currency of the primary economic envi onment in which theentities of the group operate.All foreign exchange transactions are converted to Sri Lanka rupees, at the rates of exchange prevailing at the time thetransactions are effected.57.

Environmental Resources Investment PLC 2009/2010 Annual ReportMonetary assets and liabilities denominated in foreign currency are retranslated to Sri Lanka rupee equivalents at theexchange rate prevailing at the balance sheet date.Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. The resulting gains and losses are accounted for in the income statement.2.6.2 Taxationc. Sales Tax(a) Current TaxesCurrent income tax assets and liabilities for the current period is measured at the amount expected to be recoveredfrom or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that areenacted or substantively enacted by the balance sheet date.The provision for income tax is based on the elements of income and expenditure as reported in the FinancialStatements and computed in accordance with the provisions of the relevant tax legislations.Current income tax relating to items recognised directly in equity is recognised in equity and not in the incomestatement.(b) Deferred TaxDeferred income tax is provided, using the liability method, on temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred income tax liabilities are recognised for all taxable temporary differences except where the deferred incometax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combinationand, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilisedexcept where the deferred income tax asset relating to the deductible temporary difference arises from theinitial recognition of an asset or liability in a transaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profit nor taxable profit or loss.The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extentthat it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred incometax asset to be utilised.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year whenthe asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantivelyenacted at the balance sheet date.Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the incomestatement.Revenues, expenses and assets are recognized net of the amount of sales tax except where the sales tax incurred on apurchase of asset or service is not recoverable from the taxation authorities in which case the sales tax is recognized asa part of the cost of the asset or part of the expense item as applicable and receivable and payable that are stated withthe amount of sales tax included. The amount of sales tax re coverable and payable in respect of taxation authorities isincluded as a part of receivables and payables in the Balance Sheet.2.6.3 Borrowing CostsBorrowing costs are recognised as an expense in the period in which they are incurred.58.

Environmental Resources Investment PLC 2009/2010 Annual Report2.6.4 InventoriesInventories are valued at the lower of cost and net realisable value, after making due allowances for obsolete and slowmoving items. Net realisable value is the price at which inventories can be sold in the ordinary course of business lessthe estimated cost of completion and the estimated cost neces sary to make the sale.The cost incurred in bringing inventories to its present location and condition are accounted using the followingcost formulae:-Raw MaterialsFinished Goods & Work-in-ProgressConsumables & SparesGoods in Transit- At purchase cost on weighted average basis.- At the cost of direct materials, direct labour and an appropriateproportion of fixed production overheads based on normal operatingcapacity, but excluding borrowing Costs.- At purchase cost on weighted average basis.- At purchase price.2.6.5 Trade and Other ReceivablesTrade receivables are stated at the amounts they are estimated to realize net of allowances for bad and doubtfulreceivables.Other receivables are recognized at cost less allowances for bad and doubtful receivables.2.6.6 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 amount of cash and subject to insignificant risk of changes in value.For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and deposits in banks net ofout standing bank overdrafts. Investments with short term maturities i.e. three months or less from the date ofacquisition are also treated as cash equivalents.2.6.7 Investments(a) Initial Recognition:Cost of investment includes purchase cost and acquisition charges such as brokerages, fees, duties and bankregulatory fees. The Company distinguishes and presents current and non current investment in the balance sheet.(b) Measurement(i) Current Investment:Current investments are carried at the lower of cost and market value, determined on the basis of aggregate portfolio.Unrealized losses arising from reduction to market value and reversals of such reduction required to state currentinvestments at lower of cost and market value are included in income statement.(ii) Other long Term InvestmentsLong term investments are stated at cost.The Carrying amounts are reduced to recognize a decline other than temporary, determined for each investmentindividually. These reductions for other than temporary declines in carrying amounts are charged to incomestatement.(iii) Disposal of InvestmentOn disposal of an investment, the different between net disposals and proceed and the carrying amounts isrecognised as income or expense.59.

Environmental Resources Investment PLC 2009/2010 Annual Report2.6.8 Property, Plant and EquipmentProperty, Plant and Equipment are stated at cost, excluding the costs of day to day servicing, less accumulateddepreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant andequipment when that cost is incurred, if the recognition criteria are met.Certain Property, Plant and Equipments of the Group are measured at fair value less depreciation andimpairment charged subsequent to the date of the revaluation. Valuations are performed every 3-5 years to ensure thatthe fair value of a revalued asset does not differ materially from its carrying amount.Depreciation is calculated on a straight line basis over the useful life. The useful life of the assets have beendisclosed under Note 4.9.2.6.9 Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses.Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure isreflected in the income statement in the year in which the expenditure is incurred.Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever thereis an indication that the intangible assets may be impaired. The amortization period and the amortization method forintangible assets with finite useful life is reviewed at least at each financial year end. Changes in the expected useful life orthe expected pattern of consumption of future economic benefits embodied in the assets is accounted for by changing theamortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expenseson intangible assets with finite lives are recognized in the income statement in the expense category consistent with thefunction of the intangible assets.Computer Software :Computer Software is amortized over 10 years from the date of acquisition ordevelopment.2.6.10 Impairment of Non Financial AssetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any suchindication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’srecoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less coststo sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that arelargely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds itsrecoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value inuse, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell,an appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fairvalue indicators.Impairment losses of continuing operations are recognised in the income statement in those expense categories consistentwith the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. Inthis case the impairment is also recognised in equity up to the amount of any previous revaluation.For assets, an assessment is made at each reporting date as to whether there is any indication that previously recognisedimpairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimateof recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimatesused to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case thecarrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carryingamount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset inprior years. Such reversal is recognised in the income statement unless the asset is carried at revalued amount, in whichcase the reversal is treated as are valuation increase.2.6.11 Non-current assets held for sale and discontinued operations60.Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fairvalue less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts willbe recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when thesale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Managementmust be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year fromthe date of classification.

Environmental Resources Investment PLC 2009/2010 Annual ReportDuring the Financial Year of 2008/09, the Company discontinued its Retail and Trade business with effect from 08 January2009 and in accordance with Sri Lanka Accounting Standard 38 - Non-current assets held for sale and discontinuedoperations the income statement of the reporting period, the resulting profit or loss (after taxes) is reported separately inthe income statement in the comparative financial information relating 2008/09.2.6.12 ProvisionsProvisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provisionto be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtuallycertain. The expense relating to any provision is presented in the income statement net of any reimbursement. If theeffect of the time value of money is material, provisions are determined by discounting the expected future cash flowsat a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risksspecific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognizedas an interest expense.2.6.13 Leases -Group as a lesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leaseditem, are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present valueof the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of thelease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges arecharged reflected in the income statement.Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term,if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. The depreciationpolicy for depreciable leased assets is consistent with that for depreciable asset that are owned as described in 4.9.Operating lease payments are recognised as an expense in the income statement on a straight line basis over the leaseterm.2.6.14 Retirement Benefit Obligations(a) Defined Benefit Plan - GratuityGratuity is a post employment benefit plan. Provisions have been made for retirement gratuity from the first year ofservice for all employees in conformity with SLAS 16. However, under the payment of Gratuity Act No. 12 of 1983, theliability to an employee arises only on completion of five years of continued service. The Group is liable to pay gratuityin terms of relevant statute. The employee benefit liability of companies defined in Appendix D [1] in SLAS 16 with morethan 100 employees is based on the actuarial valuation carried out by an Independent Professional Actuary. Theemployee benefit liability of all other companies in the group are based on the gratuity formula in Appendix E of SLAS16 - Employee Benefits.The item is stated under other deferred Liability in the Balance Sheet.61.

Environmental Resources Investment PLC 2009/2010 Annual ReportRecognition of Actuarial Gains and LossesActuarial gains and losses are recognised as income or expenses when the net cumulative unrecognisedactuarial gains and losses at the end of the previous reporting period exceeded 10% of the higher of the defined benefitobligation and the fair value of plan assets at the date.The gains/losses are recognised over the expected average remaining working lives of the employees participating in the plan.Recognition of Past Service CostPast Service Costs are recognised as an expense on a straight line basis over the average period until the benefits becomevested. If the benefits have already been vested, immediately following the introduction of, or changes to the plan, pastservice costs are recognised immediately.Funding ArrangementsThe Gratuity liability is not externally funded.(b) Defined Contribution Plans – Employees’ Provident Fund & Employees’ Trust FundEmployees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in line withthe respective statutes and regulations. The Company contributes 12% and 3% of grossemoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.2.6.15 Segmental InformationA business segment is a distinguishable component of an enterprise that is engaged in providing an individual product orservice or a group of related products or services that is subject to risk and returns that are different from those of otherbusiness segments.The accounting policies adopted for segment reporting are the same accounting policies adopted for preparing andpresenting consolidated financial statements of the Group.2.6.16 Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and therevenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value ofthe consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used forthe purpose of recognition of revenue.(a) Sale of GoodsRevenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passedto the buyer, usually on dispatch of the goods.(b) Rendering of ServicesRevenue from rendering of services is recognised in the accounting period in which the services are rendered or performed.Fees and commission income relating to specific transactions or events are recognised in the income statement in the periodin which they are earned. However, when they are related to services provided over a period, they are recognised in theincome statement on the accrual basis.(c) Interest IncomeInterest Income is recognised as the interest accrues taking into account the effective yield on the asset unless collectabilityis in doubt.(d) DividendsDividend income from shares is recognized when the shareholders’ right to receive the payment is established.(e) OthersOther income is recognised on an accrual basis.Net Gains and losses of a revenue nature on the disposal of Property, Plant & Equipment and other non current assetsincluding investments have been accounted for in the income statement, having deducted from proceeds on disposal,the carrying amount of the assets and related selling expenses.62.

Environmental Resources Investment PLC 2009/2010 Annual Report2.7 EFFECT OF SRI LANKA ACCOUNTING STANDARDS ISSUED BUT NOT YETEFFECTIVE:The following standards have been issued by the Institute of Chartered Accountants of Sri Lanka and are effective for theaccounting periods on the dates specified below.(a) Sri Lanka Accounting Standard 44 - Financial Instruments; Presentation (SLAS 44) and Sri LankaAccounting Standard 45 - Financial Instruments; Recognition & Measurement (SLAS 45)SLAS 44 and 45 becomes effective for financial years beginning on or after 1 January 2011. Accordingly, the financialStatements for the year ending 31 March 2012 will adopt SLAS 44 and 45, for the first time.These two standards together provide comprehensive guidance on identification, classification, meaurement andpresentation of financial instruments (including Derivatives) into financial assets, financial liabilities and equity instruments.In order to comply with the requirements of these standards, the Group is in the process of assessing the effect ofadoption of the aforesaid two standards. Due to the complex nature of the effects of these standards, the impact ofadoption cannot be estimated as at the date of publication of these financial statements.(b) Sri Lanka Accounting Standard 39 - Share Based Payments (SLAS 39)SLAS 39- Share based payments, effective for periods beginning on or after 1st January 2010 will be first adopted inthe year ending 31 March 2011. This standard requires an expense to be recognized where the Group buys goods orservices in exchange for shares or rights over shares (equity settled transactions), or in change for other assets equivalentin value to a given number of shares or rights over shares ( cash-settled transactions). For equity-settled share-basedpayment transactions, the Group is required to apply SLAS 39 for grants of shares, share options or other equityinstruments that were granted after 1 January 2010.The Group is in the process of evaluating the impact of this standard. However, it is unlikely that thisStandard will have a material impact on the financial statements.63.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2010GroupCompany3. REVENUE 2010 2009Continuing Discontinued2010Operations Operations3.1 Summary Rs. Rs. Rs. Rs.Gross Revenue 255,810,081 73,431,965 1,613,829 41,074,815Less: Turnover Tax (22,087,860) - - (424,491)Revenue 233,722,221 73,431,965 1,613,829 40,650,3243.2 Segment InformationGroup 2010 2010 2010 2010Manufacturing Stock Brokering Investment & TotalServicesRs. Rs. Rs. Rs.Total Revenue 139,123,485 21,166,771 73,431,965 233,722,221Revenue 139,123,485 21,166,771 73,431,965 233,722,221ResultsSegment Results 27,739,430 11,038,922 43,119,111 81,897,463Negative Goodwill 84,824,076 - - 84,824,076Finance Costs (28,691) - - (28,691)Allowance for fall in value of investment - - (34,828,787) (34,828,787)Share of Profits of Associates 2,853,493 - - 2,853,493Profit before Income Tax 115,388,308 11,038,922 8,290,324 134,717,554Income Tax Expense (17,709,881) (1,710,329) (6,483,718) (25,903,928)Profit for the Year 97,678,427 9,328,593 1,806,606 108,813,626Equity Holders of the Parent 103,800,720Minority Interest 5,012,906108,813,626Assets and LiabilitiesNon-Current Assets 879,307,358 8,619,098 64,480,100 952,406,556Current Assets 362,578,478 125,854,522 1,956,141,104 2,444,574,104Total Assets 1,241,885,836 134,473,620 2,020,621,204 3,396,980,660Non-Current Liabilites 142,852,345 127,620 - 142,979,965Current Liabilites 217,538,401 35,513,903 18,044,541 271,096,845Total Liabilities 360,390,746 35,641,523 18,044,541 414,076,810Other Segment InformationTotal cost incurred during the period to acquire- Property, Plant & Equipment 2,460,551 843,350 12,441,584 15,745,485Depreciation 7,635,403 935,096 1,323,821 9,894,320Amortisation 65,000 - - 65,00064.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 20104. PROPERTY, PLANT & EQUIPMENT Balance Business Additions/ Disposals/ BalanceGroup As At Acquisitions Transfers/ Transfers As At01.04.2009 31.03.20104.1 At Cost or Valuation Rs. Rs. Rs. Rs.Freehold Land - 516,909,750 - - 516,909,750Building on Freehold Land - 278,309,688 - - 278,309,688Plant & Machinery - 86,803,174 532,000 - 87,335,174Production Equipment - 21,724,666 138,378 - 21,863,044Shoe Last - 9,385,419 - - 9,385,419Office Equipment - 9,679,748 1,366,423 - 11,046,171Loose Tools - 1,309,799 - - 1,309,799Laboratory Equipment - 232,667 - - 232,667Furniture, Fixtures & Office Equipment - 4,229,955 9,584,844 - 13,814,799Canteen Equipment - 235,648 - - 235,648Motor Vehicles - 2,822,892 - (755,555) 2,067,337Equipment for Export Shoe Project - 1,881,312 - - 1,881,312Computer 118,800 2,950,365 4,123,840 - 7,193,005Total Assets 118,800 936,475,083 15,745,485 ( 755,555 ) 951,583,813Assets on Finance LeasesOffice Equipment - 2,250,470 - - 2,250,470Motor Vehicles - 10,053,651 - - 10,053,651- 12,304,121 - - 12,304,121Total Gross Carrying Amount 118,800 948,779,204 15,745,485 (755,555) 963,887,934Balance Charge for Disposals/ Balance4.2 Depreciation As At Business the Period Transfers As At01.04.2009 Acquisitions 31.03.2010At Cost Rs. Rs. Rs. Rs. Rs.Freehold Land - - - - -Building on Freehold Land - 11,759,261 3,853,643 - 15,612,904Plant & Machinery - 33,609,520 2,366,941 - 35,976,461Production Equipment - 4,916,350 406,513 - 5,322,863Shoe Last - 2,509,399 180,353 - 2,689,752Office Equipment - 5,871,804 205,953 - 6,077,757Loose Tools - 1,204,669 5,890 - 1,210,559Laboratory Equipment - 179,743 917 - 180,660Furniture, Fixtures & Office Equipment - 2,869,741 1,390,219 - 4,259,960Canteen Equipment - 194,944 1,707 - 196,651Motor Vehicles - 2,613,680 (3,145) (755,554) 1,854,981Equipments for Export Shoe Project - 1,543,138 19,131 - 1,562,269Computer - 2,396,821 926,406 - 3,323,227Total Depreciation - 69,669,070 9,354,528 ( 755,554) 78,268,044Assets on Finance LeasesOffice Equipment - 857,978 37,497 - 895,475Motor Vehicles - 4,083,292 502,295 - 4,585,587- 4,941,270 539,792 - 5,481,062Total Depreciation - 74,610,340 9,894,320 (755,554) 83,749,10665.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 20104. PROPERTY, PLANT & EQUIPMENT (Contd.)4.3 Net Book Values 2010Rs.At Cost or ValuationFreehold Land 516,909,750Building on Freehold Land 262,696,784Plant & Machinery 51,358,713Production Equipment 16,540,181Shoe Last 6,695,667Office Equipment 4,968,414Loose Tools 99,240Laboratory Equipment 52,007Furniture, Fixtures & Office Equipment 9,554,839Canteen Equipment 38,997Motor Vehicles 212,356Equipments for Export Shoe Project 319,043Computer 3,869,778873,315,769Assets on Finance LeasesOffice Equipment 1,354,995Motor Vehicles 5,468,0646,823,059Total Carrying Amount of Property, Plant & Equipments 880,138,8284.4 During the financial year the Group acquired Property, Plant & Equipment to the aggregate value of Rs. 15,754,484/- forcash.4.5 Property, Plant & EquipmentsCompany Balance Additions/ Disposals/ BalanceAs At Transfers Transfers As At01.04.2009 31.03.20104.6 At Cost Rs. Rs. Rs. Rs.Furniture, Fixtures & Office Equipment - 9,161,094 - 9,161,094Computer 118,800 3,280,490 - 3,399,290Total Assets 118,800 12,441,584 - 12,560,384Balance Charge for Disposals/ Balance4.7 Depreciation As At the Year Transfers As At01.04.2009 31.03.2010At Cost Rs. Rs. Rs. Rs.Furniture, Fixtures & Office Equipment - 965,211 - 965,211Computer - 358,610 - 358,610Total Depreciation - 1,323,821 - 1,323,8214.8 Net Book Values 2010 2009Rs.Rs.At CostFurniture, Fixtures & Office Equipment 8,195,883 -Computer 3,040,680 118,800Total Carrying Amount of Property, Plant & Equipment 11,236,563 118,80066.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 20104. PROPERTY, PLANT & EQUIPMENT (Contd.)4.9 The useful lives of the assets of the companies in the Group is estimated as follows.2010 2009Furniture & Fixtures 10 Years -Office Equipment 4 Years -Computer 4 Years 4 YearsBuilding on Freehold Land 40 Years -Plant & Machinery 10 Years -Production Equipment 18.18 Years -Shoe Last 16.67 Years -Loose Tools 18.18 Years -Laboratory Equipment 18.18 Years -Canteen Equipment 10 Years -Motor Vehicles 6 Years -Equipments for Export Shoe Project 10 Years -4.10 During the financial year the Company acquired Property, Plant & Equipment to the aggregate value of Rs. 12,441,584 /- (2009- 219,255/-)for cash.5. INTANGIBLE ASSETSGroup5.1 Summary 2010Rs.Goodwill (Note 5.2) 53,243,537Computer Software (Note 5.3) 2,765,00056,008,5375.2 GoodwillBalance at the beginning of the year -Business acquired during the year (Note 27) 53,243,537Impairment during the year -Balance at the end of the year (Note 5.2.1) 53,243,5375.2.1 Goodwill represents the excess of an acquisition over the company's interest in the net fair value of the identifiable assets, liabilitiesand contingent liabilities at the date of acquisition, and is carried at cost less accumulated impairment losses. The Group Goodwillhas been allocated to the following cash-generating unit, for impairment testing: - DNH Financial (Pvt) LtdGoodwill is not amortised, but is reviewed for impairment annually and whether there is an indication that goodwill may be impaired.For the purpose of testing goodwill for impairment, goodwill is allocated to the operating entity level, which is the lowest level atwhich the goodwill is monitored for internal management purpose.5.3 SoftwareBalance at the beginning of the year -Business acquired during the year (Note 27) 2,830,000Amortsation during the period (65,000)Balance at the end of the year (Note 5.3.1) 2,765,0005.3.1It is estimated that this locally purchased computer Software benefits the company over a period of 10 years, and being amortizedover a period of 10 years. The remaining useful life of intangible asset is 07 years as at 31/03/2010.67.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 20106. INVESTMENT IN SUBSIDIARIESCompany6.1 Investments in Equity Securities - Quoted 2010 2010 2009 2009MarketMarketHolding Cost Value Cost Value% Rs. Rs. Rs. Rs.Ceylon Leather Products PLC 49.81% 343,083,352 546,379,850 - -343,083,352 546,379,850 - -The Group consolidates as subsidiary, its investment in Ceylon Leather Products PLC, in terms of Paragraph 13 (b) of SLAS 26 - ConsolidatedFinancial Statements and Accounting for Investments in Subsidiaries, as in the opinion of the Directors the Group is able to governthe financial and operating policies of the said company.2010 2010 2009 20096.2 Investments in Equity Securities - Unquoted Directors DirectorsHolding Cost Value Cost Value% Rs. Rs. Rs. Rs.DNH Financial (Pvt) Ltd 100% 156,015,923 156,015,923 - -156,015,923 156,015,923 - -Total Carrying Value of Investments 499,099,275 -CarryingCarrying7. INVESTMENT IN ASSOCIATE Value Share of Dividend Value2009 Acquisition Goodwill Profit/(Loss) Received 20107.1 Group Rs. Rs. Rs. Rs. Rs.Non - QuotedTan Lanka Limited - 7,484,752 - (970,001) - 6,514,751- 7,484,752 - (970,001) - 6,514,751CarryingCarryingValue Negative Share of Adj. due to Acq. ValueQuoted 2009 Acquisition Goodwill Profit/(Loss) of Subsidiary 2010Rs. Rs. Rs. Rs. Rs.Ceylon Leather Products PLC - 199,998,047 (47,937,381) 3,823,494 (155,884,159) -- 199,998,047 (47,937,381) 3,823,494 (155,884,159) -Total Carrying value of Associates - 207,482,799 (47,937,381) 2,853,493 (155,884,159) 6,514,7518. OTHER INVESTMENTSCarrying Directors8.1 Group No of Shares Value Valuation2010 2010 2010Rs.Rs.Ned Lanka (Ceylon) Limited 133,500 1,954,440 4,144,6069. OTHER NON-CURRENT ASSETS 2010GroupRs.Deposit with Colombo Stock Exchange (Note 27) 7,790,00068.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201010. INVENTORIESGroup2010Rs.Raw Material 52,840,461Work in Progress 28,711,609Finished Goods 23,081,143Less : Allowance for Obsolete & Slow Moving Inventories (7,608,114)97,025,099Consumables and Spares 23,248,574120,273,673Unrealized Profit (5,292,881)Total Inventories at the lower of Cost and Net Realizable Value 114,980,79211. CURRENT INVESTMENTS 2010 2010 2009 2009Group/Company Cost Market Cost MarketValueValue11.1 Investments in Equity Securities - Quoted Rs. Rs. Rs. Rs.People's Merchant Bank PLC 96,762,934 57,434,147 - -Namal Acuity Value Fund 75,000,000 79,500,000 - -171,762,934 136,934,147 - -Allowance for fall in value of investment (34,828,787) - - -Total carrying Value of Investment 136,934,147 136,934,147 - -12. TRADE AND OTHER RECEIVABLES Group Company2010 2010 200912.1 Summary Rs. Rs. Rs.Trade Debtors 281,303,750 - -Less: Allowance for Bad & Doubtful Debtors (27,543,089) - -253,760,661 - -Other receivables 67,827,562 20,997,978 27,000,000Loan receivables (Note 12.2) 405,910,000 405,910,000 -Advances and Prepayments 48,355,041 10,256,970 -Less: Allowance for Bad & Doubtful Debtors (24,952,377) - -750,900,887 437,164,948 27,000,00012.2 Loan Recievables12.2.1 Group/Company 2010RsD.B. Exim (Pvt) Ltd 20,000,000Olancom (Pvt) Ltd (Formerly known as Roomsnet International (Pvt) Ltd ) 385,910,000405,910,000

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201013. STATED CAPITAL 2010 2010 2009 2009Number Rs. Number Rs.13.1 Fully Paid Ordinary Shares (Note 13.2) 139,088,640 2,468,822,200 34,772,160 382,492,600Fully Paid 7% Non-Cumulative Preference Shares (Note 13.4) 170,625 342,000 170,625 342,000139,259,265 2,469,164,200 34,942,785 382,834,60013.2 Fully Paid Ordinary Shares 2010 2010 2009 2009Number Rs. Number Rs.Balance at beginning of the year 34,772,160 382,492,600 17,386,080 34,771,000Issue of shares for cash (Note 13.2.1) 104,316,480 2,086,329,600 17,386,080 347,721,600Balance at end of the year 139,088,640 2,468,822,200 34,772,160 382,492,60013.2.1 At an Extraordinary General Meeting of Environmental Resources Investment PLC held on 07 July 2009, the shareholders approveda right issue of 3 ordinary shares for every 1 share held at an exercise price of Rs.20/- Accordingly 104,316,480 newshares were issued by the Company.13.3WARRANTS ISSUE2010 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.22.00 exercise date - 10 June 20102011 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.24.00 exercise date - 03 June 2011Rights Issue with Warrants AttachedAt an Extraordinary Meeting held on 30 March 2010, the shareholders approved a Rights Issue with Warrants attached,details of which are as follows;Proportion:- One (01) Ordinary Share for every two (02) existing Ordinary Shares held, at a price of Rs.30.00 per share.WARRANTS ISSUE2012 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.33.00 exercise date - 24 February 20122014 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.36.00 exercise date - 24 February 20142015 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.39.00 exercise date - 24 February 201513.4 Rights, Preference and Restrictions of Classes of Capital"The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to have onevote per individual present at meetings of the company. All shares rank equally with regard to the Company's residual assets.Shareholders of the Non-Cumulative Preference Shares are entitled for a mandatory preference dividend annually. They arenot entitled to vote at a meeting of the company.”14. OTHER RESERVE Group Company Company2010 2010 2009Rs. Rs. Rs.Capital Reserve (Note 14.1) 3,100,000 3,100,000 3,100,000General Reserve (Note 14.2) 220,140 220,140 220,1403,320,140 3,320,140 3,320,14014.1 Capital Reserve represents amounts set aside by the Directors for further expenditure to meet any contingencies.14.2 General Reserve is a revenue reserve represents amounts set aside by the Directors for general application.70.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201015. INTEREST BEARING LOANS AND BORROWINGSSummary - Group 2010 2010Amount AmountRepayable Repayable 2010Within 1 Year After 1 Year TotalRs. Rs. Rs.Finance Leases (Note 15.1) 2,003,676 2,582,615 4,586,291Bank Loans (Note 15.2) 33,333,336 46,546,630 79,879,966Related Party Loans (Note 15.3) 33,000,000 - 33,000,000Trust Receipt Loans (Note 15.4) 63,387,275 - 63,387,275Bank Overdrafts (Note 26) 15,524,878 - 15,524,878147,249,165 49,129,245 196,378,41015.1 Finance Leases As At Business New Leases Repayment As At01.04.2009 Acquisition Obtained 31.03.2010Rs. Rs. Rs. Rs. Rs.Lanka Orix Leasing Company PLC - 1,429,496 - (208,097) 1,221,399Hatton National Bank PLC - 3,527,742 - (162,850) 3,364,892- 4,957,238 - (370,947) 4,586,291Gross Liability - 6,070,614 5,579,174Finance Charges allocated to future periods - (1,113,376) (992,883)Net liability - 4,957,238 4,586,291Security:Absolute ownership of the assets under lease will be with the lessor till the expiration of the lease period.As At Business Loans Repayment As At15.2 Bank Loan Interest Rate 01.04.2009 Acquisition Obtained 31.03.2010Rs. Rs. Rs. Rs. Rs.Hatton National Bank PLC 16% - 87,870,155 - (7,990,189) 79,879,966- 87,870,155 - (7,990,189) 79,879,966Security:Primary floating mortgage bond for Rs.150 Mn over land and building depicted in lots 1 & 2 in plan no. 3560 dated 22 January2008 made by L. Goonesekera situated in Belummahara has been kept as security in order to acquire the loan.Loan Repayment Terms: The loan payment is equated on a monthly installment basis of Rs. 3,017,617 (Interest & Capital)into six months15.3 Related Party Loans As At Business Loans Repayment As At- Other related party Interest Rate 01.04.2009 Acquisition Obtained 31.03.2010Rs. Rs. Rs. Rs. Rs.Yenom (Pvt) Limited 19.50% - 33,000,000 - - 33,000,000- 33,000,000 - - 33,000,000Security: No securities have been pledged as they have been mutually agreed with the parties concernedLoan Repayment Terms: In case where the principal sum exceeds Rs. 100 million Ceylon Leather Products PLC has topay Yenom (Pvt) Ltd. the due amount within 30 day from the last business day of the month.15.4 Trust Receipt Loans As At Business Loans Repayment As AtInterest Rate 01.04.2009 Acquisition Obtained 31.03.2010Rs. Rs. Rs. Rs. Rs.Peoples Bank 12.0% - 26,612,007 38,668,659 (27,771,016) 37,509,650Hatton National Bank PLC 16.0% - 27,821,026 20,783,448 (22,726,849) 25,877,625- 54,433,033 59,452,107 (50,497,865) 63,387,27571.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201016. DEFERRED TAX LIABILITY/(ASSET)Group Company16.1 Summary 2010 2010 2009Rs. Rs. Rs.At the beginning of the year - - -New business acquisitions (Note 27) 63,467,584 - -Transfer from/(to) income statement (Note 23) 53,413 (5,189,122) -At the end of the year (Note 16.1) 63,520,997 (5,189,122) -16.1 DEFERRED TAX (ASSETS)/LIABILITIES Group CompanyBalance Income Balance Sheet Income StatementSheet Statement2010 2010 2010 2009 2010 2009Rs. Rs. Rs. Rs. Rs. Rs.Deferred Tax LiabilityAccelerated depreciation for tax purposes 8,564,311 (3,452,715) 475,377 - 475,377 -Revaluation of Land and buildings 95,595,326 - - - - -104,159,637Deferred Tax AssetsDefined Benefit Plans (10,570,737) (530,987)Losses available for offset against future taxable income (30,067,903) 4,037,115 (5,664,499) - (5,664,499) -(40,638,640)Deferred Income Tax Reversal/(Expense) (Note 23) 53,413 - - (5,189,122) -Net Deferred Tax Liability/(Asset) 63,520,997 (5,189,122) -17. OTHER DEFERRED LIABILITIES Group Company2010 2010 2009Expense on Defined Benefit Plan Rs. Rs. Rs.Current Service Cost 1,310,075 - 147,640Interest Cost on Benefit Obigation 549,796 - 121,038Net Actuarial (Gain) / Loss - - 343,218Total Expenses 1,859,871 - 611,896Defined Benefit ObligationBalance as at the beginning of the year 2008 - - 1,929,337Transitional Provision - - (584,465)Balance as at 1 April - - 1,344,872Current Service Cost 1,310,075 - 147,640Interest Cost on Benefit Obligation 549,796 - 121,038Actuarial Losses / (Gain) on Obligation - 395,820Benefit Paid (418,243) - (366,750)Transferred to/(from) during the year 1,073,326 - (1,642,620)Business acquisitions during the year (Note 27) 27,814,769 - -Balance as at 31 March 30,329,723 - -72.

Environmental Resources Investment PLC 2009/2010 Annual Report17. OTHER DEFFERRED LIABILITIES (Contd.)17.1 The employee benefit liability of companies defined in Appendix D [1] in SLAS 16 with more than 100 employees is based on theactuarial valuation carried out by an Independent Professional Actuary of Messrs. Piyal S Goonetilleke and Associates. Theemployee benefit liability of all other companies in the Group are based on the gratuity formula in Appendix E of SLAS 16 -Employee BenefitsDiscount Rate 11.5%Salary Increment rates used 10%Retirement Age 55 Years18. TRADE AND OTHER PAYABLES Group Company2010 2010 2009Rs. Rs. Rs.Trade Payable- Other 37,439,769 - -- Related Parties(Note 18.1) 7,901,332 - -Other Payables 7,031,374 13,166,042 6,916,016Sundry Creditors including Accrued Expenses 36,721,020 - 329,78689,093,495 13,166,042 7,245,80218.1 Trade & Other Dues Payable to Related PartiesRelationshipTan Lanka Ltd Associate Company 7,901,3327,901,332Group Company19. DIVIDEND PAYABLE 2010 2010 2009Rs. Rs. Rs.Dividend payable 363,566 363,566 339,62673.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 2010GroupCompany20. OTHER INCOME 2010 2010 2009ContinuingOperationsDiscontinuedOperationsRs. Rs. Rs. Rs.Interest Income 1,155,045 - - 1,638Profit from disposal of Property, Plant & Equipments 300,451 - - 512,000Sundry Income 519,605 1,635,960 - -Rent Income 825,269 6,000,000 - 347,550Recovery from Bad & Doubtful Debts - - - 851,304Commission Received on Initial Public Offerings 1,670,680 - - -Negative Goodwill arising from Acquisition 84,824,076 - - -89,295,126 7,635,960 - 1,712,492GroupCompany21. FINANCE COST 2010 2010 2009ContinuingOperationsDiscontinuedOperationsRs. Rs. Rs. Rs.Bank Overdraft Interest - - - 388,610Lease Interest - - - 2,436Loan Interest 28,691 - - 2,629,26628,691 - - 3,020,31222. DISCONTINUED OPERATIONSDuring the Financial year 2008/09, the Company had incorporated Walker & Greig (Pvt) Ltd with a view to takeoverthe Retail and Trade business. Including the assets and liabilities connected to such business of the Company.The Company entered into an agreement with Brown & Company PLC and Walker & Greig (Pvt) Ltd to;a) Transfer the Retail and Trade business carried by the Company along with the assets and liabilities connectedto such business to Walker & Greig (Pvt) Ltd.b) For the sale of the share held by the Company in Walker & Greig (Pvt) Ltd to Brown & Company PLC.2010 2009Rs. Rs.Revenue (Note 3) - 40,650,324Cost of Sales - (32,581,058)Gross Profit - 8,069,266Other Income (Note 20) - 1,712,492Distribution Cost - (8,673,928)Administration Expenses - (6,175,797)Finance Cost (Note 21) - (3,020,312)Loss Before Tax from Discontinued Operations - (8,088,278)Income Tax Expense - -Loss from Discontinued Operations - (8,088,278)22.1 Net Book Value of the Assets/Liabilities of the Retail and Trade business as at 08 January 2009transferred to Walker & Greig (Pvt) Ltd. 2010 2009Rs. Rs.Property, Plant & Equipments - 874,398Long Term Investments - 976,630Inventory - 20,243,062Trade and Other Receivables - 34,272,785Cash and Bank - 992,040Long Term Loans and Borrowings - (27,604,382)Gratuity - (1,642,620)Trade and Other Payables - (24,732,663)- 3,379,25074.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201022.2 Disposal Profit of sale of Investment in Shares of Walker & Greig (Pvt) Ltd Rs. Rs.Sale Price - 38,423,237Net Book Value of the Assets/Liabilities of the Retail and Trade business - (3,379,250)as at 08 January 2009 transferred to Walker & Greig (Pvt) Ltd (22.1)Disposal Profit - 35,043,8723. INCOME TAX EXPENSE Group Company2010 2010 2009Rs. Rs. Rs.Current Income TaxCurrent Tax Expense on Ordinary Activities for the Year (Note 23.2) 24,938,079 10,760,404 4,785,172Under/(Over) Provision of current taxes in respect of prior years - - -Deemed Dividend TaxDeemed Dividend Tax Charge for the year 912,436 912,436 -Deferred Income TaxDeferred Taxation Charge/(Reversal) (Note 16) 53,413 (5,189,122) -Income tax expense reported in the Income Statement 25,903,928 6,483,718 4,785,17223.1 Reconciliation between Current Tax Expense and the product of Accounting Profit.Group Company2010 2010 2009Rs. Rs. Rs.Accounting Profit/(Loss) before Tax from Continuing operations 134,717,554 15,144,109 26,553,241Accounting Loss for the year from Discontinued Operation (Note 22) - - (8,088,278)Aggregate Disallowed Items 52,124,548 41,419,464 2,402,324Aggregate Allowable Expenses (87,702,557) (9,964,087) (1,758,238)Trade Profit/(Loss) 99,139,544 46,599,486 19,109,04923.2 Taxable Profit 99,139,544 46,599,486 19,109,049Interest Income 1,155,045 - 1,613,829100,294,589 46,599,486 20,722,878Less : Carried Forward Tax Loss utilised (30,223,566) (16,309,820) (7,253,007)Taxable Income 70,071,023 30,289,666 13,469,871Applicable Tax Rate 35% 24,524,858 10,601,383 4,714,455Applicable Tax Rate 15% 44,678 - -Social Responsibility Levy - 1.5% (2009 - 1.5%) 368,543 159,021 70,71724,938,079 10,760,404 4,785,17275.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201024. PROFIT/(LOSS) BEFORE TAX FROM CONTINUING OPERATIONS Group Company2010 2010 2009Stated after Charging/(Crediting) Rs. Rs. Rs.Depreciation 9,894,320 1,323,821 -- Included under Administration Expenses- Salaries 4,761,247 - -- Bonus 124,613 - -- Defined Benefit Plan Costs -Gratuity 1,639,095 - -- Defined Contribution Plan Costs - EPF & ETF 666,497 - -- Other Staff Costs 200,478 - -- Included under Cost of Sales- Salaries 9,867,259 - -- Bonus 356,204 - -- Defined Benefit Plan Costs -Gratuity 220,776 - -- Defined Contribution Plan Costs - EPF & ETF 1,502,390 - -- Other Staff Costs 1,919,283 - -Allowance for fall in Value of Investment 34,828,787 34,828,787 -Rights Issue Expense 409,100 409,100 1,738,610Allowance for Doubtful Receivables 1,483,092 - -25. EARNINGS PER SHARE25.1 Basic Earnings Per Share is calculated by dividing the Net Profit for the year attributable to ordinary shareholders by theweighted 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.25.2The following reflects the income and share data used in the basic Earnings Per Share computations.GroupAmount Used as the Numerator:Rs.Net Profit/(Loss) Attributable to Ordinary & Preference Shareholders 103,800,720Less: Preference Dividend (23,940)Net Profit/(Loss) Attributable to Ordinary Shareholders for basic Earnings/(Loss) Per Share 103,776,7802010GroupNumber of Ordinary Shares Used as Denominator: NumberOrdinary shares at the beginning of the year adjusted for the right issue on 7 July 2009 11,063,869Issue of shares for cash (Note 13.2.1) 104,316,480Bonus element of Right issue approved on 30 March 2010 (Refer Note 13.3) 56,422,750Weighted average number of ordinary shares for basic earnings per share 171,803,099Effect of dilution:Share warrants 605,262,705Weighted average number of ordinary shares adjusted for the effect of dilution 777,065,80425.3 The weighted average number of ordinary shares in issue during the year and the previous year are adjusted for the right issuemade during the year.GroupCompany26. CASH AND CASH EQUIVALENTS 2010 2010 2009Rs. Rs. Rs.26.1 Favourable Cash and Cash Equivalents BalanceCash and Bank Balances 1,441,758,278 1,383,637,009 357,635,8861,441,758,278 1,383,637,009 357,635,88626.2 Unfavourable Cash and Cash Equivalents BalanceBank Overdraft (Note 15) (15,524,878) - -Cash & cash equivalents at the end of the year for the purpose of Cash Flow Statement 1,426,233,400 1,383,637,009 357,635,886201076.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201027. ACQUISITION OF SUBSIDIARIES DURING THE YEARAcquisition of DNH Financial (Pvt) LtdOn 9 October 2009, the Group acquired 100% of the voting shares of DNH Financial (Pvt) Ltd, a private company in the businessof stockbrokering.Acquisition of Ceylon Leather Products PLCOn 03rd December 2009, the group acquired 29% of the voting shares of Ceylon Leather Products PLC (CLPL), a listed companyon the Colombo Stock Exchange. There after on 25th January 2010, the group aqcuired further 20.81% which resulted inthe business combination of CLPL.The values of the identifiable assets and liabilities of DNH Financial (Pvt) Ltd and Ceylon Leather Products PLC as at the date ofacquisition were:DNH CLPL TotalProperty, Plant and Equipment 920,844 873,248,020 874,168,864Intangible Assets - 2,830,000 2,830,000Deposit with Colombo Stock Exchange 7,790,000 - 7,790,000Deferred Tax Asset/(Liability) 2,430,960 (65,898,544) (63,467,584)Investment in Associate - 7,484,752 7,484,752Other Investments - 1,954,440 1,954,440Income Tax Recoverable - 65,000 65,000Trade and Other Receivables 66,929,641 244,637,442 311,567,083Cash and Cash Equivalents 71,017,465 1,855,481 72,872,946Inventories - 84,352,535 84,352,535Retirement Benefit Liability (117,620) (27,697,149) (27,814,769)Trade and Other Payables (46,005,642) (66,092,927) (112,098,569)Income Tax Liabilities (193,262) (11,644,410) (11,837,672)Interest Bearing Borrowings - (180,260,426) (180,260,426)Total identifiable net assets 102,772,386 864,834,214Net Assets Acquired - 100% 102,772,386 20.81%* 179,972,000Goodwill/(Negative Goodwill) 53,243,537 (36,886,695)Cash Consideration Paid on the Acquisition of Subsidiary (156,015,923) (143,085,305) (299,101,228)Net Cash Outflow from the acquisitions (84,998,458) (141,229,824) (226,228,282)27.1 The assets and liabilities as at the acquisition date are stated at their provisional fair values and may be amended in accordancewith SLAS 25 - Business Combination.28. COMMITMENTS AND CONTINGENCIES28.1 Capital Expenditure CommitmentsThe Company entered in to an agreement to purchase 100% shares of Environmental Resources Limited a company registered in theBritish Virgin Islands from Osiris International of BVI on 14th December 2009 for a sum not exceeding 76 Million USD. (Refer Note 31.1).Other than the said commitment and the proposed investments detailed in Note 31.2, 31.3, 31.5 and 31.6 the Company and the Groupdo not have significant capital commitments as at the Balance Sheet date.28.2 ContingenciesCompanyThe Company does not have significant contingencies as at the Balance Sheet date.GroupCeylon Leather Products PLCLetters of Credit and Bank GuaranteesCompany, in its normal course of business opens letters of credit with banks favouring suppliers in respect of material procurement andgives guarantees issued by banks on the company’s behalf favouring customers. Respective balances outstanding as at theBalance Sheet date are given below:2010Rs.11,013,327Guarantees Issued by Banks on behalf of the Company 61,917,220An amount of Rs.14,037,898/- being turnover taxes in dispute in respect of the quarters in 1991/1992 through 1993/1994 had been credited tothe income statement during the year ended 31 March 2004, by reference to the Inland Revenue (Special Provisions) Act No. 10 of 2003. Due tosubsequent changes in legislations, there may a possibility of chrystalising this liability. However, management is of the view that this liability willnot chrystalise, due the fact that all returns in respect of respective years were submitted and payments finalised accordingly.77.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201029. ASSETS PLEDGEDGroupThe Company does not have any assets that are pledged as security for liabilities. However the Ceylon Leather Products PLC one of thesubsidiary in the Group has pledged the following assets.Nature of AssetsNature of LiabilityCarrying AmountPledged2010 2009Immovable Properties Floating Mortgage Rs. Rs.for Loans and Borrowings 779,606,534 787,788,412IncludedunderProperty, Plant& EquipmentLeased AssetsCharge over Leased Assetson Finance Lease Liabilities 6,823,059 4,761,344Property, Plant& EquipmentPlant & MachineryFloating MortgageOther than leased for Loans and Borrowings 75,064,851 91,113,995Property, Plant& EquipmentInventories Floating Mortgage for 114,980,792 88,211,412 InventoriesPermanent OD & ShortTerm Loans30. RELATED PARTY DISCLOSURESDetails of significant related party disclosures are as follows:30.1 Transaction with related entities Group Company2010 2010 2009Nature of transactionsRs. Rs. Rs.30.1.1 Parent Issue of shares 1,943,243,300 1,943,243,300 309,464,70030.1.2 Subsidiaries Amount payable as at 31 March - 6,000,000 -Services - 2,450,750 -Rent income - 12,000,000 -Administration charge - 1,635,000 -30.1.3 Associates Amount payable as at 31 March 7,901,332 - -Services 286,044 - -Rent income 231,540 - -30.1.4 Others Loan payable as at 31 March 33,000,000 - -30.2 Transactions with Key Management Personnel of the Company78.The key management personnel of the Company are the members of its Board of Directors.Group CompanyKey Management Personnel Compensation 2010 2010 2009Rs. Rs. Rs.Short-term employee benefits 2,986,750 Nil Nil

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTES TO THE FINANCIAL STATEMENTSYear ended 31 March 201031. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE31.1 Acquisition of Environmental Resources LimitedEnvironmental Resources Investment PLC (ERI) has paid Rs.738,432,454/- on 04th April 2010 as the first payment for the acquisitionof Environmental Resources Limited which is a company incorporated in British Virgin Islands and is a company holding equityinvestments focusing in the platinum mining industry in South Africa. The second payment amounting to Rs.714,792,266/- was paidon 19th May 2010.31.2 Acquisition of the Shares in Ceylon Leather Products PLCEnvironmental Resources Investment PLC (ERI) has purchased futher 2,684,500 shares of Ceylon Leather Products PLC at a price ofRs.120.75 per share on 11th May 2010 resulting the company stake to increase up to 71.29%.31.3 Proposed Acquisition of South Asia Textile Industries Lanka (Pvt) LtdEnvironmental Resources Investment PLC (ERI) has made an announcement to acquire 8% of the ordinary shares of South Asia TextileIndustries Lanka (Pvt) Ltd at a consideration of Rs.160,000,000 through a private placement.Ceylon Leather Products PLC one of the subsidiary of the Group, has made an announcement to acquire 51% of South Asia TextileIndustries Lanka (Pvt) Ltd at a consideration of Rs. 550,000,000 through a private placement.31.4 Covertion of WarrantsOn 10th of June 2010 the warrants of the Environmental Recourses Investment PLC were exercised at a price of Rs.22 per share andraised a sum of Rs.2,294,962,560.Warrant Issue2010 Warrants:- One(1) warrant for One (1) right at a price of Rs.22.0031.5 Proposed Acquisition subject to approval from shareholders of Dankotuwa Porcelain PLCOn 24th June 2010 Environmental Resources Investment PLC (ERI) has made an announcement to acquire 42,163,000 shares ofDankotuwa Porcelain PLC at a price of Rs.9/- per share through a private placement which will amount up to 58.35% stake in the saidcompany. At the same time Ceylon Leather Products PLC one of the subsidiary of the Group, has announced to acquire 6,000,828shares of Dankotuwa Porcelain PLC at a price of Rs.9/-per share though a private placement which will amount to 8.31% of the company.31.6 Investment in Preference shares of Olancom (Pvt) Ltd (OPL)On 30 June Environmental Resources Investment PLC (ERI) finalized the agreement to invest Rs. 200,000,000/= in newly issuedpreference shares of Olancom (Pvt) Ltd (OPL) formerly known as Roomsnet International (Pvt) Ltd with a 12% coupon and a option toconvert in to ordinary shares. Also the company finalized the agreement to invest Rs. 100,000,000/= in newly issued preference shareof Enterprise Technology (Pvt) Ltd (ETPL), a fully owned subsidiary of OPL with a 12% coupon and a option to convert in to ordinaryshares.31.7 Rights Issue with Warrants Attached by a SubsidiaryThe Board of Directors of the Ceylon Leather Products PLC has approved a rights issue with warrants attached, subject to theColombo Stock Exchange approving principle, the issue & listing of shares & obtaining shareholder approval at an ExtraordinaryGeneral Meeting. Details of which are as followsProportion:- Three (03) Ordinary Shares for every One (01) existing Ordinary Share held, at a price of Rs.30.00 per share.WARRANTS ISSUE2011 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.102.002014 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.118.002015 Warrants:- One (01) Warrant for One (01) Right at a price of Rs.142.0079.

Environmental Resources Investment PLC 2009/2010 Annual ReportSupplementary Information80.

Environmental Resources Investment PLC 2009/2010 Annual ReportDecade at a GlanceYear Ended 31st Marchin Rs. ‘000Financial Results2010(Group)2009 2008 2007 2006 2005 2004 2003 2002 2001Revenue 233,722 1,614 121,515 96,314 343,359 352,343 362,491 305,908 274,234 289,318Profit Before Taxation 134,718 26,553 (12,250) (13,606) 9,662 13,763 9,086 7,102 4,447 3,403Profit After Taxation 108,814 13,680 (12,955) (12,955) 5,886 9,706 9,086 7,102 4,447 3,403Minority Interest 5,013 - - - - - - - - -Profit Attributable to theshare holder of EnvironmentalResources Investment PLC103,801 13,680 (12,955) (12,955) 5,886 9,706 9,086 7,102 4,447 3,403Capital EmployedStated Capital 2,469,164 382,835 35,113 35,113 35,113 35,113 35,113 35,113 35,113 35,113Reserves 3,320 3,320 3,385 3,467 3,320 3,320 3,320 3,320 3,320 3,320Minority Interest 439,073 - - - - - - - -Assets EmployedNon-Current Assets952,407 118 2,152 3,324 4,810 4,947 4,758 3,947 5,005 5,414excluding Deferred TaxCurrent Assets 2,444,574 384,636 74,416 68,078 84,682 121,190 127,681 122,984 140,678 242,497Deferred Tax - - - 651 - - - - - -LiabilitiesNon-Current Liabilities 142,980 - 1,929 1,911 13,045 26,236 30,064 33,951 646 1,008Current Liablities 271,097 11,210 62,970 45,515 38,759 62,848 71,503 71,170 130,305 236,594Investor RatiosEarnings/(Loss) per Share 0.60 0.63 (0.75) (0.75 ) 0.34 0.56 0.52 0.41 0.25 0.20Net Asset per Share 18.29 10.68 0.67 1.42 2.17 2.13 1.78 1.25 0.85 0.5981.

Environmental Resources Investment PLC 2009/2010 Annual ReportShareholder InformationOrdinary ShareholdersDistribution of OwnershipShareholders Ordinary Resident Ordinary Non-Resident TotalNo. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares1 to 1,000 1758 577,623 0.41 44 24,050 0.02 1,802 601,673 0.431,001 to 10,000 584 1,915,474 1.38 27 110,900 0.08 611 2,026,374 1.4610,001 to 100,000 113 2,999,468 2.16 3 60,500 0.04 116 3,059,968 2.20100,001 to 1000,000 9 2,171,400 1.56 - - - 9 2,171,400 1.56Over 1000,000 1 1,009,400 0.73 1 130,219,825 93.62 2 131,229,225 94.35Total 2,465 8,673,365 6.24 75 130,415,275 93.76 2,540 139,088,640 100Catagories of Ownership%CategoryOrdinaryNo. of Shares Shares %Individual 2,461 6,820,669 4.90Institutional 79 132,267,971 95.10Total 2,540 139,088,640 100.00Preference Share HoldersDistribution of OwnershipShareholders Ordinary Resident Ordinary Non-Resident TotalNo. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares1 to 1,000 44 24,924 14.61 7 3,280 1.92 51 28,204 16.531,001 to 10,000 30 95,117 55.75 8 28,688 16.81 38 123805 72.5610,001 to 100,000 1 18,616 10.91 - - - 1 18,616 10.91100,001 to 1000,000 - - - - - - - - -Over 1000,000 - - - - - - - - -Total 75 138,657 81.27 15 31,968 18.73 90 170,625 100%Catagories of OwnershipCategoryOrdinaryNo. of Shares Shares %Individual 81 130,454 76.46Institutional 9 40,171 23.54Total 90 170,625 10082.

Environmental Resources Investment PLC 2009/2010 Annual ReportWarrants2010 WarrantDistribution of OwnershipShareholders Resident Non-Resident TotalNo. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares1 to 1,000 660 286,959 0.28 2 1,500 0.00 662 288,459 0.281,001 to 10,000 375 1,373,200 1.32 6 31,700 0.03 381 1,404,900 1.3510,001 to 100,000 77 1,895,906 1.82 1 12,900 0.01 78 1,908,806 1.83100,001 to 1000,000 7 2,344,150 2.25 - - - 7 2,344,150 2.25Over 1000,000 - - - 1 98,370,165 94.30 1 98,370,165 94.30Total 1,119 5,900,215 5.66 10 98,416,265 94.34 1,129 104,316,480 100Catagories of OwnershipCategoryShareholders Resident Non-Resident TotalNo. ofShareholdersNo. of Shares Warrants %Individual 1,092 4,285,215 4.11Institutional 37 100,031,265 95.89Total 1,129 104,316,480 100.002011 WarrantDistribution of OwnershipNo. ofShares%No. ofShareholdersNo. ofShares%No. ofShareholdersNo. ofShares1 to 1,000 698 308,029 0.30 2 2,000 0.00 700 310,029 0.301,001 to 10,000 326 1,186,570 1.14 4 23,100 0.02 330 1,209,670 1.1610,001 to 100,000 71 1,926,816 1.85 2 43,500 0.04 73 1,970,316 1.89100,001 to 1000,000 7 2,223,200 2.13 1 272,000 0.26 8 2,495,200 2.39Over 1000,000 - - - 1 98,331,265 94.26 1 98,331,265 94.26Total 1,102 5,644,615 5.42 10 98,671,865 94.58 1,112 104,316,480 100Catagories of Ownership%%CategoryNo. of Shares Warrants %Individual 1,076 4,597,115 4.41Institutional 36 99,719,365 95.59Total 1,112 104,316,480 100.0083.

Environmental Resources Investment PLC 2009/2010 Annual ReportTop Twenty ShareholdersTop 20 Share Holders as at 31st March 2010 - Ordinary ShareName of the Shareholder No. of shares held %1 Lionhart Investment Limited. 130,219,825 93.622 Knight Trade (Pvt) Ltd. 1,009,400 0.733 Mr. W. P. A. S. Perera. 517,200 0.374 Mr. R. F. Thejasri Perera. 350,000 0.255 Miss M. B. F. Farzana. 284,700 0.206 Mr. S. M. Mashoor/Mrs. R. R. Mashoor 279,400 0.207 Miss R. B. S. Fernando. 196,100 0.148 Gnanam Imports (Pvt) Ltd. 157,000 0.119 Pan Asia Banking Corporation PLC./ Mr. M. N. Ranasinghe. 141,000 0.1010 Mrs. G. L. S. Chandrika. 136,000 0.1011 Mr. D. N. Hundlani/ Mrs. R. M. Hundlani/ Mrs. D.D. Hundlani. 110,000 0.0812 DFCC Vardhana Bank Ltd/Mr. R. F. T. Perera. 100,000 0.0713 Pan Asia Banking Corporation PLC./ Mr. R. E. Rambukwelle. 84,000 0.0614 Mr. C. R. M. Premarathne. 77,000 0.0615 Mrs. K. A. L. Perera. 70,000 0.0516 Mr. H. G. R. Peiris. 63,900 0.0517 Mr. K. K. Wyman. 57,600 0.0418 Mr. D. N. Madawala. 56,700 0.0419 Mr. F. Fernandez. 54,300 0.0420 Mr. S. S. C. Fernando. 53,000 0.04Others 5,071,515 3.65Total 139,088,640 100.0084.

Top Twenty ShareholdersEnvironmental Resources Investment PLC 2009/2010 Annual ReportTop 20 Share Holders as at 31st March 2010 - Preference ShareName of Shareholder No. of shares held %1 Standard Finance LTD. 18,616 10.912 G.C.W. De Silva. 9,484 5.563 Mr. V. Theagarajah. 8,744 5.124 Life Insurance Corporation Of India. 8,146 4.775 K. Theagarajah. 8,000 4.696 Mrs. B.L. Macrae, Babara Lee. 6,658 3.907 A. L. Clarke, Allen Lee. 6,658 3.908 Mr. V. Theagarajah. 6,447 3.789 Shalsri Investment LTD. 5,000 2.9310 The Land & House Property Company LTD. 4,500 2.6411 The Administratrix OF The Estate Of Pietro Fernando. 4,000 2.3412Mr. S. Sivalingam Attorney For Mrs. R. Sivaraman Widow OfLate Mr. Sivaraman3,672 2.1513 M. B. Muthunayagammahesweri Brito. 3,500 2.0514 B. Selvanayagam, Bede. 3,000 1.7615 K.N. Woutersz, Kathleen Nancy. 2,684 1.5716 A. M. Felsinger, Audrey Maureen. 2,684 1.5717 M. G. Sabaratnam, Manoharan George. 2,500 1.4718 Mr. S.A. Scharenguivel, Swinford Algernon. 2,450 1.4419 P.S. Wijewardenephilip Seevali. 2,194 1.2920 Mrs. C.N. Harper, Catherine Neville. 2,153 1.26Others 59,535 34.90Total 170,625 100.0085.

Environmental Resources Investment PLC 2009/2010 Annual ReportTop 20 Share Holders as at 31st March 2010 - 2010 WarrantsTName of the Warrant holderNo. of WarrantsHeld%1 Lionhart Investments Limited 98,370,165 94.302 Knight Trade (Pvt) Ltd. 800,400 0.773 Mr. W.P.A.S. Perera 432,300 0.414 Miss. G.N.R.L. Dias 270,000 0.265 Panasia Banking Corporation PLC/Mr. M.N. Ranasinghe 264,400 0.256 Mr. C.P. Malalanayake 208,150 0.207 Panasia Banking Corporation PLC/Mr. H.H.A. Chandrasiri 200,000 0.198 Miss M.B.F. Farzana 168,900 0.169 Panasia Banking Corporation PLC/Mr. A. Ratnaweera 90,000 0.0910 Mr. S.A. Cooray 85,700 0.0811 Mr. D.A.D. Primal 85,000 0.0812 Mr. F. Fernandez 80,000 0.0813 Panasia Banking Corporation PLC/Mr. R. E. Rambukwelle 71,500 0.0714 Mrs. W.A.A. Perera 50,600 0.0515 Mr. H.M.T.S. Kapilaratne 45,500 0.0416 Mr. A.K. Madanayaka 42,300 0.0417 Mr. S. L. A. Saman 42,000 0.0418 Mr. M.S. Zarajudeen 38,600 0.0419 Mr. M.P. Bandara 37,500 0.0420 Mr. H.N. De Silva 34,000 0.03Others 2,899,465 2.78Total 104,316,480 100.0086.

Environmental Resources Investment PLC 2009/2010 Annual ReportTop 20 Share Holders as at 31st March 2010 - 2011 WarrantsName of the Warrant holderNo of WarrantsHeld%1 Lionhart Investments Limited 98,331,265 94.262 Knight Trade (Pvt) Ltd. 800,400 0.773 Mr. D.P. Salpitikorala 360,000 0.354 Mr. W.P.A.S. Perera 325,300 0.315 Dr. N. Kasim 272,000 0.266 Miss M. B. F. Farzana 267,400 0.267 Mr. S. M. Mashoor/Mrs. R. Mashoor 178,100 0.178 Mrs. P.A.C. Wanasinghe 147,000 0.149 Pan Asia Banking Corporation PLC/Mr. M N. Ranasinghe 145,000 0.1410 Mr. S. A. Cooray 94,300 0.0911 Pan Asia Banking Corporation PLC/Mr. C.W. Abeygoonawardane 92,000 0.0912 Mr. D.A.D. Primal 87,000 0.0813 Mr. P.S.K. Jeewantha 76,600 0.0714 Mr. H. N. De Silva 76,000 0.0715 Mr. K.G.A.N. Wijesinghe 75,000 0.0716 Mrs. C.C.L. Fonseka 70,000 0.0717 Mr. M.S. Zarajudeen 66,400 0.0618 Pan Asia Banking Corporation PLC/Mr. H.H. Anurachandasiri 64,800 0.0619 Mr. W.A.U.S. Wanasinghe 63,800 0.0620 Mrs. P. Chandradeva 55,000 0.05Others 2,669,115 2.57Total 104,316,480 100.0087.

Environmental Resources Investment PLC 2009/2010 Annual Report• The percentage of shares held by the public as at 31st March 2010 was 6.38%.Directors ShareholdingsDirector Name 2009/2010 2008/2009Mr. Lalith Heengma Nil NilMr. Gamini S Munasinghe Nil NilMr. H. B. Dissanayake Nil NilDr. Kosala Heengama Nil NilMr. G. S. Newsome Nil NilIssuance of SharesYear Issue Basis No. Of SharesBefore 1991 IPO - 17,386,080Before 1991 Preference - 170,6252009 Rights @ Rs. 20 1:1 17,386,0802009 Rights @ Rs. 20 1:3 104,316,48088.

Environmental Resources Investment PLC 2009/2010 Annual ReportGlossary of Financial TermsAccrual basisRecording revenues & expenses in the period in which theyare earned or incurred regardless of whether cash is receivedor disbursed in that period.Capital employedShareholders’ funds plus debt.Contingent liabilitiesA condition or situation existing at the balance sheet datedue to past events, where the financial effect is not recognizedbecause:1. The obligation is crystallized by the occurrence or nonoccurrenceof one or more future events or,2. a probable outflow of economic resources is notexpected or,3. it is unable to be measured with sufficient reliability.Current ratioCurrent assets divided by current liabilities.Debt/equity ratioDebt as a percentage of shareholders’ funds.Diluted earnings per share (EPS)Profit attributable to equity holders of the parent dividedby the weighted average number of ordinary shares in issueduring the period adjusted for options granted but notexercised.Dividend payout ratioDividend as a percentage of company profits adjusted fornon cash gains items.Dividend yieldDividends adjusted for changes in the number of shares inissue as a percentage of the share price at the end of theperiod.Earnings per shareProfit attributable to equity holders of the parent dividedby the weighted average number of ordinary shares in issueduring the period.EBITEarnings before interest and tax (includes other operatingincome).Interest coverConsolidated profit before interest and tax over financeexpenses.Long term debt to Total debtLong term loans as a percentage of total debt.Market capitalizationNumber of shares in issue at the end of the period multipliedby the market price at end of period.Net assetsTotal assets minus current liabilities minus long term liabilities.DerivativeIt is a financial instrument - or more simply, an agreementbetween two people or two parties - that has a value determinedby the price of the underlying.Net assets per shareNet assets divided by the number of shares in issue.Net working capitalInventories minus Current assets minus Current liabilities.Price earnings ratioMarket price per share (diluted) over diluted earnings pershare.Quick ratioCash plus short term investments plus receivables dividedby current liabilities.Return on assetsProfit after tax divided by the average total assets.Return on capital employedConsolidated profit before interest and tax as a percentage ofaverage capital employed.Return on equityProfit attributable to shareholders as a percentage of averageshareholder’s funds.Shareholders’ fundsTotal of stated capital, capital reserves and revenue reserves.Total debtLong term loans plus short term loans and overdrafts.Total equityShareholders’ funds .89.

Environmental Resources Investment PLC 2009/2010 Annual ReportNOTICE OF MEETINGNOTICE IS HEREBY GIVEN that the 99th AnnualGeneral Meeting of Environmental ResourcesInvestment PLC will be held at the Grand Ballroom,Galle Face Hotel, No 2, Galle Road, Colombo 03 , onthe 30th day of September 2010 at 10:00 a.m. for thefollowing purposes:• To receive and consider the Annual Report of theBoard of Directors along with the Financial Statementsof the company for the year ended 31st March2010.• To re-elect Mr. Gamini Sarath Munasinghe in termsof Article 25 (6) of the Articles of Association of theCompany.• To re-elect Mr. Lalith Heengama who retires interms of Section 210 of the Companies Act No. 7 of2007 as a Director of the Company and to adopt thefollowing resolution:“RESOLVED that Mr. Lalith Heengama who has attainedthe age of 71 years be and is hereby re-electedas a Director of the Company, and is hereby declaredthat the age limit of 70 years referred to in Section 210of the Companies Act No. 7 of 2007 shall not apply tothe said Director”• To re-elect Mr. Heen Banda Dissanayake who retiresin terms of Section 210 of the Companies Act No. 7 of2007 as a Director of the Company and to adopt thefollowing resolution :“RESOLVED that Mr. Heen Banda Dissanayake whohas attained the age of 73 years be and is hereby reelectedas a Director of the Company, and is herebydeclared that the age limit of 70 years referred to inSection 210 of the Companies Act No. 7 of 2007 shallnot apply to the said Director”• To re-appoint M/s Ernst & Young, Chartered Accountants,as Auditors of the Company and to authorizethe Directors to determine their remuneration onbehalf of the Company.• To authorize the Directors to determine and makepayments for charitable and other purposes for theyear 2010/2011 as set out in the Companies DonationAct (CAP147)By order of the Board ofENVIRONMENTAL RESOURCES INVESTMENTPLC(sgd)Secretaries & Registrars (Private) LimitedSecretaries27th August 2010Note:i. A member entitled to attend and vote at the Meetingis entitled to appoint a proxy or proxies to attend andvote instead of him/her. A proxy need not be a memberof the company.ii. A form of proxy accompanies this notice.iii. The completed form of proxy should be depositedat the Business office of the company at: 6th Floor,West Tower, World Trade Center, Echelon Square,Colombo 01 not less than 48 hours before the timeappointed for the holding of meeting.90.

Environmental Resources Investment PLC 2009/2010 Annual ReportNotes91.

Environmental Resources Investment PLC 2009/2010 Annual ReportFORM OF PROXYI/Weofbeing a member/s of Environmental Resources Investment PLC, hereby appointofor failing him/herMr. Lalith HeengamaDr. Kosala HeengamaMr. Gregory Scott NewsomeMr. Heen Banda DissanayakeMr. Gamini Sarath Munasingheof Colombo or failing himof Colombo or failing himof Colombo or failing himof Colombo or failing himof Colomboas my /our proxy to represent me/us and to speak and vote on my/our behalf at the Annual General Meetingof the company to be held on the 30th day of September 2010 at 10:00 a.m. at Grand Ballroom, Galle FaceHotel and at any adjournment thereof, and at every poll which may be taken in consequences thereof.Signed on this day of 2010.Signature/s of Shareholder/sNOTE: INSTRUCTION AS TO COMPLETE OF PROXY FORM ARE NOTED ON THE REVERSE.92.

Environmental Resources Investment PLC 2009/2010 Annual ReportInstructions for Proxy Form:Note:i. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy or proxies to attendand vote instead of him/her. A proxy need not be a member of the company.ii.iii.iv.A form of proxy accompanies this notice.The completed proxy form should be deposited at the Registered office of the company at 16thFloor, West Tower, World Trade Center, Echelon Square, Colombo 01. (not less than 48 hours beforethe time appointed for the holding of meeting)A body corporate which is a Shareholder may appoint a representative to attend a meeting of Shareholdersor any class of Shareholders on its behalf by resolution of its Directors or other governingbodies.v. Where two or more persons are registered as the holder of a share, the vote of the person named firstin the share register and voting on a matter shall be accepted to the exclusion of the votes of the otherjoint holders.Please furnish the following information:Name : _________________________________________________________________________________Address : ______________________________________________________________________________________________________________________________________________________________________Jointly with : ___________________________________________________________________________________________________________________________________________________________________Share Folio No : _________________________________________________________________________CDS Acc No : ___________________________________________________________________________NIC No : _______________________________________________________________________________No of Shares :____________________________________________________________________________93.

Corporate InformationName of the CompanyEnvironmental Resources Investment PLCLegal FormPublic Limited Liability Company Incorporatedin Sri Lanka, 29th of December 1910Listed on the Colombo Stock Exchange in1970 to PresentCompany Registration NumberPQ 26Director BoardLalith HeengamaKosala HeengamaG Scott NewsomeGamini S MunasingheH B DissanayakeAudit CommitteeH. B. DissanayakeGamini S. MunasingheG. Scott NewsomeRemuneration CommitteeH. B. DissanayakeGamini S. MunasingheKosala Heengama- Chairman- Director- Director- Director- DirectorRegistered Office#450, Taj SamudraNo 25, Galle Face Centre Road,Colombo 03,Sri Lanka.Business Office16th Floor, West Tower,World Trade Center,Echelon Square,Colombo 01,Sri Lanka.Contact DetailsTelephone: +94 115700700Fax: +94 112472443Internet: www.erlanka.comEmail: info@erlanka.comSecretariesSecretaries & Registrars1st Floor,32 A, Sir Mohamed Macan Marker Mawatha,P.O. BOX 710,Colombo 03,Sri Lanka.BankersDeutsche Bank ColomboNations Trust BankPan Asia Banking Corporation PLCHatton National Bank

Environmental Resources Investment PLCBusiness Office 16th Floor, West Tower, World Trade Center,Echelon Square, Colombo 01, Sri Lanka.Telephone: +94 115700700 • Fax: +94 112472443Internet: www.erlanka.com • Email: info@erlanka.com