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Eastern Merchants PLC341 Union Place Colombo, 2 Sri Lanka

www.easternmerchants.net EASTERN MERCHANTS PLCAnnual Report 2011/12

Eastern MerchantsEVOLVING

The Journey So Far 2 . A Brief History 4 . Financial Highlights 5 . Chairman’s Report 6 . Board of Directors 10 . Directors’ Report 11 . Audit Committee Report 12 . Remuneration Committee Report 13 . Principal Activities of the Group 16 . Independent Auditor’s Report 17 . Income Statement 18 . Balance Sheet 19 . Statement of Changes in Equity 20 . Cash Flow Statement 21 . Notes to the Financial Statements 22 . Shareholder Information 45 . Notice of Meeting 46 . Form of Proxy 47 . Corporate Information IBC .

Company Name : Eastern Merchants PLC

Company Number : PQ 153

Registered Office : 341, Union Place, Colombo 2.

Stores Complexes : 101, Gonawala Road, Sapugaskanda. Maswila, Ampegama.

Legal Form : A public quoted company with limited liability incorporated in Sri Lanka and listed with the Colombo Stock Exchange.

Principal Activities : Export of traditional and non-traditional commodities.

Subsidiaries : Asia Brush (Pvt) Ltd. Eamel Exports Ltd. Asian Woodware Company (Pvt) Ltd.

Chairman : J.B.L. de Silva

Managing Director : A. Karunaratne

Board of Directors : N.K.L. Tilakaratna C.I. Tilakaratna S. A. Chandraratne S. Jayakody H. J. de Silva C.S.L. de Silva I.P. de Zoysa R.L. Nanayakkara H.P.J. de Silva

Secretary : S. Jayakody

Auditors : Messrs. D.H.P. Munaweera and Co.

Bankers : Hongkong and Shanghai Banking Corporation Ltd. Seylan Bank PLC Hatton National Bank PLC Nations Trust Bank PLC National Development Bank PLC DFCC Bank PLC

EVOLVINGCorporate Information

Designed and produced by emagewiseDigital Plates by Imageline (Pvt) LtdPrinted by Printage (Pvt) Ltd

The phrase “survival of the fittest” originates from Charles Darwin’s Theory of Evolution, and is a fairly accurate representation of the business world today.

The solid foundations and practices of Eastern Merchants PLC which have been honed since 1945 is no doubt our core strength, but we understand that evolution is the most important factor to survive and succeed.

We strive to follow a strategy that we firmly believe is the right approach to evolve and create long-term value. In this regard, the decision making process is guided by our strategic focus in three key areas: diversification into new and adjacent lines of business, optimal utilization of both tangible/intangible assets and strengthening our leadership position in our core business.

In formulating our strategy we strive to be proactive to deliver results, but we also understand that we need to be reactive to changes in market conditions.

2

The Journey So Far

Eastern Merchants is founded by the Karunaratne brothers, with the first offices of the Company located within the Central Business District

of Colombo. All they had was Rs. 5,000 to work with and the belief in themselves that they could succeed.

Eastern Merchants becomes a public quoted

company by listing on the Colombo Brokers

Association, before the establishment of the

formal Colombo Stock Exchange in 1985.

The construction of a new stores complex

at Sapugaskanda substantially enhances

the storage capacity for trading operations, enabling the Company

to increase turnover and explore new markets.

1945 1981 1997Mr. Winton Karunaratne Mr. Sumane Karunaratne Public listing Current Chairman laying the foundation

stone

Where it all started - Chatham Sreet, Fort

3

The addition of a tailor-made cinnamon

processing facility in the heart of the

cinnamon plantations helps Eastern Merchants

become the number one exporter of the

commodity in Sri Lanka.

Presently, Eastern Merchants operates from its own premises in a prime location at Union Place. The

commodities and products exported by the Group cater to an extensive international market spanning

all continents excluding Antarctica.

1998 2012Sorting of cinnamon sticks

Eastern Merchants PLC Annual Report 2011/124

A Brief History

“It is delightful to transport one’s self into the spirit of the

past, to see how a wise man has thought before us, and to

what glorious heights we have at last reached.” - Goethe

Eastern Merchants was founded in 1945 through the

endeavours of two brothers, Sumane and Winton

Karunaratne, with an initial working capital of Rs. 5,000/-

accompanied by an incredible will to succeed. The first

modest office of this export business was located in Fort,

within the Central Business District of Colombo. Their

primary export was cinnamon bark oil, a commodity that

was traditionally traded by their father and grandfather.

From its humble beginnings, Eastern Merchants has now

developed into a major trading house and one of the most

well-respected businesses in Sri Lanka. The level of integrity

and dedication that the founders instilled is the standard

of excellence maintained by its employees even today.

The aspirations and ambitions of the founders have been

realised through the Company’s growing success. In 1981,

Eastern Merchants became a Public Quoted Company and

now has an annual turnover in excess of Rs. 4 billion.

Though the main export of the Company today is natural

rubber, we are also involved in the export of fibre,

desiccated coconut and cinnamon. As one of the major

exporters in Sri Lanka, Eastern Merchants caters to a broad

international market spanning the Americas, Europe, Africa

and Asia.

The Company’s subsidiaries include Eamel Exports Ltd.

and Asia Brush (Pvt) Ltd., of which the former handles the

export of local spices and handicrafts. Asia Brush (Pvt)

Ltd. is involved in the manufacture and export of industrial

and household brushes and brooms. Asian Woodware

Company (Pvt) Ltd. became a subsidiary of Eastern

Merchants in September 2011. This operation is involved in

the manufacture and export of furniture and other wooden

products.

Presently, Eastern Merchants operates from its own

premises in a prime location at Union Place, with the

Company’s main warehouse complex located within an

industrial estate in the suburb of Sapugaskanda. This

warehouse complex was opened in 1997 and currently

contains 75,000 sq.ft of storage space and purpose-built

facilities for its operations. In 1998, the Company opened

another office and processing facility in the heart of the

cinnamon plantations in the south of Sri Lanka. This

complex has 15,000 sq.ft of storage space and is used

for the purpose of purchasing, processing and sorting

cinnamon.

In what is a new era in the development of Eastern

Merchants, the grandsons of the Karunaratne brothers

have now joined the Company to continue the legacy left

by their grandfathers. Proud of its past and its commitment

to loyalty and integrity, Eastern Merchants looks forward to

continued expansion and progress in the years to come.

Eastern Merchants PLC Annual Report 2011/12 5

Financial Highlights

2007/08 2008/09 2009/10 2010/11 2011/12

Performance Parametres

Sales (Rs. Mn.) 3,457 2,744 3,954 6,084 4,687

Gross Profit (Rs. Mn.) 209 93 214 175 205

Net Profit Before Taxation (Rs. Mn.) 39 (26) 66 35 207

Net Profit After Taxation (Rs. Mn.) 19 (28) 63 21 189

Shareholder Funds (Rs. Mn.) 130 119 884 863 1,001

Earnings per Share (Rs.)* 0.19 -0.19 0.58 0.18 1.22

Dividend per Share (Rs.)* 0.093 0.041 0.043 0.043 0.080

P/E Ratio 12.94 - 3.90 38.76 9.02

Net Assets per Share (Rs.)* 1.03 0.87 7.78 7.49 9.09

Current Ratio 1.07 1.03 1.05 1.07 1.18

Share Price

Highest Recorded (Rs.)** 178 240 151 850 3,850

Lowest Recorded (Rs.) 125 102 151 235 9.50

Value as at Year End (Rs.) 170 150 151 600 11.00

* Adjusted for 70:1 share sub-division.

** Highest share price recorded for 2011/12 was prior to the share sub-division.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

07/08 08/09 09/10 10/11 11/12

Sales

(Rs. Mn.)

-50

0

50

100

150

200

07/08 08/09 09/10 10/11 11/12

Net Profit After Taxation

(Rs. Mn.)

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

07/08 08/09 09/10 10/11 11/12

Earnings per Share*

(Rs.)


Chairman’s Report

The year in reviewThe challenges impacting the business operations of Eastern

Merchants during the year were numerous. Though we had

hoped for improved conditions in the second half of 2010/11,

the escalating debt crisis in the EU sparked a new wave of

uncertainty and contraction in the global economy. Yet, we

were able to ride out the storm and deliver an outstanding

result. Group net profit after tax for 2011/12 was Rs. 189.2

million, which is more than nine times larger than the

comparable figure of Rs. 20.9 million for 2010/11.

The year-on-year turnover was down 23%, predominantly as

a result of rubber prices retreating from the historical highs

experienced last year. However, export volumes which

have been impacted by the global economic crisis have also

affected our turnover, especially in the key markets of North

America and Europe.

Even though our export volumes have declined, we have

been quick in adapting to the volatile market conditions

and our prudent trading practices were the main result for

the much improved profitability. The depreciation of the

Sri Lankan rupee in the fourth quarter of the financial year

generated additional revenue as it made our exports more

competitive in the international market.

The other major contributing factor to the increase in Group

profit was the sale of publicly traded shares held by Eamel

Exports Ltd., a subsidiary of the Eastern Merchants. The

active trading on the Eamel Exports share portfolio resulted

in it being realised as a short term holding of the Group

(and thus increasing the profitability of Eamel Exports), as

opposed to formerly showing up as a long term holding

during the 2010/11 financial year. Most of the funds received

from the sale of shares, which included a 0.76% portion of

the Parent Company, have been utilised to revitalise the

operations of two other subsidiaries of the Company as

detailed in the next paragraph.

During the course of the year, we focused our attention

on Asia Brush (Pvt) Ltd., a subsidiary of the Eastern

Merchants Group involved in the manufacture and export

of industrial/household brushes and brooms. Furthermore,

Eastern Merchants acquired a controlling stake of 50.3%

at Asian Woodware Company (Pvt) Ltd., which principally

supplies the brush and broom block requirements of its

sister company Asia Brush. Trading conditions for both

subsidiaries remain tough in key markets given the turmoil

in the EU region. A managerial and operational restructure

of these underperforming units was initiated, with some

progress being made thus far. Both units will be closely

monitored over the next 12 months to ascertain their

performance and viability.

After having gained shareholder approval in September

2011, a sub-division or split of the Company’s issued ordinary

shares was executed. The main purpose of this 70:1 split

was to increase the liquidity of the Eastern Merchants

stock, making it more accessible to existing or potential

shareholders. It was also aimed at facilitating a more

efficient price discovery mechanism to ascertain a fair value

for the Company. This goal has proven to be more difficult

to achieve given the irrational movements in the stock

market.

In January 2012 we welcomed two new Directors to our

board, namely Mr. Channa de Silva and Mr. Indika de Zoyza.

Both individuals possess an extensive set of skills which

will be complimentary to the diverse mix that makes up

the existing team. Their contributions will no doubt be

invaluable in forging the future of this Company.

The year aheadThe challenges we had faced in 2011/12 are likely to persist

in the new financial year. Many of the fundamentals which

historically characterise the movements of the commodities

and products that we trade in have been overshadowed by

the volatility and macroeconomic uncertainty emanating

from Europe, the US and other troubled regions.

Though the depreciated Sri Lankan rupee would be an

added boost going forward, the fluctuations in the currency

pose a substantial risk, especially when entering into

contracts which require delivery at some point in time in the

future. Rising interest rates pose another problem in the

form of escalating finance costs.


"Even though our export volumes have declined, we have been quick in adapting to the volatile market conditions and our prudent trading practices were the main result for the much improved profitability".

J.B.L. de SilvaChairman27th August 2012

This would certainly bring about obstacles to the export-

based activities of the Eastern Merchants Group, but we are

confident in our ability to deal with them effectively.

DividendsThe Board of Directors has recommended a first and final

dividend of Rs. 0.08 per share, which is an 87% increase (on

an adjusted basis for the share sub-division) in comparison

to the previous year. We are committed to maintaining

a solid dividend policy moving forward and it gives us

great joy to share our success with our investors and

shareholders.

AppreciationsEverything we do to fulfill our vision to evolve our business

towards value-driven expansion would be ineffective

without the dedicated involvement of our employees. My

sincere thanks is extended to each and every member in our

workforce – from the workers who work tirelessly at our

stores complexes, to the senior management team who is

instrumental in forging the success of our Company. Their

loyalty and commitment towards Eastern Merchants over

the years has been outstanding and quite humbling.

Eastern Merchants PLC is by far the largest exporter of natural sheet rubber from Sri Lanka


The Board of Directors

The Board of Directors of the Company consists of 11 members, including two independent Directors. Brief descriptions of each Board member are set out below.

Mr. J.B.L. de Silva LL.B., Attorney-at-law Chairman A lawyer by profession, Mr. de Silva has substantial experience in the corporate world. He has held the office of Chairman of the Company since 1983 and has served on the Boards of quite a few prominent Public and Private Companies. He presently serves as a Director of CT Holding PLC & Associated Electrical Corporation Ltd.

Mr. A. KarunaratneManaging DirectorHaving joined the Company after his school career at Royal College, Mr. Karunaratne has acquired almost unparalleled first hand knowledge of natural rubber and the trading of it internationally in his career spanning almost 40 years. Instrumental in the Company’s success, he was appointed the Managing Director in 2006.

Mr. S. Jayakody B.Com.Spl., FCA, FCMADirector - Finance Mr. Jayakody joined the Company in 1993 as an Accountant after having completed his Bachelor of Commerce Degree at the University of Sri Jayewardenepura. Now a Fellow Member of The Institute of Chartered Accountants of Sri Lankan, he was brought on the Board of Directors in 1999 and is also currently the Company Secretary.

Mr. H.J. de Silva B.Sc.Director Having completed his Bachelors’ Degree in the US and working at a MAS Holdings company for three years, he is the first of the 3rd generation of the founding family on the Board. Mr. de Silva is currently engaged in the trading of all commodities for the Company.

Mr. S.A. Chandraratne Director - Logistics Joining the Company directly out of school, Mr. Chandraratne was in charge of the shipping activities of the Company for some 30 years. Thereafter he joined the Board in 1992 and is now responsible for all operations at our stores complex in Sapugaskanda.

Mr. C.S.L. de Silva B.Econ., M.Com.DirectorAfter having completed his Bachelors’ Degree in fields of Econometrics and Marketing at the University of Sydney, Mr. de Silva completed a Masters Degree specialising in Finance at the same Institution. Thereafter, he worked for three years in the Strategy and Analytics team of a Fortune 500 Company before returning to join Eastern Merchants.

Mr. I.P. de ZoysaDirectorMr. de Zoysa has been closely associated with the trading activities of the Company for almost 20 years. During this time he has developed into a key member of the organisation possessing an in-depth knowledge of the commodities exported by the Company. He has also been pivotal in establishing several new markets overseas.

Mr. N.K.L. Tilakaratna B.Sc., C.Eng., MBA., M.I.

Mech.E., M.I.E.Non-executive DirectorAn engineer by profession, Mr. Tilakaratna heads Asia Brush (Pvt) Ltd. and Asia Woodware Company (Pvt) Ltd., both subsidiaries of Eastern Merchants.

Mrs. C.I. Tilakaratna B.A. (Hons.), M.A. Non-executive DirectorThe daughter of one of the founders of the Company, she has served on the Board as a non-executive Director since 1989.

Mrs. R.L. Nanayakkara B.A.(Hons.), FIB, FIM (SL) Independent Non-executive DirectorMrs. Nanayakkara requires no special introduction. Being a board member of companies too numerous to recount here, she possesses unparalleled corporate and management experience spanning over 50 years.

Mr. H.P.J. de Silva B.Sc., MBA, FCA, FCMA, FIB Independent Non-executive DirectorFormerly employed in the state sector as the Deputy General Manager/Corporate Advisor of the Bank of Ceylon, Mr. de Silva thereafter served as the Chief Executive Officer/Managing Director of Sampath Bank and Union Bank, as well as the Director of Operations at American Express.


Directors’ Report

The year in reviewIn spite of another rocky 12 months, we once again

succeeded in delivering results. An after-tax profit for the

Group of Rs. 189.2 million in 2011/12 is a bottom line we are

very proud of.

Our core business of exporting natural rubber recorded

below-average volumes for the first three quarters of the

financial year, predominantly as a result of the extreme

volatility in international markets. However, following the

historical trend of being the most lucrative time of year

for the rubber business, we managed to ship well over

4,000 tons of natural rubber in the last three months of

the financial year. A good supply of raw material, improved

market conditions as well as the depreciation of the Sri

Lankan rupee all helped achieve this result.

The crippling impact of the global crisis on key markets has

led to a decline in the revenue generated from the other

commodities exported by the Company. Export volumes

for both desiccated coconut and coco fibre have fallen as a

result of the reduced activity in Europe. Cinnamon exports

have also come under pressure from increased competition

from local operators who sell on credit terms to overseas

buyers, mainly based in South and Central America.

The performance of the Company’s two subsidiaries, namely

Asia Brush (Pvt) Ltd. and Asian Woodware Company (Pvt)

Ltd., has been below par. However, it is important to note

that it’s probably been one of the most difficult years for the

brush/broom industry in recent times. Eastern Merchants

PLC has invested resources in an attempt to revive both

operations, but the recovery of the European markets will

be instrumental in achieving success.

Shareholder returnThe significant improvement in profitability has resulted in

the 2011/12 earnings per share of the Group to increase by

well over 500% (after adjusting for the share sub-division)

to Rs. 1.22. Therefore, in keeping with our commitment to

reward our shareholders, we have recommended a Rs. 0.08

dividend per share for the year under review, an increase of

87% from the previous year on an adjusted basis.

Director’s interest in contractsThe Directors have no other interests in the Company or

its subsidiaries other than those disclosed in Note 23 of the

accounts.

In accordance with Article numbers 83 and 84 of the Articles

of Association of the Company, Mr. S.A. Chandraratna,

Mr. H.P.J. de Silva and Mrs. Rohini Nanayakkara are to retire

from the Board of Directors. However, all of them are

eligible for re-election and have therefore been nominated

to be re-elected.

Corporate governanceThe Board of Directors at Eastern Merchants believes

that the Company’s success is dependent on our ability to

impose the highest standards of corporate governance and

business conduct across all operations. We are committed

to promoting investor confidence and creating value for

shareholders, through prudent risk management and

a culture which encourages ethical conduct and sound

business practices.

Eastern Merchants has a flat management structure which

simplifies the task of ensuring best standards across the

board. Accountability is encouraged at every level within

the Company, and in this respect, the Board Members

take responsibility for the preparation of the Financial

Statements of the Company to reflect a true and fair view

of the state of its affairs.


The objective and purpose of the Audit Committee is to

assist the Board in fulfilling its corporate governance and

oversight responsibilities, which include:

• Monitoring and reviewing the integrity of financial statements and internal financial controls.

• Determining the effectiveness, independence and objectivity of the external auditors.

• Making recommendations to the Board in relation to the appointment/removal of the external auditors as well as their remuneration.

• Ensuring that the Company is compliant with laws and

regulations relating to these areas of responsibility.

The members of the Audit Committee of Eastern Merchants

are the two Independent Non-Executive Directors of the

Company, namely:

Mr. H.P.J. de Silva – Chairman

Mrs. R.L. Nanayakkara – Member

The Audit committee held three meetings during the 2011/12

financial year and evaluated the adequacy and effectiveness

of the Company’s Internal Control System and reviewed

all financial statements in compliance with the relevant

statutory requirements to determine their accuracy.

Additionally, the impact of changes in legislation affecting

the activities of the Company was also addressed.

Messrs. D.H.P Munaweera & Co. has been engaged as

external auditors to Eastern Merchants for a number of

years. After having reviewed the nature of the services

provided by the external auditor and found them to be

satisfactory in all aspects, the Committee recommended

reappointing Messrs. D.H.P Munaweera & Co. as the

external auditor of the Company for the new financial year.

Mr. H.P.J. de SilvaChairman – Audit Committee

Audit Committee Report


We firmly believe that one of the most valuable assets we possess is our human capital and rewarding everyone concerned with fair and equitable remuneration packages is deeply engraved in our corporate culture. This has ensured a happy and loyal workforce throughout the years, with minimal levels of staff turnover and union activity.

In this regard, the objective and purpose of the Remuneration Committee is to assist the Board in establishing remuneration policies and practices which:

• Enable Eastern Merchants to attract and retain top executives and Directors who will create value for the Company by ensuring that competitive remuneration policies and practices are in place.

• Reward these deserving executives considering the performance of the Company as well as the individual contribution they have made to the Company.

Staff remuneration comprises a fixed and a variable component, the latter of which is in the form of bonuses linked to the performance of the individual as well as the Company. Non-Executive Directors and Independent Directors of the Company do not receive any salary but receive annual Directors fees.

In compliance with the Listing Rules of the Colombo Stock Exchange, the Remuneration Committee of Eastern Merchants PLC consists of two Independent Non-Executive Directors as follows:

Mrs. R.L. Nanayakkara – ChairpersonMr. H.P.J. de Silva – Member

After having met twice during the 2011/12 financial year, the Committee conducted a review of Directors’ fees which takes into account Directors’ contributions and their respective responsibilities, and deemed them to be appropriate and fair.

Mrs. R.L. NanayakkaraChairperson – Remuneration Committee

Remuneration Committee Report


The commodities and products exported by the Eastern Merchants Group

include natural rubber, desiccated coconut,

cinnamon, coco fibre, industrial and household

brushes/brooms, as well as furniture and wooden items.


Principal Activities of the Group

All Companies in the Group whose financial statements have been included in the consolidated financial statements are as

follows:

Name of the Company Business Activity

i) Eastern Merchants PLC Export of traditional and non-traditional products

ii) Eamel Exports Ltd. Export of traditional and non-traditional products

iii) Asia Brush (Pvt) Ltd. Manufacturing and export of industrial brushes/brooms

iv) Asian Woodware Company Manufacturing and export of furniture and other wooden products

(Pvt) Ltd.

Directors

i) Eastern Merchants PLC

Mr. J.B.L. de Silva, Mr. A. Karunaratne, Mr. S.A. Chandraratne, Mrs. C.I. Tilakaratna, Mr. N.K.L. Tilakaratna,

Mr. S. Jayakody, Mr. H.J. de Silva, Mr. C.S.L de Silva, Mr. I.P de Zoysa, Mrs. R.L. Nanayakkara and Mr. H.P.J. de Silva.

Registered office and principal place of business – No.341, Union Place, Colombo 02.

ii) Eamel Exports Ltd.

Mr. J.B.L. de Silva, Mr. A. Karunaratne, Mr. S.A. Chandraratne, Mr. N.K.L. Tilakaratna, Mr. S. Jayakody and

Mr. H.J. de Silva.


iii) Asia Brush (Pvt) Ltd.

Mr. J.B.L. de Silva, Mr. N.K.L. Tilakaratna, Mr. S.A.L. Tilakaratna, Mrs. C.I. Tilakaratna, Mr. H.J. de Silva, Mr. C.S.L de Silva,

Mr. C.W. Bently and Mr. R.W. Bently.


iv) Asian Woodware Company (Pvt) Ltd.

Mr. J.B.L. de Silva, Mr. N.K.L. Tilakaratna, Mr. S.A.L. Tilakaratna, Mrs. C.I. Tilakaratna, Mr. H.J. de Silva and

Mr. C.S.L de Silva.



Independent Auditor’s ReportD.H.P. MUNAWEERA & CO. No.5/6,PoliceParkTerrace,CharteredAccountants OffPoliceParkAvenue, Colombo05. SriLanka. Telephones : +94112553006 : +94112555313 Fax :+94112555038 E-mail :[email protected]

TO THE SHAREHOLDERS OF EASTERN MERCHANTS PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of Eastern Merchants PLC, the consolidated financial statements of the Company and its subsidiaries as at 31st March 2012, which comprise the balance sheets as at that date and the income statements, statement of changes in equity and cash flow statements for the year then ended and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of OpinionOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.Opinion

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31st March 2012 and the financial statements give a true and fair view of the Company’s state of affairs as at 31st March 2012 and its Profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards.

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31st March 2012 and the profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the members of the Company.

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Section 151(2) and 153(2) to (153(7) of the Companies Act No. 07 of 2007.

D.H.P. MUNAWEERA & CO.CHARTERED ACCOUNTANTS.27th August 2012Colombo

MISS.C.K.WIJAYARATNAACA,K.L.J.N.PERERAFCA,B.B.MGT.(ACC)SP,R.D.M.WIJETUNGAACA,Bsc(MGT)


Income Statement

Company Group

Restated

For the year ended 31st March 2012 2011 2012 2011

Note Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revenue 4,637,038 6,028,398 4,687,553 6,084,852

Cost of Sales (4,430,781) (5,865,393) (4,482,921) (5,910,330)

Gross Profit 206,257 163,005 204,632 174,522

Other Operating Income 3 28,302 13,040 132,485 14,072

234,559 176,045 337,117 188,594

Administrative Expenses 4 (131,051) (104,862) (141,814) (112,744)

Distribution Expenses 4 (707) (451) (4,730) (1,790)

Other Operating Expenses 4 (21,492) (12,827) (23,679) (15,066)

Profit from Operations 81,309 57,905 166,894 58,994

Finance Expenses 5 (33,001) (33,392) (36,772) (35,717)

48,308 24,513 130,122 23,277

Change in fair value of Investment Property 76,713 10,997 76,713 10,997

Share of Results of Associates - - - 291

Profit/(Loss) before Taxation 125,021 35,510 206,835 34,565

Taxation 6 (17,587) (13,588) (17,682) (13,655)

Profit/ (Loss) for the Year 107,434 21,922 189,153 20,910

Attributable to

Equity holders of the parent 142,815 21,340

Minority Interest 46,338 (430)

189,153 20,910

Earnings per Share - Basic 7.1 0.91 0.19 1.22 0.18

Dividend per share 7.2 0.04 0.04 0.04 0.04

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 22 through 44 form an integral part of the Financial Statements.


Balance Sheet

Company Group

Restated Restated

As at 31st March 2012 2011 2012 2011

Assets Note Rs.’000 Rs.’000 Rs.’000 Rs.’000

Non-Current Assets Property, Plant & Equipment 8 637,241 781,893 697,447 822,935 Capital Work-in-progress - 1,368 736 1,588 Investment Property 9 308,794 58,500 308,794 58,500 Intangible Assets 10 - - 3,460 - Investments 11 12,478 12,695 5,080 14,304 Deferred Tax Assets 19 4,848 5,810 4,848 5,810 963,361 860,266 1,020,365 903,137 Current Assets Inventories 12 218,458 253,386 247,076 264,120 Trade & Other Receivables 13 476,453 258,716 489,169 293,483 Short Term Investments 14 304 289 73,223 289 Amounts due from Related Parties 1,000 1,000 - - Cash in hand & At Bank 27,066 61,923 30,766 63,293 723,281 575,314 840,234 621,185 Total Assets 1,686,642 1,435,580 1,860,599 1,524,322 Equity & Liabilities Capital & Reserves Stated Capital 15 16,778 16,778 16,560 16,528 Capital Reserves 16 524,757 671,266 543,996 690,506 Revenue Reserves 17 415,478 166,568 440,699 156,131 Equity Attributable to Equity holders of the Company 957,013 854,612 1,001,255 863,165 Minority Interest - - 66,641 16,127 Total Equity 957,013 854,612 1,067,896 879,292 Non-Current Liabilities Interest Bearing Borrowings 18 3,190 - 7,098 - Deferred Tax Liability 19 52,054 47,509 52,054 47,509 Retirement Benefit Obligations 20 17,315 16,601 19,989 18,694 72,559 64,110 79,141 66,203 Current Liabilities Trade & Other Payables 21 25,466 17,969 65,433 48,976 Interest Bearing Borrowings 18 631,604 498,889 648,129 529,851 657,070 516,858 713,562 578,827 Total Equity & Liabilities 1,686,642 1,435,580 1,860,599 1,524,322

I Certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No.7 of 2007.

Srinath Jayakody Director - Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved & signed for and on behalf of the Board by

J. B .L. de Silva A. Karunaratne Chairman Managing Director 27th August 2012



Statement of Changes in Equity

Company Restated Other Restated

Stated Capital Revaluation Revenue Accumulated Total

Capital Reserve Reserve Reserves Profit/ (Loss) Equity

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 01st April 2010 16,778 15,717 679,428 11,416 151,564 874,903 Retrospective Restatement ( Note.24 ) - - (23,879) - (13,301) (37,180)Balance as at 01st April 2010 - Restated 16,778 15,717 655,549 11,416 138,263 837,723 Net Profit/(Loss) for the year - - - - 21,922 21,922 Dividend Paid - - - - (5,033) (5,033)Balance as at 31st March 2011 16,778 15,717 655,549 11,416 155,152 854,612 Effect on Application of SLAS 40 - - (146,509) - 146,509 - Net Profit/(Loss) for the year - - - - 107,434 107,434 Dividend Paid - - - - (5,033) (5,033)

Balance as at 31st March 2012 16,778 15,717 509,040 11,416 404,062 957,013


Group Attributable to Equity Holders of Parent

Other Restated Other Restated

Stated Capital Revaluation Revenue Accumulated Restated Minority Total

Capital Reserves Reserves Reserves Profit/( Loss) Total Interest Equity

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance as at 01st April 2010 16,528 16,749 697,636 11,871 140,954 883,738 16,752 900,490 Retrospective Restatement ( Note.24 ) - - (23,880) - (13,301) (37,181) - (37,181)Balance as at 01st April 2010 - Restated 16,528 16,749 673,756 11,871 127,653 846,557 16,752 863,309 Profit/(Loss) for the year - - - - 21,340 21,340 (430) 20,910 Dividend Paid - - - - (4,733) (4,733) (195) (4,928)Balance as at 31st March 2011 16,528 16,749 673,756 11,871 144,260 863,164 16,127 879,291 Effect on adopting SLAS 40 - - (146,509) - 146,509 - - Profit/(Loss) for the year - - - - 142,815 142,815 46,338 189,153 Dividend Paid - - - - (4,756) (4,756) - (4,756)Effects of Acquisition, Disposal and Change in Percentage Holding in Subsidiaries 32 - - - - 32 4,176 4,208 Balance as at 31st March 2012 16,560 16,749 527,247 11,871 428,828 1,001,255 66,641 1,067,896

Eamel Exports Limited had acquired 25,000 Shares of Eastern Merchants PLC prior to 21st May 1982. Subsequently the number of shares has increased to 100,000 as a result of a bonus issue made by Eastern Merchants PLC on 24th June 1997. After the sub-division of the company shares, whereby one (1) existing share was sub-divided to seventy (70), the number of Ordinary shares held by Eamel Exports has increased to 7,000,000. However during the year Eamel Export Limited has sold 896,600 shares ( Cost of those shares was Rs. 32,000 ) of Eastern Merchants PLC.



Cash Flow Statement

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

CASH FLOWS FROM OPERATING ACTIVITIES: Net Profit/( Loss) before Tax 125,020 35,512 206,835 34,565 Adjustments for Finance Costs 32,665 33,392 36,772 35,717 Dividend Received (194) (873) (631) (1,199)Depreciation 14,526 15,539 18,368 17,832 Share of Results of Associates - - 32 (291)Negative Goodwill on changes in Holding (9,174)(Profit)/Loss on Sale of Property, Plant & Equipment (7) - 1,011 - (Profit)/Loss on Sale Of Non-Current Investment (11,930) - (37,468) - (Gain)/Loss On Changes on Short term Investment - - (66,765) - Change in fair value of Investment Property (76,713) (10,997) (76,713) (10,997)Provision for Gratuity 2,220 2,773 3,052 3,158 Operating Profit/(Loss) before Working Capital Changes 85,587 75,346 73,297 78,785 (Increase)/Decrease in Inventories 34,928 (92,143) 17,044 (97,245)(Increase)/Decrease in Debtors & Other Receivables (218,024) (3,055) (196,501) (2,240)Increase/(Decrease) in Trade & Other Payables 7,499 (4,196) 16,457 (2,735)Cash Generated from Operations (90,010) (24,050) (89,704) (23,435)Finance Costs Paid (32,665) (33,392) (36,772) (35,717)Defined Benefit Plan Cost Paid (1,504) (345) (1,757) (462)Income Tax Paid (11,608) (16,971) (11,360) (17,168)CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES (135,787) (74,758) (139,593) (76,782)

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES Acquisition of Property, Plant & Equipment (36,761) (6,179) (18,838) (6,953)Capital work in progress (21,025)Proceeds from Sale of Property, Plant & Equipment 45 - 1,049 - Proceeds from Sale of Investments - - 45,651 - Acquisition of Subsidiary (11,064) Sale Proceed Of Non-Current Investment 17,776 - - - Acquisition of Investment (5,630) (849) (5,095) (2,085)Dividend Received 194 873 631 1,199 CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES (24,376) (6,155) (8,691) (7,839)

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES: Repayment of Interest Bearing Loans and Borrowings (2,528,172) (2,671,924) (2,578,460) (2,721,250)Proceeds from Interest Bearing Loans and Borrowings 2,543,527 2,784,495 2,598,754 2,833,660 Dividend Paid (5,034) (5,033) (4,756) (4,928)Principal payment Under Finance Lease Liabilities - - (1,335) (1,224)Net Cash flows from/(used in) Financing Activities 10,321 107,538 14,203 106,258

Net Increase/(Decrease) in Cash & Cash Equivalents (149,842) 26,625 (134,081) 21,637 Cash & Cash Equivalent at the beginning of the year (125,013) (151,638) (137,893) (159,530)Cash & Cash Equivalent at the end of the year (274,855) (125,013) (271,974) (137,893)

Cash & Cash Equivalent: Cash in hand & at Bank 27,370 62,211 30,766 63,293Bank Overdrafts (302,225) (187,224) (302,740) (201,186)Cash and Cash Equivalents at the end of the year (274,855) (125,013) (271,974) (137,893)



Notes to the Financial Statements

1. General

1.1 Eastern Merchants PLC (the Company) is a Company

incorporated and domiciled in Sri Lanka and listed on

the Colombo Stock Exchange. The registered office and

the principal place of the business of the Company is

located at 341, Union Place, Colombo 2.

In the annual report of the Board of Directors and in

the Financial Statements “The Company” refers to

Eastern Merchants PLC as the Holding Company and the

“Group” refers to the Companies whose accounts have

been consolidated therein. The financial statements for

the year ended 31 March 2012 were authorized for issue

by the Directors on 27th August 2012.

1.2 The Notes to the Financial Statements on pages 22 to

44 form an integral part of the Financial Statements.

1.3 All values presented in the Financial Statements are in

Sri Lanka Rupees Thousands (Rs’000) unless otherwise

indicated.

1.4 The principal activities of the Group are stated on

page 16 as at 31st March 2012. The Group employed 175

personnel. (114 as at 31st March, 2011)

2. General Policies2.1 Statement of Compliance

The Balance Sheet, Statement of Income, Statement

of Changes in Equity and the Cash Flow Statement,

together with the Accounting Policies and Notes

(the “Financial Statements”) have been prepared in

compliance with the Sri Lanka Accounting Standards

(SLAS) issued by the Institute of Chartered Accountants

of Sri Lanka and the requirement of the Companies Act

No.7 of 2007.

2.2 Basis of Preparation

The Financial Statements presented in Sri Lanka Rupees

have been prepared on an accrual basis under the

historical cost basis except for certain property, plant

and equipment which have been revalued.

2.3 Use of Estimates and Judgements.

The preparation of the Financial Statements of the

Group require management to make judgements,

estimates and assumptions which may affect the

application of accounting policies and the reported

amounts of assets, liabilities, income and expenses and

the disclosure of contingent liabilities at the reporting

date. However uncertainty about these assumptions

and estimates could result in outcomes that require

material adjustments to the carrying amounts of the

assets or liabilities affected in future periods.

The estimates and underling assumptions are based

on historical experience and various other factors that

are believed to be reasonable under the circumstances,

the results of which form the basis of making the

judgements about the carrying amount of assets and

liabilities that are not readily apparent from other

sources.

The estimates and underling assumptions are reviewed

on an ongoing basis. Revision to accounting estimates

are recognized in the period in which the estimate is

revised if the revision affects only that period, or in the

period of the revision and future periods if the revision

affects both current and future periods.

2.4 Changing in accounting policies

The Accounting Policies adopted are consistent with

those of the previous financial year.

Comparative Information

Previous year’s figures and phrases have been re-

arranged, wherever necessary to confirm the current

year’s presentation.

2.5 Events after the Balance Sheet date

All material post-Balance Sheet events have been

considered and appropriate adjustments or disclosures

have been made in the respective notes to the Financial

Statements.


2.6. Consolidation Policy2.6.1 Basis of Consolidation

The consolidated Financial Statements comprise

the Financial Statements of the Company, and its

subsidiaries as at 31st March 2012 over which it has

control. The consolidated Financial Statements

have been prepared in compliance with the Group’s

Accounting Policies unless specifically stated.

All inter group balances, income and expenses and

profit and losses resulting from inter group transactions

that are recognized in assets, liabilities, income and

expenses are eliminated in full.

Subsidiaries are fully consolidated from the date

of acquisition or incorporation, being the date on

which the group obtains control and continue to be

consolidated until the date that such control ceases.

The Financial Statements of the subsidiaries are

prepared for the same reporting period as the parent

Company, which 12 months is ending 31st March, using

consistent Accounting Policies.

2.6.2 Acquisition and divestments

Acquisitions of subsidiaries are accounted for using

the purchase method of accounting. The purchase

method of accounting involves allocating the cost

of the business combinations to the fair vale of the

assets acquired and liabilities and contingent liabilities

assumed at the date of acquisition. The result of

subsidiaries acquired or incorporated during the year

have been included from the date of acquisition or

incorporation while result of subsidiaries disposed have

been included up to the date of disposal.

When the group acquires a business, it assess of the

financial assets and liabilities assumed for appropriate

classification in accordance with the contractual terms,

economics circumstances and pertinent conditions as at

the acquisition date.

2.6.3 Subsidiaries

Subsidiaries are those enterprises controlled by the

parent. Control exists when the parent holds more than

50% of the voting rights or otherwise has a controlling

interest.

The following company with equity control less 50% has

been consolidated as subsidiary based on the power

to govern the financial and operating policies of that

entity.

% Holding

Eamel Export (Pvt) Ltd. 45

The percentage holding of the other companies

consolidated is given bellow.

% Holding

Asia Brush (Pvt) Ltd. 52.26

Asian Woodware (Pvt) Ltd. 54.78

The total profits and losses for the period of the

Company and of its subsidiaries included in

consolidation, and all assets and liabilities of the

Company and of its subsidiaries included in

consolidation, are shown in the consolidated income

statement and balance sheet respectively.

Minority interest which represents the portion of profit

or losses and net assets not held by the Group are

shown as a component of profit for the period in the

income statement and as a component of equity in the

consolidated Balance Sheet separately from parent

share holders equity.

The consolidated cash flow statement includes the Cash

Flows of the Company and its subsidiaries.

2.6.4 Goodwill

Goodwill acquired in a business combination is initially

measured at cost being the excess of the cost of the

business combination over the group’s interest in the

net fair value of the identifiable assets, liabilities and


Notes to the Financial Statements contd.

contingent liabilities. Following initial recognition,

goodwill is measured at cost less any accumulated

impairment losses. Goodwill is reviewed for impairment,

annually or more frequently if events or changes in

circumstances indicated that the carrying value may be

impaired.

Goodwill on incremental acquisition is charged to

relevant earnings if it is deemed to be insignificant.

For the purpose of impairment testing, goodwill

acquired in a business combination is, from the

acquisition date, allocated to groups of cash -generating

units that are expected to benefit from the synergies of

the combination

Impairment is determined by assessing the recoverable

amount of the cash generating units to which the

goodwill relates here the recoverable amounts of the

cash generated units is less than the carrying amount,

and impairment loss is recognized. The impairment

loss is allocated first to reduce the carrying amount of

goodwill allocated to the unit and then to the other

assets pro-rata to the carrying amount of each assets in

the units.

2.6.5 Financial Year

All Companies in the group have a common financial

year, which ends 31st March.

2.7 Foreign Currency Transaction

All Foreign exchange transactions are converted to

Sri Lanka Rupees, which is the reporting currency

at the rates of exchange prevailing at the time the

transactions were effected. Monetary assets and

liabilities denominated in foreign currencies are

translated to Sri Lanka Rupee equivalents using year

end spot foreign exchange rates. The resulting gains

and losses are accounted for in the Income Statement.

2.8 Taxation

(1) Current Taxes

Provision for Income Tax is based on the elements

of Income and Expenditure as reported in the

Financial Statements and computed in accordance

with the provisions of the relevant Tax Statutes.

(ii) Deferred Taxation

Deferred taxation is the tax attributable to the

temporary differences that arise when taxation

authorities recognize and measure assets and

liabilities with rules that differ from those of the

consolidated financial statements.

Deferred tax is provided using the liability method

on temporary differences at the balance sheet

date between the tax bases of assets and liabilities

and their carrying amounts for financial reporting

purposes. Deferred tax liabilities are recognized

for all taxable temporary differences.

Deferred tax assets are recognized for all

deductible temporary differences, unused tax

credits and tax losses carried forward to the

extent that it is probable that taxable profit will be

available against which the deductible temporary

differences, the unused tax credits and tax losses

carried forward can be utilized.

The carrying amount of deferred tax assets is

reviewed at each balance sheet date and reduced

to the extent that it is no longer probable that

sufficient taxable profit will be available to allow

all or part of the deferred tax assets to be utilized.

Unrecognized deferred tax assets are reassessed

at each balance sheet date and are recognized to

the extent that it has become probable that future

taxable profit will allow the deferred tax asset to

be recovered.


Deferred tax assets and liabilities are measured at

tax rates that are expected to apply to the year

when the asset is realized or liability is settled,

based on the tax rates and tax laws that have been

enacted or substantively enacted as at the balance

sheet date.

(iii) Turnover based taxes

Turnover based taxes include Value Added Tax

(VAT), Economic Service Charge (E.S.C.) and NBT,

in respect of trading activities. Companies in the

Group pay such taxes in accordance with the

respective statutes.

2.9 Borrowing Costs

Borrowing Costs are recognized as an expense in the

period in which they are incurred.

2.10 Valuation of Assets and their Measurement Bases2.10.1 Inventories

Inventories are valued at the lower of actual cost

and estimated net realizable value after making due

allowance for obsolete and slow moving items. Net

realizable value is the price at which inventories can

be sold in the ordinary course of business, less the

estimated cost of completion and the estimated cost

necessary to make the sale.

The cost incurred in bringing inventories to its present

location and condition is accounted using the following

cost formula:-

Raw Materials - At actual cost on weighted average cost

basis.

Finished Goods & Work-in-Progress

At the cost of direct materials, direct labour and

appropriate proportion of fixed variable and production

overheads based on normal operating capacity.

Packing Materials - At actual cost

Consumables & Spares - At actual cost

2.10.2 Trade and Other Receivables

Trade and Other Receivables are stated at the amounts

they are estimated to realize net of bad debts written

off during the year.

2.10.3 Cash & Cash Equivalents

Cash & Cash equivalents are comprised as cash in hand

and at Banks and short term deposits. For the purpose

of Cash Flow Statement, Cash and Cash equivalents

consist of cash in hand and Deposits in banks net of

outstanding Bank Overdrafts.

2.10.4 Property, Plant & Equipment

Property, Plant and equipment are stated at cost

or fair value less accumulated depreciation and any

accumulated impairment in value.

The carrying value of Property, Plant & Equipment are

reviewed for impairment when events or changes in

circumstances indicate that the carrying value may not

be recoverable.

All item of Property, Plant & Equipment are initially

recorded at cost. Where Property, Plant & Equipment

are subsequently revalued, the entire class of such

assets is usually revalued.

Subsequent to the initial recognition as assets at cost,

Property, Plant & Equipment are carried at revalued

amounts less any subsequent depreciation thereon.

All other Property, Plant & Equipment are stated at

historical cost less depreciation.

When an asset is revalued, any increase in the carrying

amount is credited directly to a revaluation reserve,

unless it reverses a previous deficit on the same asset

recognized as on expenses. Any revaluation deficit

directly offsetting a previous surplus in the same assets

is directly offset against the surplus in the revaluation

reserve or recognized as on expense. Upon disposal

any revaluation reserve relating to the assets sold is

transferred to retained earnings.



Restoration Cost

Expenditure incurred on repairs or maintenance of

Property, Plant & Equipment in order to restore or

maintain the future economic benefits expected

from originally assessed standard of performance is

recognized as an expenses when incurred.

Depreciation

Provision for Depreciation is calculated on all Property,

Plant & Equipment other than freehold Land, in order to

write off the cost or valuation over the estimated useful

economic lives of such assets.

The annual rates of depreciation are as follows:

Assets Rate

Buildings 5%

Plant & Machinery 10%

Electrical Installation 10%

Motor Vehicles 12.5%

Furniture & Fittings 10%

Office Equipment 10%

Stores & Other Equipment 10%

Fax Machine 20%

Computers 15%

Generators 12.5%

Asian Brush (Pvt) Limited depreciates Plant &

Machinery and Computer Equipment at 20%, other

Machinery, Tools & Equipment & Furniture & Fittings at

25% and Factory premises at 33 1/3%.

2.10.5 Impairment of Assets

The Company and the Group assesses at each reporting

date whether there is an indication that an asset may

be impaired. If any such indication exists, or when

annual impairment testing for an asset is required, the

Company makes an estimate of the asset’s recoverable

amount. An asset’s recoverable amount is the higher

of an asset’s or cash generating units’ fair value less

costs to sell and its value in use and is determined for

an individual asset, unless the asset does not generate

cash inflows that are largely independent of those from

other assets or groups of assets. When the carrying

amount of an asset exceeds its recoverable amount,

the asset is considered impaired and is written down to

its recoverable amount. In assessing value in use, the

estimated future Cash Flows are discounted to their

present value using a pre-tax discount rate that reflects

current market assessments of the time value of money

and the risks specific to the asset. Impairment losses

are recognised in the Income Statement.

An assessment is made at each reporting date as

to whether there is any indication that previously

recognised impairment losses may no longer exist or

may have decreased. Previously recognised impairment

losses are reversed only if there has been an increase in

the recoverable amount of the asset. Such an increase

is recognised to the extent of the carrying amount had

no impairment losses been recognised previously.

2.11 Finance Leases

Property, Plant & Equipment on Finance Leases which

effectively transfer to the Group assumes substantially

all the risks and benefits incidental to ownership of such

items, are capitalized at their cash price and disclosed

as Property, Plant & Equipment and depreciated over

the period the Group is expected to benefit from the

use of such assets.

The corresponding principal amount payable to

the lessor is shown as a liability. Leased payments

are apportioned between the Finance Charges and

reduction Lease liability, so as to achieve a constant rate

of Interest on the remaining balance of the liability. The

interest payable over the period of leases is transferred

to an interest in suspense Account. The interest

element of the rental obligations applicable to each

financial year is charged to the Income Statement over

the period of the lease.

2.11.1 Operating Leases

Leases, where the lessor effectively retains substantially

all of the risk and benefits of ownership over the term

of the lease, are classified as operating leases.


Lease payments are recognized as an expense in the

Income Statement on a straight-line basis over the

term of the lease.

Investment Property

Properties held to earn rental income, and properties

held for capital appreciation have been classified as

investment property.

Investment properties are initially recognized at cost.

Subsequent to initial recognition, the investment

properties are stated at fair values, which reflect market

conditions at the balance sheet date.

Gains or losses arising from changes in fair value are

included in the income statement in the year in which

they arise.

Investment properties are derecognized when

disposed, or permanently withdrawn from use because

no future economic benefits are expected. Any gains or

losses on retirement or disposal are recognized in the

income statement in the year of retirement or disposal.

Transfers are made to investment property, when

there is a change in use, evidenced by ending of

owner occupation, commencement of an operating

lease to another party or ending of construction or

development. Transfers are made from investment

property, when there is a change in use, evidenced

by commencement of owner-occupation or

commencement of development with a view to sale.

Where group companies occupy a significant portion

of the investment property of a subsidiary, such

investment properties are treated as property, plant

and equipment in the consolidated Financial Statements

and accounted for as per SLAS 18 (revised) Property,

Plant and Equipment.

2.12 Investments

All quoted and unquoted securities which are held

as long term investments, are valued at cost. The

carrying amount of long term investments is reduced

to recognize a decline, which is other than temporary,

in the value of investments determined on an individual

Investment basis.

Equity Investments

All quoted and unquoted securities, which are held as

noncurrent investments, are valued at cost. All quoted

equities held as short term investments are stated at

market values with the resultant gain or loss recognised

in the income statement. The cost of investment is the

cost of acquisition inclusive of brokerage and costs

of transaction. The carrying amounts of long term

investments are reduced to recognize a decline which

is considered other than temporary in the value of

investments, determined on an individual investment

basis.

Investments in subsidiaries and associate companies

have been accounted for at cost, net of any impairment

losses which are charged to the income statement.

Income from these investments is recognised only to

the extent of dividends received.

2.13 Liabilities & Provisions2.13.1 Retirement Benefit Obligations

(i) Defined Benefit Plan – Gratuity

The liability recognized in the Balance Sheet is the

present value of the defined benefit obligation at

the Balance sheet date using the Gratuity formula

method, as discussed in appendix E of the SLAS 16

(revised 2006) Employee Benefits.

However, as per the payment of Gratuity Act No.

12 of 1983, this liability only arises upon completion

of Five (5) years of continued service

The Gratuity liability is neither externally funded

nor actuarially valued.



(ii) Defined Contribution Plans

Employees’ Provident Fund and Employees Trust

Fund Employees are eligible for Employees’

Provident Fund contributions and Employees Trust

Fund Contributions in line with respective statutes

and regulations.

(iii) Trade and Other Payables

Trade and other payables are stated at their cost.

2.14 Income Statement2.14.1 Revenue Recognition

Revenue is recognized to the extent that is probable

that the economic benefits will flow to the Group

and the revenue and associated cost incurred or to

be incurred can be reliably measured. Revenue is

measured at the fair value of the consideration received

or receivable.

The following specific criteria are used for the purpose

of recognition of Revenue.

Net Gains and Losses of a revenue nature on the

disposal of Property, Plant & Equipment has been

accounted for in the Income Statement having

deducted from proceeds on disposal, the carrying

amount of the asset and related selling expenses.

2.14.2 Expenditure Recognition

(a) All expenditure incurred in the running of the

business and in maintaining the Property, Plant

& Equipment in a state of efficiency has been

charged to income in arriving at the Profit or Loss

for the year.

(b) All Interest and other costs incurred in connection

with borrowings are charged to Income

statements. Borrowing costs are recognized as

expenses in the year in which they are incurred.

2.15 Segment Reporting

Segmentation is based on the provision of goods and

services within a particular economic environment

taking into consideration the risk and reward unique to

each services.

Inter-segment Pricing Inter-segment transactions are priced at fair market

values.

Segment Information Segment information has been prepared in conformity

with the Accounting Policies adopted for preparing and

presenting the Financial Statements of the Company.

2.16 Sri Lanka Accounting Standards effective from 01st January 2012

The Group will be adopting the new Sri Lanka Accounting Standards (new SLAS) comprising LKAS and SLFRS applicable for financial periods commencing from 01st January 2012 as issued by the Institute of Chartered Accountants of Sri Lanka. The Group has commenced reviewing its Accounting Policies and financial reporting in readiness for the transition. As the Group has a 31st March year end, priority has been given to considering the preparation of an opening Balance Sheet in accordance with the new SLASs as at 01st April 2011. This will form the basis of accounting for the new SLASs in the future, and is required when the Group prepares its first new SLAS compliant Financial Statements for the year ending 31st March 2012.

The Institute of Chartered Accountants of Sri Lanka has resolved an amendment to Sri Lanka Accounting Standard 10, whereby the provision contained in paragraphs 30 and 31 of SLAS 10 – Accounting Policies, Changes in Accounting Estimates and Errors, would not be applicable for Financial Statements prepared in respect of financial periods commencing before 1 January 2012 and hence the impact of this transition is not required to be disclosed in these Financial

Statements.


3 Other Income

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Interest - - 454 247Rent 16,171 12,108 16,171 12,108 Dividend 194 873 354 1,199 Profit on Sale of Property, Plant & Equipment 7 - 1,011 - Profit on Disposal of Non-Current Investment 11,930 - 37,469 - Increase in Market Value of Short Term Investments - 66,765 - Exchange Gain - 59 14 168 Scrap Sales - - 411 - Creditors Written-back - - 662 350 Negative Goodwill on Changes in Holding - - 9,174 - 28,302 13,040 132,485 14,072

4 Profit from Operations before Interest Profit from Operations is stated after charging all expenses including the following:

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Depreciation 16,397 15,540 20,240 17,832 Directors’ Emoluments 26,144 11,116 26,144 11,116 Auditors’ Remuneration 512 503 796 702 Charity & Donations 410 281 483 287 Defined Benefit Plan Cost - Gratuity 2,219 2,773 2,613 3,158 Defined Benefit Plan Cost - E.P.F. & E.T.F. 4,182 2,645 4,980 2,682 Staff Expenses 51,945 42,997 64,614 45,619

5 Finance Expenses Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Interest on Loans & Leases 33,001 33,392 36,772 35,717 33,001 33,392 36,772 35,717

6 Income Tax Expenses The major components of Income Tax Expense are as follows:

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

6.1 Current Income Tax Current Income Tax charge 12,080 10,627 12,175 10,683 SRL for the year - 159 - 160 10% Withholding Tax on Inter Company Dividends - - - 10 Deferred Tax Deferred Tax Charge / (Release) 5,507 2,802 5,507 2,802 Income Tax Expense reported in the Income Statement 17,587 13,588 17,682 13,655



6.2 A reconciliation between Tax Expense and the product of Accounting Profit multiplied by the Statutory Tax Rate is as follows:

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Accounting Profit before tax from continuing operations 125,021 35,512 118,217 34,356 Non - deductible Expenses 18,118 19,344 21,279 22,967 Deductible Expenses (114,988) (33,345) (117,813) (36,299)Adjusted Profit on Trade Business 28,151 21,511 21,683 21,024 Income from Rent 15,738 11,739 15,738 11,739 Agriculture Income 275 - 275 - Total Statutory Income 44,164 33,250 37,696 32,763 Set off against Tax Losses - (2,514) (102) (2,600)Assessable Income 44,164 30,736 37,594 30,163 Deduction from Assessable Income (136) (136) (136) (136Taxable Income 44,028 30,600 37,458 30,027

Tax on Taxable Income Tax on Qualified Export profit at 12% ( 15% - 2011 ) 149 63 149 63 Tax on Agriculture Profit at 10% ( Exempt - 2011 ) 27 - 27 - Income Tax on Normal Rate 28% ( 35%-2011 ) 11,904 10,564 11,999 10,620 12,080 10,627 12,175 10,683

6.3 Deferred tax expense

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Accelerated depreciation for tax purposes 4,545 2,900 4,545 2,900

Employee benefit liabilities 962 (849) 962 (849)

Other - 751 - 751

Deferred tax charge / (release) 5,507 2,802 5,507 2,802

6.4 Applicable rates of income tax

The tax liability of the Group Companies are computed at the standard rate of 28% (35% for 2011 ) except for the

following Companies which enjoy full or partial exemptions and concessions.

Company Basis Exemption / Concession Period

Eastern Merchants PLC Exporting Non Traditional Commodities 12% Open Ended

Agriculture Income - Tea Plantation 10% Open Ended

Asian Woodware Company Exporting Non Traditional Commodities 12% Upto 2023

(Pvt) Limited


7 Earnings per Share / Dividend per Share

7.1 Basic earnings per share is calculated by dividing the Net Profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares. The following reflects the Income and share data used in the basic earnings per share computation.

Company Group

For the Year Ended 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Amount used as the Numerator Net Profit Attributable to Ordinary Shareholders 107,434 21,922 142,815 21,340

Amount used as the Denominator Weighted Average Number of Ordinary Shares (Thousands) 117,446 117,446 117,446 117,446

Basic Earning per Share (Cents.) 0.91 0.19 1.22 0.18

There were no potentially dilutive Ordinary Shares outstanding at any time during the year.

7.2 Earnings per Share / Dividend per Share

Amount used as the Numerator 5,033 5,033 5,033 5,033 Net Profit Attributable to Ordinary Shareholders 117,446 117,446 117,446 117,446

Dividend per Share ( Cents.) 0.04 0.04 0.04 0.04

8 Property Plant & Equipment

8.1 Company

Additions Transfers

As at during the during the As at

01/04/2011 year year 31/03/2012

At Cost Rs.’000 Rs.’000 Rs.’000 Rs.’000

Plant & Machinery 18,072 - - 18,072 Motor Vehicles 64,851 16,124 (125) 80,850 Furniture & Fittings 4,436 - - 4,436 Office Equipment 7,117 - - 7,117 Stores & Other Equipment 7,796 - - 7,796 Computers 4,967 128 - 5,095 Total 107,239 16,252 (125) 123,366 At Valuation Land 618,257 (151,703) - 466,554 Buildings 112,240 - 112,240 Total 730,497 (151,703) - 578,794 Assets on Finance Lease Motor Vehicle - 5,363 - 5,363 - 5,363 - 5,363 Total Value of Assets 837,736 (130,088) (125) 707,523



Depreciation Disposals

As at Charge for during the As at

01/04/2011 the year year 31/03/2012

At Cost Rs.’000 Rs.’000 Rs.’000 Rs.’000

Plant & Machinery 11,103 980 - 12,083 Motor Vehicles 20,268 6,433 (87) 26,614 Furniture & Fittings 3,081 205 - 3,286 Office Equipment 5,404 352 - 5,756 Stores & Other Equipment 6,252 305 - 6,557 Computers 4,123 304 - 4,427 Total 50,231 8,579 (87) 58,723 On Valuation Buildings 5,612 5,612 - 11,224 Total 5,612 5,612 - 11,224 Assets on Finance Lease Motor Vehicle - 335 - 335 - 335 - 335 Total Depreciation 55,843 14,526 (87) 70,282

Net Book Value of Assets: At Cost 57,008 64,643 At Valuation 724,885 567,570 Assets on Finance Lease - 5,028 781,893 637,241

8.2 Group

Additions/ Effect on Disposals/

Transfers Acquisition of Transfers

As at during the Subsidiary during the As at

01/04/2011 year Rs.’000 year 31/03/2012

At Cost Rs.’000 Rs.’000 Rs.’000 Rs.’000

Plant & Machinery 45,205 567 5,917 - 51,689 Motor Vehicles 64,972 16,124 - (125) 80,971 Furniture & Fittings 5,013 12 65 - 5,090 Office Equipment 7,905 - 4 - 7,909 Stores & Other Equipment 10,528 455 2,167 - 13,150 Computers 6,702 233 84 - 7,019 Total 140,325 17,391 8,237 (125) 165,828

At Valuation Land 647,497 - - (151,703) 495,794 Buildings 129,144 915 25,332 - 155,391 Total 776,641 915 25,332 - 651,185

On Finance Lease Plant & Machinery 1,320 - - - 1,320 Motor Vehicles 6,818 5,363 - (1,500) 10,681 Total 8,138 5,363 - (1,500) 12,001 Total Value of Assets 925,104 23,669 33,569 (1,625) 829,014


8.2 Group

Depreciation As at Effect on Disposals

01/04/2011 Charge for Acquisition of during the As at

Restated the year Subsidiary year 31/03/2012

On Cost Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Plant & Machinery 34,326 1,461 4,518 - 40,305 Motor Vehicles 20,346 6,433 - (87) 26,692 Furniture & Fittings 3,658 205 65 - 3,928 Office Equipment 6,193 357 3 - 6,553 Stores & Other Equipment 8,758 343 1,986 - 11,087 Computers 5,765 341 84 - 6,190 Total 79,046 9,140 6,656 (87) 94,755

On Valuation Buildings 15,527 6,457 7,857 - 29,841 Total 15,527 6,457 7,857 - 29,841

On Finance Lease Plant & Machinery 6,276 - - - 6,276 Motor Vehicles 1,320 875 - (1,500) 695 Total 7,596 875 - (1,500) 6,971 Total Depreciation 102,169 16,472 14,513 (1,587) 131,567

Net Book Value of Assets At Cost 61,279 71,073 At Valuation 761,114 621,344 On Finance Leases 542 5,030 822,935 697,447

8.3 Revaluation of Assets Details of Group’s Land and Buildings stated at valuation are indicated below. Effective

Method of Date of Property Valuation Valuation Eastern Merchants PLC

Land & Buildings at 341, Union Place, Colombo 2. Open Market 31/03/2010 Value Method

Land & Buildings at No. 101, Gonawela Road, Open Market 31/03/2010 Heiyantuduwa, Sapugaskanda. Value Method

Land & Buildings at Atakalan Estate, Baddegama Open Market 31/03/2010 Road, Ampegama. Value Method

Asia Brush (Pvt) Ltd.

Land & Buildings Open Market 25/03/2009 Value Method



8.4 The carrying amount of revalued assets that would have been included in the Financial Statements had the assets been carried at cost less accumulated depreciation is as follows:

Company Accumulated Net Book Net Book

Cost Depreciation Value as at Value as at

As at 31/03/2012 As at 31/03/2012 31/03/2012 31/03/2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Land 24,114 - 24,114 24,114 Buildings 64,524 44,020 20,504 23,730 88,638 44,020 44,618 47,844

Group Accumulated Net Book Net Book

Cost Depreciation Value as at Value as at

As at 31/03/2012 As at 31/03/2012 31/03/2012 31/03/2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Land 24,662 - 24,662 24,662 Buildings 71,465 49,338 22,127 25,700 96,127 49,338 46,789 50,362

9 Investment Property

Company Group

2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost at the beginning of the year 58,500 47,503 58,500 47,503 Add : Transferred from Capital Work in Progress 21,877 - 21,877 - Add : Value of Land Transferred 151,704 - 151,704 - Change in Fair Value during the year 76,713 10,997 76,713 10,997 Balance at the end of the year 308,794 58,500 308,794 58,500

9.1 The Board of Directors has adopted the fair value model to value the investment properties of the Company. Consequently the fair value of investment property have been considered based on the valuation done by Dr. Gaminda Heagoda, who is an incorporated valuer.

9.2 Rental Income earned from investment property by the Company and the Group was Rs. 16 Million. (2011- Rs. 12 Million). Direct operating expenses incurred by the Company and the Group was Rs. 432,896. (Rs. 366,000 in 2011)

10 Intangible Assets Group

As at 31st March 2012 2011

Rs.’000 Rs.’000

Balance as at the beginning of the year - - Goodwill arising on acquisition 3,460 - Balance as at the end of the year 3,460 -

10.1 During the year addition to the goodwill reflects the excess of the purchase consideration made for the carrying value of assets and liabilities acquired in acquiring the Asian Woodware Company (Pvt) Limited.


11 Investments

Company Group

As at 31st March Note 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Investments held by the Company in subsidiaries 12,478 6,849 5,080 - Investments in Associate - - - 1,476 Investments in Companies Outside the Group 11.2 - 5,846 - 9,605 Fixed Deposits ( more than 12 month period ) - - - 3,223 Bank Deposits ( more than 3 months & less than 1 year ) 12,478 12,695 5,080 14,304

11.1 Investments held by the Company in subsidiaries

Company Group

As at 31st March 2012 2011 2012 2011 2012 2011 2012 2011

No. of No. of Book Value Book Value No. of No. of Book Value Book Value

Shares Shares Rs.’000 Rs.’000 Shares Shares Rs.’000 Rs.’000

Unquoted - Consolidated

Eamel Exports Ltd., 17,500 22,500 865 116 - - - -

Asian Woodware (Pvt) Ltd 487,996 - 4,880 - 403,958 - 5,080 -

Asia Brush (pvt) Ltd 501,665 501,665 6,733 6,733 - - - -

12,478 6,849 5,080 -

11.2 Investments in Companies outside the Group

Company Group

As at 31st March 2012 2011 2012 2011 2012 2011 2012 2011


Quoted Investments Shares Shares Rs.’000 Rs.’000 Shares Shares Rs.’000 Rs.’000

Ceylinco Insurance PLC - 5,440 - 45 - 5,440 - 45 Lanka I.O.C. - 10,000 - 270 - 11,000 - 299 Seylan Bank PLC - - - - - 85,000 - 1,084 Ceylon Lather Products PLC - - - - - 20,000 - 1,544 Piramal Glass PLC - - - - - 7,000 - 15 Hatton National Bank - - - - - 6,000 - 328 C.W. Mackie PLC - - - - - 20,000 - 759

- 315 - 4,074

Company Group

As at 31st March 2012 2011 2012 2011 2012 2011 2012 2011


Investment in Unit Trust Units Units Rs.’000 Rs.’000 Units Units Rs.’000 Rs.’000

National Equity Fund - 318,934 - 4,223 - 318,934 - 4,223

Ceybank Unit Trust - 115,926 - 1,308 - 115,926 - 1,308

- 5,531 - 5,531

- 5,846.00 - 9,605.00



12 Inventories

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Raw Materials - - 8,032 4,222 Work-in-progress - - 17,471 2,652 Goods in Transits - - - 81 Finished Goods 214,742 248,081 217,631 251,499 Packing Materials 3,716 5,305 3,942 5,666 218,458 253,386 247,076 264,120

13 Trade Debtors & Other Receivables

3 Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade Debtors 436,732 219,138 443,516 224,540Other Debtors 15,349 14,996 18,973 18,031 Advances & Prepayments 2,202 3,245 3,804 3,890 Loans to Company Officers 1,378 300 1,495 372 Advances Paid to Constructors 2,155 2,115 2,744 2,209 Amounts Due from Associate Company - - - 24,989 Commissioner General of Inland Revenue 18,637 18,922 18,637 19,452 476,453 258,716 489,169 293,483

14 Short Term Investments

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Quoted Equities at Market Value 14.1 - - 72,919 - Bank Deposits ( more than 3 months & less than 1 year ) 304 289 304 289 304 289 73,223 289

14.1 Quoted Equities at Market Value

Group

No. of Cost Market Value

Shares 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Eastern Merchant PLC 6,103,400 781 - 66,919 - Seylan Bank PLC (Non Voting ) 113,333 2,076 - 3,287 - Ceylon Leather Products PLC (Warrant) 20,000 129 - 252 - Ceylon Leather Products PLC 7,500 579 - 689 - Piramal Glass PLC 50,000 511 - 305 - Diesel & Motor Engineering PLC 1,020 1,294 - 1,002 - MTD Walkers PLC 7,000 358 - 161 - Kegalle Plantation PLC 1,000 202 - 103 - Overseas Reality (Ceylon) PLC 15,000 224 - 201 - 6,154 72,919 Increase / (Decrease) in Market Value 66,765 72,919


15 Stated Capital

No. of Shares

Company Group

As at 31st March 2012 2011 2012 2011

‘000 ‘000 ‘000 ‘000

Issued & Fully Paid 117,446 117,446 111,342 110,446 117,446 117,446 111,342 110,446

Value

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Issued & Fully Paid 16,778 16,778 16,560 16,528

At an extraordinary general meeting held on 16th September 2011, the shareholders approved a sub-division of the Company shares, whereby one (1) existing ordinary share was sub-divided to seventy (70), increasing the ordinary shares in issue from 1,677,800 to 117,446,000 ordinary shares. For the purpose of calculating earnings per share/dividend per share, the increased number of ordinary shares have been considered for all periods presented.

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per individual present at meetings of the shareholders or one vote per share in the case of a poll.

16 Capital Reserves

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Capital Reserves Other Capital Reserves 15,717 15,717 16,749 16,749 Revaluation Reserve 509,040 655,549 527,247 673,757 Total Capital Reserve 524,757 671,266 543,996 690,506

The revaluation reserve relates to revaluation of freehold lands & buildings and represents the increase in the fair value of these Lands & Buildings.

17 Revenue Reserves

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

General & Other Reserves: Other Revenue Reserves 11,416 11,416 11,871 11,871 Profit & Loss BalanceBalance - As per Equity Statement 404,062 155,152 428,828 144,260 Total Revenue Reserves 415,478 166,568 440,699 156,131



18 Interest Bearing Borrowings18.1 Company

Amount Amount Amount Amount

Re-payable Re-payable Re-payable Re-payable

within after within after

1 year 1 year Total 1 year 1 year Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Finance Leases (18.1.1) 1,056 3,190 4,246 - - - Bank Loans (18.1.2) 328,323 - 328,323 311,665 - 311,665 Bank Overdrafts 302,225 - 302,225 187,224 - 187,224 631,604 3,190 634,794 498,889 - 498,889

18.1.1 Finance Lease

As at New Leases As at

01/04/2011 Obtained Repayments 31/03/2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000

N.D.B - 4,863 617 4,246 - 4,863 617 4,246 Gross Liability - 5,168 Finance Charges allocated to Future Periods - (922) - 4,246

18.1.2 Bank Loans

As at Loans As at

01/04/2011 obtained Repayment 31/03/2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short Term Loans 311,665 2,544,830 (2,528,172) 328,323 311,665 2,544,830 (2,528,172) 328,323

18.2 Group

As at 31st March 2012 2011

Amount Amount Amount Amount

Re-payable Re-payable Re-payable Re-payable

within after within after

1 year 1 year Total 1 year 1 year Total

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Finance Leases (18.2.1) 1,473 3,190 4,663 1,135 - 1,135 Bank Loans (18.2.2) 327,258 3,908 331,166 327,530 - 327,530 Bank Overdraft 302,740 - 302,740 201,186 - 201,186 648,129 7,098 655,227 529,851 - 529,851


18.2.1 Finance Lease

As at New Leases As at

01/04/2011 Obtained Re-payments 31/03/2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000

L.O.L.C. 1,135 - 718 417 N.D.B - 4,863 617 4,246 1,135 4,863 1,335 4,663 Gross Liability 1,699 444 Finance Charges allocated to Future Periods (564) (27) 1,135 417

18.2.2 Bank Loans

As at New Loans As at

01/04/2011 Obtained Re-payments 31/03/2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short Term Loans 327,530 53,924 (50,288) 331,166 327,530 53,924 (50,288) 331,166

19 Deferred Tax

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year - Note 19.1 41,699 38,896 41,699 38,896 Charge/(Reversal) for the year - Note 19.2 5,507 2,803 5,507 2,803 Balance at the end of the year 47,206 41,699 47,206 41,699

19.1 Recognized Deferred Tax assets and liabilities Deferred Tax Assets and Liabilities are attributable to the following:

Assets Liabilities Net

2012 2011 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Property, Plant & Equipment - - 52,054 47,509 52,054 47,509 Employee benefit Liabilities (4,848) (5,810) - - (4,848) (5,810)Other - - - - - - Net Tax (Assets)/ Liabilities (4,848) (5,810) 52,054 47,509 47,206 41,699

19.2 Movement in temporary difference during the year

Balance as Recognized Balance as Recognized Balance as

at 01 April in income at 31 March in income at 31 March

2010 Statement 2011 Statement 2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Property, Plant & Equipment 44,609 2,900 47,509 4,545 52,054 Employee benefit Liabilities (4,961) (849) (5,810) 962 (4,848)Other (752) 752 - - - 38,896 2,803 41,699 5,507 47,206



20 Retirement Benefit Obligations

Company Group

As at 31st March 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 16,601 14,173 18,694 15,998 On acquisition of subsidiaries - - 440 - Provision for the year 866 777 1,159 1,162 Interest for the year 1,513 1,389 1,670 1,389 Deficit/ (Surplus) Charge for the year (160) 607 (217) 607 Payments made during the year (1,505) (345) (1,757) (462)Balance at the end of the year 17,315 16,601 19,989 18,694

The employee benefit liability of the company is based on the gratuity formula in appendix E of SLAS 16, Employee Benefit. The expenses are recognized as administrative expenses in the income statement and this obligation is not externally funded.

Principal assumptions at the reporting date (expressed as weighted averages) are as follows:

Expected Annual Average Salary Increment : 10% 10% Discount Rate / Interest Rate : 10% 10% Staff Turnover Factor : 2% 2%

The maximum retirement age is assumed as 75 years.

21 Trade & Other Payables

Company Group

2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade Creditors including Accrued Expenses 25,466 16,532 38,430 48,976 Directors Current Accounts - 1,437 27,003 - 25,466 17,969 65,433 48,976


22 Assets Pledged

The following assets have been pledged as security for liabilities.

Name of Institution Nature of Nature of Amount of at 31/03/2012

Granting Facility Assets Liability Facility Pledged Included in

Rs.’000 Rs.’000

HSBC Primary Mortgage over property O/D and cash 245,000

at 341, Union Place, Colombo for line facility.

Rs. 85 Mn & Stocks in Trade

Rs. 40 Mn.

Hatton National Primary Mortgage over property O/D and cash 150,000 Property

Bank PLC at 100/1. Gonawala Road, line facility. 637,241 Plant and

Sapugaskanda for Rs. 150 Mn. Equipment

Seylan Bank PLC 1). Secondary mortgage over O/D and cash 220,000

property at No.341 Union Place, line facility.

Colombo 2 & primary Mortgage

Land & Building at Ampegama

2). Mortgage over stocks 40mn

National Development 1). Mortgage over stocks O/D and cash 200,000

Bank PLC and book debts for Rs. 150 Mn. line facility.

218,458 Inventories

436,733 Trade Debtors

Nations Trust Bank 1). Mortgage over stocks and O/D and cash 70,000

PLC book debts - in place line facility.

DFCC Bank PLC 1). Mortgage over stocks and O/D and cash 250,000

book debts line facility



23 Directors Interest in Contracts / Related Party Transactions 23.1 The Directors of the Company are also Directors of the following related Companies:

Asian Woodware Asia Brush Eamel Company Name of the Directors (Pvt) Ltd. Exports Ltd. (Pvt) Ltd.

Mr. J.B.L. De Silva Y Y YMr. Anil Karunaratne - Y - Mr. N.K.L. Thilakaratne Y Y YMr. S.A. Chandraratne - Y - Mr. C.I. Thilakaratne Y - YMr. S. Jayakody - Y -Mr. H.J. De Silva Y Y YMr. C.S.L. De Silva Y - Y

23.2 Details of significant related Party transactions are disclosed as follows:

For the year ended 31st March 2012 2011

Nature of Transactions Rs.’000 Rs.’000

A Eamel Exports Ltd. & Eastern Merchant PLC Payments on behalf of Eamel Export Ltd. 450 308

Settlement of the amount due to Eamal Export Ltd. 987 -

B Asian Brush (Pvt) Ltd. & Asian Woodware Company (Pvt) Ltd.

Operating Expenses made on behalf of Asian Woodware Company (Pvt) Ltd. 25,108 16,860

Operating Expenses made by Asian Woodware Company (Pvt) Ltd. on behalf the Company 8,267 -

Purchases from Asian Woodware Company (Pvt) Ltd. 16,288 17,170

Fund Transferred From Asian Woodware Company(Pvt) Ltd. 3,040 -

C Asian Brush (Pvt) Ltd. & Eamal Export Ltd.

Interest free loan granted by Eamal Export Ltd. 18,241 -

Outstanding amounts due from related parties and due to related parties are disclosed in the Balance Sheet.

23.3 Transactions with key managerial persons

Key Management Persons (KMPs) are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company. Such KMPs includes the Board of Directors of the Company and of its subsidiary and other personnel who are involved in above activities. Transactions with close family members of the KMPs, if any, have also been taken in to consideration in the following disclosure.


a) Compensation of Key Management Persons of the Company

The following is the compensation of Directors and Key Management:

Company Group


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short Term Employee Benefits

Directors Remuneration 26,144 11,116 26,144 11,116

24 Retrospective Restatements

No provision for deferred tax on revaluation reserve had been provided in previous year’s financial statements. The

Management decided to provide the deferred tax liability on revaluation reserve and to adjust the effects retrospectively

in these financial statements.

As explained above, the effects are set out in following table.

1-Apr-11 Effect of 1-Apr-11

As Reported Retrospective Restated

Note Previously Restatement Balance

Rs.’000 Rs.’000 Rs.’000

Balance Sheet Deferred Taxation Assets 19 - (5,810) (5,810)Deferred Taxation Liability 19 1,439 46,070 47,509 Revaluation Reserve 697,636 (23,880) 673,756 Retained Earnings 01/04/2010 140,954 (13,301) 127,653 Net Profit for the year - 2010/11 24,419 (3,079) 21,340 Net Effect 864,448 - 864,448 Income Statement Deferred tax Charge - 2010/11 (277) 3,079 2,802

25 Contingent Liabilities

The Group does not have significant commitments and contingencies as of the Balance Sheet Date, that require

adjustment to or disclosure in the Financial Statements.

26 Post Balance Sheet Events

The Board of Directors of the Company has recommended the declaration of a final dividend of Rs.0.08 ( 8 Cents) per

share for the financial year ended 31st March 2012.

As required by Section 56 (2) of the Companies Act No. 7 of 2007, the Board of Directors has confirmed that the Company

satisfies the Solvency Test in accordance with Section 57 of the Companies Act No. 7 of 2007 and has obtained a Certificate

from Auditors prior to declaring a final dividend.

In accordance with Sri Lanka Accounting Standards 12 (Revised 2005) Events after the Balance Sheet date, the final

dividend has not been recognized as a liability in the financial statements as at 31st March 2010.



27 Segment Information 27.1 Information based on the Primary Segments (Business Segment)

Manufacturing & Export of Export of Other Group Total

Coir & Rubber Traditional & Non

wood brushes traditional Products

As at 31st March 2012 2011 2012 2011 2012 2011 2012 2011

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Total Sales 50,515 56,454 4,637,038 6,028,398 - - 4,687,553 6,084,852

Other Income - - - - 132,762 14,072 132,762 14,072

Segment Revenue 50,515 56,454 4,637,038 6,028,398 132,762 14,072 4,820,315 6,098,924

Segment Results (11,796) 2,339 53,007 44,865 125,961 11,790 167,172 58,994

Finance Expenses (36,772) (35,717

Change in fair value of

Investment Property 76,713 10,997

Share of Results of Associates - 291

Profit before Taxation 206,835 34,565

Tax Provision (17,682) (13,655)

Profit for the year 189,153 20,910

Attributable To

Equity holders of the company 142.815 21,340

Minority Interest 46,338 (430)

Profit for the year 189,153 20,910

Assets

Segment Assets 127,466 86,871 1,674,164 1,422,885 18,593 2,698 1,820,223 1,512,454

Other Investments 2,200 5,423 12,478 12,695 80,722 4,009 95,400 22,127

Total Assets 129,666 92,294 1,686,642 1,435,580 99,315 6,707 1,915,623 1,534,581

Inter Group Adjustment - - - - - - (55,024) (10,259)

Total Assets 1,860,599 1,524,322

Liabilities Segment

Segment Liabilities 81,168 33,387 25,466 17,969 79 58 106,713 51,414

Interest bearing borrowings 16,525 30,961 634,794 498,889 - 651,319 529,850

Deferred Tax Liabilities - - 52,054 47,509 - 52,054 47,509

Retirement benefit obligations 2,674 2,092 17,315 16,602 - 19,989 18,694

Total Liabilities 100,367 66,440 729,629 580,969 79 58 830,075 647,467

Inter Group Adjustment - - - - - - (37,372) (2,437)

Total Liabilities 792,703 645,030


Shareholder Information

Shareholder analysis as at 31st March, 2012.

No. of Shares Held No. of Shareholders No. of Shares %

1 - 1000 662 266,555 0.23

1,001 - 10,000 335 1,284,809 1.09

10,001 - 100,000 99 2,503,043 2.13

100,001 - 1,000,000 19 7,287,073 6.20

Over 1,000,000 10 106,104,520 90.34

1,125 117,446,000 100.00

Top 20 Shareholders as at 31st March, 2012.

Name of Shareholder No. of Shares %

J. B. L. de Silva 32,382,280 27.57%H. J. de Silva 16,121,140 13.73%C. I. Tilakaratna 15,186,640 12.93%C. S. L. de Silva 14,581,140 12.42%N. S. Karunaratne 12,629,120 10.75%Eamel Exports Ltd. 6,103,400 5.20%S. de A. Rajapakse 2,940,000 2.50%A. Karunaratne 2,850,800 2.43%D. E. Perera 1,910,000 1.63%J.B.L. de Silva / De.A. Rajapaksa K.G.A / N. Senanayake 1,400,000 1.19%K. B. De A. Rajapakse 980,000 0.83%K. N. De A. Rajapakse 980,000 0.83%E. D. Rodrigo 861,000 0.73%N. K. L. Tilakaratna 701,680 0.60%K. A. G. Ranasinghe 700,000 0.60%H. M. Udeshi 466,690 0.40%N. D. Jayasekera 350,000 0.30%E. N. J. N. P. Kuranage 280,000 0.24%M. M. Senaratne 280,000 0.24%T. G. Mendis 280,000 0.24%

111,983,890

Directors’ Shareholdings as at March 31st, 2012.Name of Director As at 31.03.2012 As at 31.03.2011

Shares % Shares %

J. B. L. de Silva 32,382,280 27.57% 462,604 27.57%H. J. de Silva 16,121,140 13.73% 230,302 13.73%C. I. Tilakaratna 15,186,640 12.93% 216,952 12.93%C. S. L. de Silva 14,581,140 12.42% 208,302 12.42%A. Karunaratne 2,850,800 2.43% 40,800 2.43%N. K. L. Tilakaratna 701,680 0.60% 10,024 0.60%S. A. Chandraratne 35,000 0.03% 500 0.03%S. Jayakody 28,250 0.02% 534 0.03%I. P. de Zoysa - - H. P. J. de Silva - - R. Nanayakkara - -


Notice of Meeting

NOTICE IS HEREBY GIVEN that the 66th Annual General Meeting of Eastern Merchants PLC will be held at the BCIS Auditorium, BMICH Convention & Exhibition Centre, Colombo 07, on 28th September, 2012 at 2.30 p.m.

AGENDA

1. To read the Notice convening the Meeting.

2. To confirm the minutes of the 65th Annual General meeting held on 16th September, 2011.

3. To receive, consider and adopt the Report of the Directors and the Statement of Accounts and Balance Sheet of the Company for the year ended 31st March 2012.

4. To resolve that Mr. S. A. Chandraratne, Mr. H. P. J. de Silva and Mrs. Rohini Nanayakkara who retire in terms of Article Nos. 83 and 84 of the Articles of Association of the Company be re-elected as Directors of the Company.

5. To resolve that the age limit referred to in Sec. 210 of the Companies Act No. 7 of 2007 shall not apply to Mrs. Rohini Nanayakkara, who has attained 70 years of age on 12th April, 2005.

6. To elect Mr. Tilak de Zoysa as a Non-executive Independent Director of the Company.

7. To re-appoint Messers. D. H. P. Munaweera & Co. as Auditors of the Company and authorize the Directors to determine their remuneration.

8. To declare a dividend for the year ending March 31st 2012.

9. To transact any other business of which due notice has been given.

By order of the Board

S. Jayakody (F.C.A., B.Com.Spl.,FCMA)Director – Finance / Company Secretary

Notes:

(a) A member who is entitled to attend and vote at a meeting may appoint a proxy to do so instead, and such a proxy need not be a shareholder of the Company. The Form of Proxy of the Company is attached on the last page of this report.

(b) Shareholders/proxy holders should bring with them their National Identity Card or any form of valid identification when attending the meeting.


Form of Proxy

I/We, ...................................................................................................................................................................................................... of

.............................................................................................. being a member/members of Eastern Merchants PLC hereby appoint:

J. B. L. de Silva of Colombo 03, Whom failing

A. Karunaratne of Nawala, Whom failing

N. K. L. Tilakaratna of Colombo 05, Whom failing

C. I. Tilakaratna of Colombo 05, Whom failing

S. A. Chandraratne of Colombo 15, Whom failing

S. Jayakody of Ja-Ela, Whom failing

H. J. de Silva of Colombo 3, Whom failing

C.S.L. de Silva of Colombo 3, Whom failing

I.P. de Zoysa of Thalawathugoda, Whom failing

R. Nanayakkara of Rajagiriya. Whom failing

H. P. J. de Silva of Rajagiriya, Whom failing

................................................................................................................................................................................................................ of

......................................................................................................................................... as my /our proxy to represent me/us and vote

for me/us on my/our behalf at the Annual General Meeting of the Company to be held on 28th September, 2012 at 2.30 p.m. and

at any adjournment thereof. As witness my/our hand (s) this ..................................... day of ..................................... 2012.

...............................................

Signature of the Shareholder

Note: Instructions as to the completion of the Form of the Proxy are noted on the next page.

Instructions for the completion of the Form of Proxy

Please perfect the Form of Proxy overleaf, after filling in legibly your full

name and address and by signing in the space provided and filling the date of

signature.

The completed Form of Proxy should be deposited at the Head Office of the

Company at No. 341, Union Place, Colombo 2, not less than 48 hours before the

meeting commences.

If the Form of Proxy has been signed by an Attorney, the relative Power of

Attorney should also accompany the completed Form of Proxy for registration,

if such Power of Attorney has not already been registered with the Company.

In the case of a corporate member, the form of Proxy should be executed under

its Common Seal in accordance with its Article of Association or Constitution.

If there is any doubt as to how the vote is to be exercised, by reason of the

manner in which the Form of Proxy has been completed, no vote will be

recorded by the Form of Proxy.

The Journey So Far 2 . A Brief History 4 . Financial Highlights 5 . Chairman’s Report 6 . Board of Directors 10 . Directors’ Report 11 . Audit Committee Report 12 . Remuneration Committee Report 13 . Principal Activities of the Group 16 . Independent Auditor’s Report 17 . Income Statement 18 . Balance Sheet 19 . Statement of Changes in Equity 20 . Cash Flow Statement 21 . Notes to the Financial Statements 22 . Shareholder Information 45 . Notice of Meeting 46 . Form of Proxy 47 . Corporate Information IBC .

Company Name : Eastern Merchants PLC

Company Number : PQ 153

Registered Office : 341, Union Place, Colombo 2.

Stores Complexes : 101, Gonawala Road, Sapugaskanda. Maswila, Ampegama.

Legal Form : A public quoted company with limited liability incorporated in Sri Lanka and listed with the Colombo Stock Exchange.

Principal Activities : Export of traditional and non-traditional commodities.

Subsidiaries : Asia Brush (Pvt) Ltd. Eamel Exports Ltd. Asian Woodware Company (Pvt) Ltd.

Chairman : J.B.L. de Silva

Managing Director : A. Karunaratne

Board of Directors : N.K.L. Tilakaratna C.I. Tilakaratna S. A. Chandraratne S. Jayakody H. J. de Silva C.S.L. de Silva I.P. de Zoysa R.L. Nanayakkara H.P.J. de Silva

Secretary : S. Jayakody

Auditors : Messrs. D.H.P. Munaweera and Co.

Bankers : Hongkong and Shanghai Banking Corporation Ltd. Seylan Bank PLC Hatton National Bank PLC Nations Trust Bank PLC National Development Bank PLC DFCC Bank PLC

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Eastern Merchants PLC341 Union Place Colombo, 2 Sri Lanka

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