Annual ReportAnnual 2017 | 2018

United Motors Lanka pLc Annual Report 2017 | 2018

At United Motors, we remain driven by our ambitious vision to become one of the best companies by diversifying our interests whilst upholding our place as a leader in the transport industry. The past year saw us expand into new horizons to deliver greater value to our shareholders. These were our focal points during the period in focus. We’ve moved into the distribution of earthmoving machinery with JCB, concrete mixing equipment with LiuGong and 3D printers with Novabeans. The aforesaid initiatives are representative of the importance we place on diversification and on optimising our resources to propel UML towards a higher state of performance. We embarked on all this in the past year because what matters to you has always been what matters to us. Greater prospects await us in the year ahead with the platforms we have established to serve our existing customers better, further our sustainability-oriented goals and create sustainable value for our valued stakeholders, both now and into the future. Contents

Review of the Business Vision and Mission 04 Our Beginning 05 Our Journey Thus Far 06 Operational and Financial Highlights 10 Events of the Year 12 Group Structure 16 Chairman’s Message 18 Group Chief Executive Officer’s Review of Operations 22 Board of Directors 26 Senior Management Team 32

Management Review Value Creation Model 40 Stakeholder Engagement 42 Engaging With Our Stakeholders 42 Operating Environment 44 Business Review 47 Financial Capital 50 Social and Relationship Capital 52 Natural Capital 65 Human Capital 67 Intellectual Capital 79 Manufactured Capital 80 Governance How We Govern 84 Audit Committee Report 102 Remuneration Committee Report 106 Nomination Committee Report 109 Related Party Transactions Review Committee Report 111 Enterprise Risk Management 113 Directors’ Statement on Internal Controls 121 Annual Report of the Board of Directors 123

Financial Information Financial Calendar 133 Statement of Directors’ Responsibility 134 CEO and CFO’s Responsibility Statement 136 Independent Auditor’s Report 137 Statement of Profit or Loss and Other Comprehensive Income 142 Statement of Financial Position 143 Statement of Changes in Equity 144 Statement of Cash Flows 146 Notes to the Financial Statements 147

Supplementary Information Share Information 211 Ten year summary - Group 215 Investor Information 216 Glossary of Financial Terms 217 Notice of Meeting 219 Proxy Form 223 Corporate Information IBC United Motors Lanka PLC Annual Report 2017 | 2018

Vision and Mission

Vision

To be the best company in Sri Lanka through diversification whilst maintaining the leadership position in the transport industry.

Mission

To delight and make lifelong relationships with our customers by providing high quality products, services and transport solutions using state-of-the-art technology and developing a team of people who are committed to excellence with the highest level of integrity through a corporate culture that encourages participative management to create a socially responsible corporate entity, whilst ensuring optimum returns to shareholders.

04 In 1985, the Company Company the 1985, In Beginning Our entered into a a into entered distributor agreement agreement distributor with Mitsubishi Motors Motors Mitsubishi with Corporation, Japan and and Japan Corporation, has since then been been then since has the sole distributor for for distributor sole the brand new Mitsubishi Mitsubishi new brand vehicles in Sri Lanka. Sri in vehicles in Sri Lanka today. Lanka in Sri company United results Motors has achieved andisaleadingblue-chip remarkable PLC.as United Motors Lanka Since becoming aPublic Company, Limited Liability 2007, theCompany was reregistered underthenewCompanies No. Act 07of2007 Limited and incorporated asaPublic Company. Limited Liability On30August Accordingly, on9May 1989,theCompany was renamed asUnited MotorsLanka ‘Peoplisation’ withtheintention ofbroadening itsownership amongstthepublic. 1989,theCompany In asthefirstGovernment was Lanka. selected in Sri venture for Japan andhassince thenbeenthesoledistributor for vehicles brand new Mitsubishi Company entered into adistributor agreement Motors Corporation, withMitsubishi (GOBU) ofUnited Motors. 1985,the In BusinessUndertaking Government Owned was vested withtheGovernment onoperations on8March 1972andcarried asthe The Company was incorporated in1945asaPrivate Company. Limited Liability It 05 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

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Our Journey Thus Far

1945 1999 2009 Incorporation of United Motors Limited July December as a Private Limited Liability Company. The Orugodawatte Workshop Complex UEL opened a local assembly facility within was opened. the Orugodawatte Workshop Complex to 1972 assemble the Zotye Nomad SUV. Vested in the Government on 8 March, 2002 commenced as a Government Owned March 2010 Business Undertaking. The Valvoline brand from USA was December 1985 launched by UML. The Company increased the number of shares by way of a share split on the basis Entered into a distributor agreement with 2003 of two new ordinary shares for every Mitsubishi Motors Corporation (MMC), April exciting issued ordinary share. Japan. UML acquired 50% interest in TVS Lanka 2011 1989 (Pvt) Ltd. February May 2004 OMCL added the DFSK Mini truck brand to United Motors Lanka Limited was September its product portfolio. incorporated as a Public Limited Liability Company with an authorised share The Yokohama brand from Japan was December capital (now referred to as stated capital) launched by UEL. of Rs. 100,000,000 The Company was awarded a citation for 2006 order intake development from Mitsubishi 1992 January Fuso Truck and Bus Corporation, Japan for the Fuso brand. Incorporation of a subsidiary - Orient UEL launched Mudan range of Chinese Motor Company Limited (OMCL) to vehicles. 2012 import, distribute, hire vehicles and to provide related services. 2007 March March The Group achieved its highest ever profit 1993 in the financial year. TVS Lanka (Pvt) Ltd. signed a distributor Incorporation of a subsidiary - UML agreement with Bharat Petroleum 2013 Property Developments Ltd., for the Corporation of India. construction of a warehouse complex on October a five acre land at Orugodawatte. June UML was ranked amongst the top 100 JMC brand from China was launched by Corporates in Sri Lanka across all industries 1994 UEL. in 2012/13 by LMD. Incorporation of a subsidiary - Unimo Enterprises Limited (UEL) to import and August September distribute vehicles and to provide related The Fuso Heavy Duty Trucks was launced The Company was re-registered as services. by UML. United Motors Lanka PLC (UML). 1995 November December September UML was ranked among the top 25 Zotye brand from China was launched companies in Sri Lanka across all industries United Motors Lanka Limited (UMLL) by UEL. celebrated 50 years of excellence. by Business Today, in 2012/13. 2008 1997 2014 March November March Incorporation of TVS Automotives (Pvt) UEL opened its assembly plant in Ranala. Perodua brand from Malaysia was Ltd as a fully owned subsidiary of TVS launched by UEL. Lanka (Pvt) Ltd. The legendary brand MG launched by UEL.

06 Thailand. Valvoline EastAsia South Conference in consecutive year EastAsia inSouth atthe Sales Performance for thethird Valvoline wasawarded for itsOutstanding its product portfolio. UML addedtheFuso FJ Concrete to Mixer July portfolio. Electric Vehicle)Hybrid to itsproduct (Plug-In PHEV UML addedtheMitsubishi June 2016 by Business industries Today, in2014/15. across all Lanka companies inSri amongthetop 25 UML wasranked November Hong Kong. Valvoline EastAsia South Conference in consecutive year EastAsia inSouth atthe for thesecond sales performance Valvoline wasawarded for itsoutstanding in2014/15by LMD.industries across all Lanka inSri 100 corporates amongstthetop UML wasranked October product portfolio. Dieselto its UEL addedDFSKGlory September launched by UEL. brandfromThe Brilliance Chinawas May waslaunchedby UML. (UK) The Simoniz brandfrom United Kingdom February 2015 in Mumbai. the Valvoline EastAsia South Conference EastAsiaSales Performance inSouth at Valvoline wasawarded for itsOutstanding by Business industries Today, in2013/14. across all Lanka companies inSri amongthetop 25 UML wasranked November Eliya. Truck andBuswasopenedin Nuwara A dedicated salesshowroom for Fuso August generators. moving equipmentandpower of earth anddistribution business ofimporting outthe toof UMLwasincorporated carry EquipmentUML Heavy Ltd, asubsidiary product portfolio. UEL addedJMCN800 Truck to it's July product portfolio. OMCL addedUnimoKing Trucks to its product portfolio. UEL addedthePerodua Bezzato its June product portfolio. PetrolUEL addedDFSKGlory to its product portfolio. UEL addedPerodua AxiaFacelift to its February 2017 Truck andBuswasopenedatRatmalana. Perodua passengervehicles andFuso A dedicated and for workshop Mitsubishi December product portfolio. OMCL addedDFSKCrew Cab to its November UEL addedZ100to itsproduct portfolio. October AwardsDistributor 2016” Fuso brandatthe “Daimler Trucks Asia Campaign”excellent Marketing for the “Significant salesvolume increase for UML won thespecialachievement award September 07 U PLC Lanka Motors nited 2018 product portfolio. Concrete Equipment to its Mixing whichisintoUML addedLiuGong November generators to itsproduct portfolio. moving equipmentandpower earth EquipmentUML Heavy Ltd added JCB September product portfolio. UEL added Yokohama GO15 Tyre to its Bus wasopenedinMatara. passenger vehicles andFuso Truck and A dedicated for workshop Mitsubishi of 3D printers byof 3Dprinters Novabeans. for theentire Lanka range inSri Reseller UML wasappointed astheDiamond 2018. (Pvt)Ltd on28Marchventure, Lanka TVS UML divested itsinvestment injoint portfolio. Fully Oilto SyntheticMotor itsproduct UML added Valvoline 4Tech Ultimate March product portfolio. UML added3DPrinting Equipments to its Asia Conference Distributor inMalaysia. Award EastAsia inSouth atthe Valvoline Programme Incentive Distributor City Valvoline wasawarded theManchester Asia Conference Distributor inMalaysia. Award EastAsia inSouth atthe Valvoline Valvoline wasawarded theMomentum ConferenceDistributor inMalaysia. consecutive year EastAsia inSouth atthe for thefourth sales performance Valvoline wasawarded for itsoutstanding January Annual Report 2017 Report Annual | 2018

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United Motors Lanka PLC Annual Report 2017 | 2018

Operational and Financial Highlights

Rs. 1.5 Bn Company Profit After Tax

Group Company

2017/18 2016/17 Change % 2017/18 2016/17 Change % Profitability (Rs.'000s) Turnover 14,716,147 17,925,373 (17.90) 9,035,974 9,637,973 (6.25) Profit before tax 866,458 1,438,602 (39.77) 1,668,212 1,287,680 29.55 Profit attributable to equity holders of the Company 668,900 1,126,107 (40.60) 1,456,697 1,066,811 36.55 Financial position (Rs.'000s) Investment in PPE and intangible assets 411,589 571,546 (27.99) 336,906 535,768 (37.12) Non-current assets 7,497,571 6,762,193 10.87 7,497,864 6,383,138 17.46 Current assets 9,392,929 10,160,553 (7.55) 5,546,592 5,841,357 (5.05) Current liabilities 3,937,583 5,967,512 (34.02) 1,110,928 2,768,298 (59.87) Non-current liabilities 252,790 212,865 18.76 237,948 188,482 26.24 Shareholders' funds 12,700,127 10,742,369 18.22 11,695,580 9,267,715 26.20 Ratio Interest cover (times) 3.13 5.87 (46.68) 17.81 25.67 (30.62) Profit before tax to revenue (%) 5.89 8.03 (26.65) 18.46 13.36 38.17 Return on capital employed (%) 5.27 10.48 (49.71) 12.46 11.51 8.25 Dividend cover (times) - - - 4.12 1.51 172.85 Borrowings to equity (%) 22.31 38.01 (41.30) 0.94 15.77 (94.04) Current ratio 2.39 1.70 40.59 4.99 2.11 136.49 Quick asset ratio 0.74 0.45 64.44 1.88 0.59 218.64 Share Performance Number of shares ('000) 100,901 100,901 - 100,901 100,901 - Earnings per share (Rs.)* 6.63 11.16 (40.59) 14.44 10.57 36.61 Dividend per share (Rs.)** - - - 3.50 7.00 (50.00) Dividend yield (%) - - - 4.61 8.97 (48.61) Dividend payout (%) - - - 24.24 66.23 (63.40) Net assets per share (Rs.)* 125.87 106.46 18.23 115.91 91.85 26.19 Market value per share as at 31 March (Rs.) - - - 76.00 78.00 (2.56) Price earning ratio - - - 5.26 7.38 (28.73) Market capitalization as at 31 March (Rs.'000s) - - - 7,668,448 7,870,249 (2.56) Highest recorded share price (Rs.) - - - 90.00 99.80 (9.82)

*Net assets per share and Earnings per share have been calculated for all periods based on the number of shares in issue as at 31 March 2018. ** Dividend per share represents the per share value at the point of payment.

10 10,000 12,000 14,000 16,000 18,000 10,000 15,000 20,000 1,000 1,200 2,000 4,000 6,000 8,000 5,000 200 400 600 800 0 0 0 Total Assets (Rs. Mn) No. ofEmployees 2013/14 2013/14 2013/14 Turnover (Rs. Mn) Group Group Group

2014/15 2014/15 2014/15

2015/16 2015/16 2015/16 Company Company Company 2016/17 2016/17 2016/17

2017/18 2017/18 2017/18 10,000 15,000 20,000 1,000 1,500 2,000 2,500 3,000 3,500 5,000 500 1,000 1,200 1,400 1,600 1,800 200 400 600 800 0 0 0 Turnover perEmployee Profit After Tax (Rs. Mn) 2013/14 PBT perEmployee 2013/14 Group Group 2013/14 Group (Rs.’000) 2014/15 2014/15 (Rs.’000) 2014/15 2015/16 2015/16 2015/16 Company Company 11 2016/17 2016/17 Company 2016/17 2017/18 2017/18 2017/18 U PLC Lanka Motors nited contracted by 43%. volumes ofbrand newvehicles segmentIndustry Cars, SUVs &vans 1,677 at Ratmalana. Company's centre newlybuildflagshipservice This year was thefirstfullyear's operation ofthe &Services Repairs Rs.724 Mn contribution ofRs. 458million. division recordedSpare parts highest Spare Parts Rs. 1.6Bn Sales Sales Volume EastAsia inSouth for Valvoline. Lubricant divisionwon theaward for theHighest Lubricants Rs. 821 Mn from 2%to 5%. andFuso shareMarket ofMitsubishi increased Cabs, trucks&buses 1,243 Annual Report 2017 Report Annual Revenue Revenue Revenue | 2018

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Events of the Year

Annual Report Awards

United Motors won the Gold Award for the 10th consecutive year for its Annual Report in the “Automobile Category” at the Institute of Chartered Accountants of Sri Lanka, Annual Report Awards Night.

Fuso Trucker’s Day

The Fuso Truck and Bus division conducted a Driver training programme on safe driving techniques and new road rules to commemorate the “Fuso International Truckers Day” while also appreciating each driver for their service. This is a Global initiative by Fuso which aims to appreciate and acknowledge Fuso Truck drivers.

UML Fleet Owners’ Night

United Motors invited its fleet owners to an eventful night filled with entertainment at the Kingsbury Hotel, Colombo.

Rice Mill Owners Gathering

The Fuso Truck and Bus division conducted a customer gathering for all Rice Mill Owners in the Polonnaruwa district at Hotel, Sudu Araliya.

12 annual awards ceremony. Thailand where alsocelebrated they the Yokohama divisiontook itstop dealers to theyearDuring underreview, the Yokohama Dealer Convention vehicles. thecustomers existing by trade-in promote vehicles itsrangeofbrand new promotions theyear during inorder to vehicleUEL conducted trade-in Unimo Trade-In Weekend on display. Outlander PHEV, Attrage andL200were Conventions atBMICH. The Mitsubishi Show organized by Asia Exhibitionsand attheColombo Motor UML participated Colombo Motor Show Pegasus Hotel, Reef Wattala. awards nightto felicitate itstop dealersat Valvoline itsannual divisionconducted Valvoline Dealer Convention 13 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Events of the Year

Mitsubishi Trade-In Fiesta

Mitsubishi conducted trade-in vehicle promotions during the year in order to promote its range of brand new vehicles by trade-in the customers existing vehicle.

Z100 Display at the Ministry of Education

Z100 division of UEL launched a special programme for Teachers during the year under review, where the Z100 was offered to teachers at a very special offer.

Jaffna International Trade Fair

UEL participated at the Jaffna International Trade Fair the largest Consumer Exhibition and Trade Fair in the fast-growing northern region of Sri Lanka. This event was organized by Lanka Exhibition & Conference Services (Pvt) Ltd at Jaffna Municipal council grounds. The Perodua Bezza, Axia and DFSK Glory were on display.

Distributor Conference in Malaysia

Valvoline was awarded for its Outstanding Sales Performance for the fourth consecutive year in South East Asia at the Distributor Conference in Malaysia.

14 Mahaweli Authority forMahaweli Authority JCB. and ofIrrigation engineers ofDepartment product demonstrationandtrainingfor EquipmentUML Heavy Ltd, a conducted JCB Customer Gathering at Waters Edge (Pvt)Ltd.International attended by seniorofficialsof Valvoline Hotel,at Ramada Colombo. This event was seminar for itsdealersfollowed by cocktails Valvoline acoolant divisionconducted Valvoline Seminar Coolant Heritage Hotel Anuradhapura. Heritage fora gathering theexistingcustomers at The Fuso Truck andBusdivisionorganized Gathering Customer Anuradhapura 15 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

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Group Structure

Company Incorporated on Reg. No Chairman Directors Secretary Auditors Activities United Motors Lanka PLC 9 May 1989 PQ 74 Mr. Sunil G. Wijesinha Mr. Chanaka Yatawara (Group Chief Mrs. Rinoza Hisham PricewaterhouseCoopers Import and distribution of brand new Executive Officer/Executive Director) Mitsubishi and Fuso vehicles, genuine spare Mr. Ananda Atukorala parts of brands represented by the Group, Mr. Aashiq Lafir- Executive Director provision of workshop facilities for repairs and (Finance) – resigned w.e.f 31.03.2018 lubrication services of vehicles. Mr. Ramesh Yaseen (Executive Director- After Sales Services) Import and distribution of Valvoline Lubricants Mrs. Hiroshini Fernando and Simoniz car care products. Prof. Malik Ranasinghe Parent Company Parent Mr. Stuart Chapman Import and distribution of Novabeans 3D Mr. Hiroyasu Inoue printing equipment.

Import and distribution of LiuGong concrete mixing equipment. Unimo Enterprises Ltd 17 March 1994 PB 218 Mr. Sunil G. Wijesinha Mr. Mahesh Gunatilake (Chief Executive Mrs. Rinoza Hisham PricewaterhouseCoopers Import and distribution of Perodua cars, Officer/Executive Director) Morris Garages (MG) cars, Brilliance vans, JMC Mr. Chanaka Yatawara commercial vehicles and Yokohama tyres. Mr. Ananda Atukorala Mr. Ramesh Yaseen Assembly and marketing DFSK and Z100 Mrs. Hiroshini Fernando vehicles. Orient Motor Company Ltd 27 March 1992 PB 117 Mr. Sunil G. Wijesinha Mr. Chanaka Yatawara Mrs. Rinoza Hisham PricewaterhouseCoopers Import and distribution of DFSK Trucks. Mrs. Hiroshini Fernando Hiring of motor vehicles.

Subsidiaries UML Property 8 October 1993 PB 253 Mr. Sunil G. Wijesinha Mr. Chanaka Yatawara Mrs. Rinoza Hisham PricewaterhouseCoopers Construction of warehouse complex for hiring Developments Ltd purpose.

Development of Company owned properties. UML Heavy Equipment Ltd. 7 July 2017 PB 5403 Mr. Sunil G. Wijesinha Mr. Chanaka Yatawara Mrs. Rinoza Hisham PricewaterhouseCoopers Import and distribution of JCB earth moving Mrs. Hiroshini Fernando Equipment and Power Generators. Prof. Malik Ranasinghe

16 Company Subsidiaries Parent Company UML Heavy EquipmentUML Heavy Ltd. LtdDevelopments UML Property Company Motor Orient Ltd LtdUnimo Enterprises PLCUnited Lanka Motors Incorporated on 7 July2017 1993 8 October 27 March 1992 17 March 1994 1989 9 May Reg. No PB 5403 PB 253 PB 117 PB 218 PQ 74 Chairman Mr. SunilG. Wijesinha Mr. SunilG. Wijesinha Mr. SunilG. Wijesinha Mr. SunilG. Wijesinha Mr. SunilG. Wijesinha Directors Prof. Ranasinghe Malik Fernando Hiroshini Mrs. YatawaraChanaka Mr. YatawaraChanaka Mr. Fernando Hiroshini Mrs. YatawaraChanaka Mr. Fernando Hiroshini Mrs. YaseenRamesh Mr. Mr. AnandaAtukorala YatawaraChanaka Mr. Director)Officer/Executive Mr. (Chief Executive Gunatilake Mahesh Mr. Hiroyasu Inoue Mr. Chapman Stuart Prof. Ranasinghe Malik Fernando Hiroshini Mrs. After SalesServices) Mr. Ramesh Yaseen (Executive Director- (Finance) –resigned w.e.f 31.03.2018 Mr. Lafir- Aashiq Executive Director Mr. AnandaAtukorala Executive Director) Officer/Executive Mr. Chanaka Yatawara (Group Chief Secretary Mrs. Rinoza Hisham Rinoza Mrs. Hisham Rinoza Mrs. Hisham Rinoza Mrs. Hisham Rinoza Mrs. Hisham Rinoza Mrs. Auditors PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers 17 Activities Equipment andPower Generators. moving ofJCBearth and distribution Import ofCompanyDevelopment owned properties. purpose. ofwarehouseConstruction complexfor hiring ofmotor vehicles.Hiring ofDFSK and distribution Trucks.Import vehicles. DFSKandZ100 Assembly andmarketing commercial vehicles and Yokohama tyres. (MG)cars, vans, Garages Brilliance JMC Morris ofPerodua and distribution cars,Import mixing equipment. concrete ofLiuGong and distribution Import equipment. printing ofNovabeans 3D anddistribution Import and Simonizcarcare products. of anddistribution ValvolineImport Lubricants ofvehicles. services lubrication provision facilitiesfor ofworkshop repairs and ofbrandsrepresentedparts by theGroup, andFusoMitsubishi vehicles, genuinespare ofbrandnew anddistribution Import U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

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Chairman’s Message

"The traditional business model of car ownership will be complemented by a range of diverse mobility solutions. People are increasingly using multiple modes of transportation to reach their destinations"

Sunil G. Wijesinha Chairman

Dear Shareholders,

Looking back at the year that was, I realise that driving the progress of a listed company The traditional business model of car is a constant challenge of staying ahead of the game by anticipating new trends and ownership will be complemented by taking mitigating measures to reduce the impacts of adverse market movements as a range of diverse mobility solutions. well as sudden and unfavourable changes in Government policy. People are increasingly using multiple modes of transportation to reach their With this brief overview, I extend a warm welcome to you to the 29th Annual General destinations. Although car owners today Meeting of United Motors Lanka PLC (UML) and take pleasure in presenting you with utilise their cars for multiple purposes, the Annual Report and Audited Financial Statements of the Company and the Group for they may want the flexibility to choose the financial year ended 31 March 2018. the best solution for a specific purpose in the future, on demand and via their New Trends in Transportation smartphones. The automotive industry is one of the most dynamic and evolving sectors today, driven by digitisation, increasing automation and changing consumer preferences about The industry has also experienced a ownership that have been triggered by new trends and technologies. paradigm shift to mobility as a service. The popularity of mobility providers like These new market movements are already visible in the markets of the developed Uber has increased substantially around world. Trends in the US, for example, show that the importance of car ownership is the world, as well as in Sri Lanka, and in declining, as the proportion of young adults between 16 and 24 years who hold a many countries and has overtaken the driver’s license has fallen from 76% in 2000 to 71% in 2013, whereas car-sharing in North traditional taxi. America and Germany has seen an annual growth of over 30% in recent years. Denser urban environments are making car ownership less justifiable. Predictions are that due to this shift, a tenth of new cars sold in 2030 could be shared vehicles. These trends could substantially reduce sales of private vehicles.

18 estimated to have grown by 3.7%during theyear. during activity Globaloutputis was theresult ofincreased economic been thefastest growth since 2011and to 3.3%,upfrom 2.7%in2016. This has GDP, ingrowth apickup experiencing which accountfor ofworld three quarters about 120ofdeveloped economies, crisis. Growth wasbroad-based with a decadeonfrom theglobal financial strengtheneda solidnote andrecovery The globaleconomy endedtheyear on follows. oftheglobalmarket the performance of theCompany, of so anoverview onthegrowthbearing andsuccess movements haveglobal market adirect global brandsincarsandcaraccessories, As ofanumberrenowned adistributor The Environment Global evolution ifwe are to remain relevant. itsfingeronthepulseofthis UML keeps therefore essentialthatacompany like is successandfailure.line between It responds thefine to themwillmark company inthe automotive business game changersfor theindustry. How a trendsThese willbe technology-driven system. by amonorail thatwillbeserviced City the nearfuture, withthelaunchofPort in introduced speedilyinto thecountry willbe modesofpublictransport New gears upto meet themhead-on. UML,unlesstheCompanybusinesses like of a substantialeffect on theviability car ownership. Suchtrends would have onpersonal that reduces dependency an efficientsystem ofmass transportation planners. These solutionstiltinfavour of for concerns townand pollution,key time, reduces congestion,accidents andatthesame enhance mobility which a mixofsolutionsfor thecountry Transport andLogistics Sector’ advocates inthe ‘Challenges andOpportunities onthe Amal Kumarage, inhisreport congested. Transport specialistProf. roads are gettingrapidly Lankan Sri with itrenewed investor confidenceand continue in2018,whichshouldbring This growth momentumisprojected to 2017. declining inearly slightly towards theendofyear after headline andcore inflation increased economies,Among emerging market difficult to boosteconomicgrowth. pressures it couldmake deflationary inflation isacausefor since concern, incomes, spending waslow. The weak target. Although thisraiseddisposable weak asinflation remained below the2% inflationremained wage andcore-price inflation inadvancedeconomies, but The volatile raisedheadline fuelprices production cutsamongoilexporters. growing demandaswell astheagreed barrel in2018,mainlydueto the steadily forecasts to USD56a inoilprices arise at USD53perbarrel. The World Bank endingtheyear Eastwithprices Middle added to thegeopolitical tensions inthe OPEC+ agreement to limitoilproduction were volatile theyear during dueto the revenues in2016. of crudeoil The prices to counter thedramaticfallinoil measuresdue to implemented austerity particular, slower experienced growth weak. The region middleeastern in economies, where growth remained and regions, especiallyby emerging evenly acrossnot experienced countries economies, was strong economicactivity global growth inmainlydeveloped Despite thesubstantiallyimproved commodities. goods. This increased thedemandfor global demandfor consumption power inthe andaconsequent rise the year) saw anincrease inpurchasing low globalinflation(about3.1%during Global economicrecovery, addedto output increased inAsia. advanced economies, andmanufacturing among ininvestment,pickup particularly posted strong growth by a supported trade point higherthanin2016,asworld the pastyear, whichishalfapercentage 19 U PLC Lanka Motors nited Investment in construction activities, Investment inconstruction 22.0% growth in2016. experienced in 2017,yet ataslower paceto the Investment expenditure grew by 16.6% Government borrowings. moderate inflationandlower levels of sector,the private levels, higherliquidity end dueto thedecelerationofcredit to which gradually declinedtowards year- commenced withhighInterest rates 2017. about 7.7%during The year inflation rose to aannualaverage of headline oftheCentral Bank, policy thanksto thetightmonetary in check, sector. Althoughcore inflationremained crops andincapacitated theagricultural incalcitrant weather thatdestroyed many figure, (4.4%in2016)dueto the which waslower thantheprojected economy grew by Lankan The 3.1%, Sri discussed earlier. structures 2018 andthechangedduty No.Act 24.of2017effective from 1April Revenue tax imposedby Inland thenew included theeffects ofthecapitalgains fiscalmovements theyear during Key pressures.margins market dueto external were already tightprofit experiencing additional burdens oncompaniesthat initiatives thatplaced several fiscalpolicy recover asmuchwasexpected, dueto However, businessconfidencedidnot reserves. by considerablyaugmented foreign investor confidence, substantiated economy, aswell asto improved the adverse weather throughout the to effects mitigate of thespill-over measures by theCentral taken Bank response to macroeconomic stabilisation strengthening economicoutlookin theyear,during mainlydueto the Business sentimentimproved somewhat Local Perspective sector. and more so, thegrowth oftheprivate positive environment for businessgrowth stronger globaleconomy thatcreates a expanded trade. This would usherina Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Chairman’s Message

which is the largest category in and transformed the Balance of Payment policy on the automotive industry investment expenditure, grew by 11.6% deficit of USD 500 million in 2016 to a prompted the Company to take a in 2017, yet at a slower rate, compared surplus of USD 2,068 million. strategic decision to divest ourselves to 18.0% growth observed in 2016 at from unprofitable areas of business current market prices. The development This fiscal consolidation is expected to and move into more certain and more projects undertaken by both the continue into the medium term which profitable and related markets. government and private sector, such as should ensure macroeconomic stability infrastructure developments and large in the future. Gross Domestic Product Accordingly, we moved out of the two scale residential and mixed development (GDP) too is projected to grow between and three wheeler business to focus projects, contributed to the expansion in 5.0%–5.5% in 2018. on our core business in marketing four construction expenditure. wheelers. This resulted in the divestment Company Performance of our 50% stake in TVS Lanka. This was Import expenditure increased during the The year under review proved a a partnership of nearly two decades year, imports rising to USD 20,980 million challenging one for your Company, with TVS and Sons and TVS Motors of from USD 19,183 million the previous fraught with further changes to the duty India. We were compelled to bring it to year due to high commodity prices in structure on cars, which substantially a close because the returns from the the world market, increased expenditure reduced the Company’s topline, and business were insufficient to justify the on weather related imports and the tightened profit margins as well. As a commitment of time and resources to it. decline in workers’ remittances. This offset result, your Company posted a Group the positive impact of improved export profit after tax of Rs 669 million. which Our decision to rationalise operations earnings brought on by the restoration was a 41% decrease over the Group resulted in the closure on 6 May 2017 of GSP+ and the lifting of the export ban Profit after Tax of Rs 1.13 billion last year. of UML Agencies & Distributors (Pvt) on seafood. Exports increased in 2017 Despite the difficult market, however, Limited. to USD 11,360 million from USD 10,310 it is noteworthy that some sectors of million in 2016. Despite the low GDP your Company improved market share Pursuing our policy of accessing more growth, however, the economy created during the year, which confirms the related and profitable markets, the sufficient employment opportunities that efficacy of our business strategy and our Company decided to move into the reduced the unemployment rate to 4.2 % unparalleled customer service. construction and earth moving business. during the year. The construction sector in the country Company revenue dropped by 6.25% is presently enjoying a boom that is The flexible exchange rate regime from last financial year and ended up at forecasted to continue for decades maintained by the Central Bank Rs. 9 billion for the year under review. more, as mega constructions and under the enhanced monetary policy Company profit was Rs. 1.5 billion for the infrastructure projects near completion framework resulted in the depreciation year supported by the divestment of TVS and new projects take off. We exploited of the LKR against the USD by 2.57%, Lanka. new market opportunities by supplying which also adversely impacted import excavation equipment to feed the sector. expenditure although it will help the UNIMO recorded a turnover of Rs. 5.5 Partnerships were established with world exporters in the future. billion but ended up with a loss of Rs. 181 reputed earth moving manufacturer JCB, million. Orient Motor witnessed a heavy India and concrete mixture manufacturer Pressure on external accounts eased drop in turnover due to overall market LiuGong, China and this business has this year by substantial increases in drop and ended the year with profit of taken off well. The official launch will be the net inflows to the Government Rs. 17 million. Our latest addition to the held soon. securities market and the Colombo group UML Heavy Equipment Limited Stock Exchange. FDI to the Government ended its first seven months operation Another significant development securities market increased to USD 5,702 with a loss of Rs. 13 million. during the year was the acquisition million during year from USD 4,901 of a majority shareholding in UML by million in the preceding year, and foreign While some of these fiscal regulations R I L Property PLC. We see this as a very inflows to the Colombo Stock Exchange could, understandably, be in the broader positive development in the Group’s recorded a phenomenal increase to USD interests of the country, it is questionable onward journey which has resulted in the 279 million this year, from the previous whether certain duties imposed were collaboration of two premier business year’s USD 19 million. These positive thought through carefully enough. leaders to further consolidate our capital movements confirm increased strengths. The strengthening of our share investor confidence in the economy, The continuous volatility of state fiscal price consequent to this sale and to the

20 also supported usinsomeofthese also supported ofJapan Corporation Motors Mitsubishi and officesare located. Ourprincipal, in theareas inwhichourworkshops 2017 ofthefloodsMay of thevictims this year. We responded to theneeds Our CSRinitiatives took focus on a new thiswaitingperiod. during have resulted incidentsofmortality High free ofcharge ingovernment hospitals. waiting listfor operationsconducted andthere isalong Lanka, 700,000 inSri Rs.operation costsbetween 500,000– thisyear too. inIndia An surgery heart impoverished familyfor congenital We sponsored onemore childfrom intheirstudies. further encourage thesehighachievers to excel Cash rewards were presented to the Navum and Tikiri, Yovun scholarships. O/Level andA/Level examinations, under recognised whoexcelled intheGrade5, to thechildren ofouremployees and ofschoolbooks included thedistribution future. Ouryouth-related initiatives believe themto beourhopefor the the younger generationbecausewe This year too, we focused ondeveloping circumstances. hoc philanthropy except inexceptional for CSR initiatives. We do not believe in ad communities andhasaplannedstrategy to care for thewell-being ofour stakeholders. The Company continues Reinforcing ourrelationships withour for Novabeans.the agency technology ofthefuture andobtained We alsorealised isa that3Dprinting into solarenergy.idea ofembarking we areopportunities, studyingabusiness unrelated businesseswhenever we see even to intoPursuing shift ourpolicy sentiment. business decisionsandpositive market business, theforesight confirms ofour divestment andthree ofourtwo wheeler new opportunities to strengthen the opportunities new foundation andenabledusto pursue in placingtheCompany onasolid have efforts succeeded whose untiring Mr. Chanaka Yatawara and hisstaff, and professionalism ofourGroup CEO deeply appreciate thecommitment indifficultcircumstances.forward Ialso theCompanyand visionfor taking Directors for theircontinuedguidance my grateful thanksto my Board of to express thisopportunity I take Acknowledgement dividend ofRs. 1.50pershare. for your approval thepayment offinal The Board ofDirectors recommend Dividend isinourDNA. service are to conducted ensure thatcustomer andregular customer surveys service Continuous trainingincustomer thatexceeds theirexpectations. service to ensure are thatthey provided witha mindsetinourstaff,to inculcate aservice lifeblood oftheorganisation, andwe seek customers.Our Ourcustomers are the needsofourcustomers. service arethat they well equippedto meetthe oftheworkforce,skills thisyear, to ensure developing thetechnical andmanagerial We focus on willbefine-tuning the besttalentinindustry. build capacitiesandensure thatwe have were afforded theyear, to themduring to local andoverseas training opportunities satisfying career atUML.Anumberof professionally, andhave arewarding and arethat they developed personallyand are allefforts expendedtoSo ensure our businessreputation andcontinuity. people.Our Ouremployees are vitalto their feet. equipment to helpthemgetbackon groceries andkitchen relief packsofdry staff, were presented withvaluable areas aswellRatnapura asallaffected and efforts. Flood intheMatara victims 21 U PLC Lanka Motors nited 14 May 2018 14 May Chairman G. Wijesinha Sunil despite theadverse circumstances. predominant positioninthemarket, andmaintainingour of ourenterprise by consistently increasing thevalue to reward your faithintheCompany and we are proud to have beenable continuous growth anddevelopment, remains aninvaluable assetto our andstakeholders shareholders, partners ofour As always, thesupport to hisretirement from theCompany. the Board on31March 2018,subsequent the board 2006andresigned inMay from Executive Director (Finance) appointed to sincere appreciation to Mr. Lafir, Aashiq business. Iwishto placeonrecord my Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Group Chief Executive Officer’s Review of Operations

"The year ended with the Company making a profit after tax of Rs. 1.5 billion which is a 37% increase over the previous year. Considering the automobile industry volume for brand new vehicles dropped by 43% compared to the same period of last year, this can be considered a decent performance under the circumstances"

Chanaka Yatawara Group Chief Executive Officer / Executive Director

During the year, your company made some bold moves with divestments and diversifications in order to become a more lean and diversified organisation. The year ended with the Company making a profit after tax of Rs. 1.5 billion which is a 37% increase over the previous year. Considering the automobile industry volume for brand new vehicles dropped by 43% compared to the same period last year, this can be considered a decent performance under the circumstances. However, this profit has a capital gain due to the sale of our joint venture company, TVSL which is described below. At a group level our profit came down to Rs. 669 million due to the adverse market conditions that we faced. While the Company, United Motors Lanka PLC faired reasonably well during the year, Unimo Enterprises Limited our 100% owned subsidiary struggled with the policy changes that especially affected their market segment more adversely. We are however, very confident that our strategic new initiatives that have already been implemented will turn around the Unimo Enterprises performance in the new year.

22 for thebusiness; capacity. This majorchallenges poses two to taxvehicles basedontheirengine decided countries, thepolicymakers by most based calculationpracticed of calculatingduty. ofthevalue- Instead method with theintroduction ofanew be hampered by government policies The four wheelerbusinesscontinued to coreOur four wheelerbusiness businessventures.new enable re-investment for higherreturns in substantially improve ourcashflows and The proceeds from thedivestment will the nearfuture. improvements anywhere inthissector in this move aswe don’t envisage market We timeto believe make itwastheright businessharder to sustain. Lanka the TVS result, whichmadetheprofitability of margins continuedto slipasa industry competitive over thepast5years and businesses hasbecomeextremely for andthreeThe two market wheeler and alsoto explore opportunities. new focus onourcore four wheelerbusinesses a strategic to increase decisiontaken company. This divestiture wasbasedon Lubes, tyresandJK underthis TVS three wheelers, BharathPetroleum for 15years, wheelers, two andmarketed companiesofIndia withthe partners TVS theyear. during step taken We have been for Rs.1 Lanka billionwasasignificant TVS Our divestment ofthe50%share heldin Divestment provides littleornoadvantage to withlesserCIFvalues. products as alow isthesame, iftheengine CIFproduct capacity which duty, vehicles that have highCIFvalues willincurthesameduty Since CIF (value) isnow notconsidered for thecalculation of Vehicle Registrations -Brand New-Four Wheel thecurrent financialyear.challenges facedduring for vehicles brandnew overthe market thelast4years andgives anindicationofthe which isthelargest intheindustry. singlesector The tablebelow gives thebehavior of adverse effects ontheunder1000ccvehicle car onleasingterms, sector had further ongoing loan-to-value ratiothatallows abuyer to borrow only50%ofthevaluea manufacturers whoproduce vehicles with higherengine capacities. Additionally, the onmostpetrol hadanegative impact anddieselJapanesevehicle This changeinpolicy 2. 1. PRODUCT PRODUCT Total Buses Trucks Ambulances Vans SingleCabs Double Cabs Double SUVs Cars but thesameengine capacity. highCIFvalue European brandthathasavery asatop-end charged thesameduty of2000cc, Outlanderwithanengine capacity forThe Mitsubishi instance, willbe is thesame, whichprovides littleornoadvantage to products withlesserCIFvalues. asalow CIFproductiftheenginehigh CIFvalueswillincurthesameduty capacity Since CIF(value)isnow notconsidered for thecalculationofduty, vehicles thathave competitive withsmallerengine SUVs. results tagofcloseto Rs. theproduct less inasalesprice 40million,whichmakes for instance, is3000cc, onsuchavehicle willbeover theduty Rs. 30million. This on themwill, consequently, behigh. The ofaPetrol engine capacity Montero, products have highengineOur flagshipMitsubishi capacities, sothedutieslevied 23 2014/ 15 45,137 17,991 14,242 4,203 4,120 1,469 2,615 472 25 U PLC Lanka Motors nited 2015/ 16 86,880 24,745 51,206 2,175 4,112 1,167 2,660 794 21 2016/ 17 50,410 22,537 19,580 1,610 3,325 1,247 1,410 Annual Report 2017 Report Annual 106 595 2017/ 18 28,920 12,660 10,400 2,323 1,422 424 910 758 | 2018 23

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Group Chief Executive Officer’s Review of Operations

The table shows the volatility of the overall market over the last 4 years and the drop in The continuous overall volumes during the year of review. While overall industry volumes dropped by 43% compared to the previous year, we were still able to increase our market share by volatility and ad hoc 2% . This was mainly due to the new models that we introduced during the year and policy changes pushed also due to increasing our market share in selected segments. us to strategically

Diversification explore new areas of The continuous volatility and ad hoc policy changes pushed us to strategically explore investment that show new areas of investment that show long-term growth and fewer policy changes. In long-term growth and view of the large infrastructure developments taking place in Sri Lanka today, the construction sector has expanded to become a major contributor to the economic fewer policy changes development of the country. We believe this sector will deliver the stability and growth prospects that the country pursues, and high-quality construction equipment would be We will also expand our product a means to this end. availability and accessibility through a dealer network that we did not Accordingly, UML was successful in securing the agencies for both JCB earth moving previously expand. We have already equipment and LiuGong concrete mixing equipment, two giants in the construction started vehicle trade-in operation for industry the world over. With these two brands to support us, we are confident that we the Group to enable customers to will be very successful in entering into this dynamic sector. easily switch their current vehicles with one of our new ones. These initiatives, We also identified the opportunities of the new technology sector and were successful we believe, will help volumes to grow in securing the Novabeans agency for 3D printing equipment. This new technology is especially for the vehicles represented among the latest state-of-the-art technologies expected to revolutionise technologies by our subsidiary company Unimo as we know then in the world today. Enterprises. Higher sales for this company would mean getting rid of accumulated The way forward stock and ease our high cost of finance Overall, this was a tough year for the Company, due to external pressures that included for holding them. policy changes by the Government. However, we met the challenge by divesting ourselves of non-performing business segments, building on our core brands to Our new aftersales facility opened during improve market share and entering into new industries which, we believe, will drive our the last financial year in Ratmalana, has Group into a more profitable future. been showing good progress. We will now accelerate the marketing of this The next financial year will bring in two new products from Mitsubishi that we have facility to encourage more customers to been anticipating for a while. These products will have the lower engine capacity make use of the services it provides. that will enable us to benefit from the new duty formulas and be more affordable to the market. We expect the first product to be launched by August and the other by We believe that the construction November 2018. equipment business will bring us new revenues and profitability. We plan We are also confident that the Z100, 1000cc locally assembled car launched in to stand out from the competition 2016, will continue to have a very positive market response due to its many options because of the brands we represent, and extremely competitive price. In view of the fact that this product is targeted to the availability of spare parts and the price-sensitive buyers who comprise about 40% of the market, we expect demand tailormade after sales we offer customers to continuously increase and our market share to improve considerably within the in this industry. forthcoming year. Our operations are strengthened by We also believe that the Perodua Bezza under 1000 cc sedan launched in 2017 will grow continuous investments in developing significantly as it will continue to be the only sedan in this engine capacity. The demand our staff. During the year, all staff were for the vehicle was very encouraging following the launch, and we will now focus on evaluated, their competency gaps making it more accessible to mass markets across the country.

24 his future endeavours. the last12years andwishhimsuccessin to UMLGroupvaluable contribution over for31 March 2018.IthankAashiq his (Finance) retired from theCompany on Mr. Lafir, Aashiq Executive Director Annual Report. ofthis Discussion andAnalysissection explained indetailtheManagement environment. areThese activities ofprotecting our on theimportance also continueto Lankans educate Sri many lives throughout thecountry. We in parallel, have madeadifference to assistance. These out projects, carried in education,healthanddisaster profits insocialresponsibility initiatives We ofour continueto invest part invest more inthisarea year. inthenew to ourbusinessmodelandwecritical will salesstaff, ofourafter the productivity is ofourworkforce,productivity especially thesegaps.to bridge Improving the identified, andspecifictrainingsprovided 14 May 2018 14 May Executive Director Group ChiefExecutive / Officer YatawaraChanaka 25 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Board of Directors

(Left to Right) Mr. Sunil G. Wijesinha - Chairman, Mr. Chanaka Yatawara - Group Chief Executive Officer/Executive Director Mr. Ananda Atukorala - Director, Mr. Aashiq Lafir - Executive Director

26 Mr. Chapman-Director, Stuart -Company Hisham Rinoza Mrs. Secretary YaseenRamesh Mr. - Executive Director, HiroshiniFernando Mrs. -Director, Professor -Director, Ranasinghe Malik (Left toRight) 27 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Board of Directors

Mr. Sunil G. Wijesinha Mr. Chanaka Yatawara Mr. Ananda Atukorala Chairman - Non - Executive Director Group Chief Executive Officer/Executive Non-Executive Director (Independent) (Non-Independent) Director Mr. Ananda Atukorala was appointed to Mr. Sunil Wijesinha was appointed to the Mr. Chanaka Yatawara was appointed the Board in November 2005. Board as Chairman and Non-Executive to the Board in June 2004 as a Non- Director in July 2013. Executive Director and an Executive Mr. Atukorala holds a B.Sc (Leeds UK), Director in November 2004. MTT (North Carolina) USA, and an MBA. Mr. Sunil Wijesinha holds an MBA from Postgraduate Institute of Management, Mr. Yatawara holds a degree in Mr. Atukorala is the Chairman of NDB University of Sri Jayawardenapura. He Economics from Lewis & Clark College, Bank PLC and Development Holdings is a Fellow Member of the Chartered Oregon, (USA). (Pvt) Ltd. Mr. Atukorala serves as an Institute of Management Accountants Independent Non-Executive Director (UK), a Fellow Member of the Institute Mr. Yatawara is a Director of Unimo of Orient Finance PLC, Colombo City of Management Services (UK) and an Enterprises Ltd, Orient Motor Company Holdings PLC, NDB Securities Limited, Associate Member of the Institution of Ltd, UML Property Developments Ltd, UB Finance Company Ltd, Arni Holdings Engineers, Sri Lanka. UML Heavy Equipment Limited, Wall and Investments (Pvt) Ltd, Unawatuna Art (Pvt) Ltd and House of Plating (Pvt) Boutique Resort (Pvt) Ltd and Unimo Mr. Wijesinha is the Chairman of Limited. Enterprises Limited. Watawala Plantations PLC, R I L Property PLC, Watawala Dairy Limited, Hatton He was a former Director of TVS Lanka He was a former Deputy General Plantation Limited, SC Securities Ltd, (Pvt) Ltd and TVS Automotives (Pvt) Manager, ANZ Grindlays Bank, Sri Lanka; Unimo Enterprises Limited, Orient Limited. Country Manager Sri Lanka, Mashreq Motor Company Limited, UML Property Bank PSC, advisor to the Ministry of Policy Developments Limited and UML Heavy Development & Implementation. He was Equipment Limited. also a Director of Union Bank PLC for a period of nine years and retired in 2012. Mr. Wijesinha is also an Executive Director Mr. Atukorala was also a former Director of BizEx Consulting (Pvt) Ltd, He also of DFCC Bank PLC and TVS Lanka (Pvt) serves as an Independent Non-Executive Limited. Director at Sampath Centre Limited. Mr. Atukorala had also served as a He was the former Chairman of NDB Member of the Technology Initiative for Bank PLC, Merchant Credit of Sri Lanka the Private Sector - an USAID sponsored Ltd, TVS Automotives (Pvt) Ltd and project with the Ministry of Industrial Employees’ Trust Fund Board. He was Development. He was also a Working also the Chairman and MD of Dankotuwa Committee Member - Commercial Porcelain PLC, Deputy Chairman of Banking Sector - Presidential Commission Sampath Bank PLC and Managing on Finance and Banking, Committee Director of Merchant Bank of Sri Lanka Member - Banker's Club of Sri Lanka PLC. and a former Director - Sri Lanka Banks Association (Guarantee) Ltd and CRIB - He was also a former Director of Credit Information Bureau of Sri Lanka. Siyapatha Finance PLC, TVS Lanka (Pvt) Ltd and National Institute of Business Management. He was the former President of Japan Sri Lanka Technical and Cultural Association (JASTECA). He is the Past Chairman and is a member of the Board of Trustee of Employers’ Federation of Ceylon and the Past President of the National Chamber of Commerce of Sri Lanka.

28 his retirement Company. the from 31 from March 2018 effect with following PLC United of Motors Lanka Directors of Board the Mr. from resigned Lafir Council. Business Malaysia immediate President Past Sri Lanka- of Ltd. is He the International (Pvt) Mr. is Chairman also Skills of the Lafir business segments. in diverse experience has over management 25years senior of Sri Jayawardenapura and of University the of Management Graduate of Institute Post Business the Administration from in Degree aMasters also holds He (CA Sri Lanka). Accountants Chartered of Sri Lanka of Accountants Institute the (CIMA)-UK and Management of Institute Chartered Mr. the is of a Fellow member Lafir in MayBoard 2006. to appointed was the and 2006 January Company the inMr. joined Lafir Aashiq Executive –Finance Director Mr. AashiqLafir Director of Readywear Industries Limited. Limited. Industries Readywear of Director aformer Enterprises was He Limited. Mr. Yaseen Unimo of is aDirector 2008. in June Board the 2002September to appointed was and Mr. Yaseen Ramesh UML Group in joined Executive Services –After Director Sales YaseenMr.Ramesh 29 U PLC Lanka Motors nited TVS Lanka (Pvt) Limited. (Pvt) Lanka TVS of Director aformer was Fernando Mrs. Equipment Limited. UMLand Heavy MotorLimited, Orient Company Limited DFCCof PLC, Bank Unimo Enterprises Director isShe also aNon-Executive country.the among under schools privileged around Trust promotes which computer literacy Ltd R IL and (Pvt) Videowall of Boards the on Ltd. serves She (Pvt) Foodbuzz and Limited Industries Readywear of Director PLC, is She also an Executive Property RIL of Director Executive Officer/ is Chief Executive Fernando the Mrs. consultancy, management auditing, of field in the has over 20 yearsLanka experience AccountantsManagement Sri of Certified of Institute and Sri Lanka of Accountants Chartered of Institute is of Fernando aFellow member Mrs. to 2013. in July Board the Hiroshini appointed was Mrs. Fernando Independent) Non -Executive (Non- Director Mrs. Hiroshini Fernando finance and administration. and finance Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Board of Directors

Professor Malik Ranasinghe Mr. Stuart Chapman Non-Executive Director (Independent) Non-Executive Director (Independent) Professor Malik Ranasinghe was appointed to the Board in July Mr. Chapman was appointed to the Board in September 2016. 2014. Mr. Chapman holds an MBA from the University of Colombo, a He is a Senior Professor in Civil Engineering at the University Diploma in Marketing from the Chartered Institute of Marketing of Moratuwa, Member of the University Grants Commission, UK. Mr. Chapman also holds a Diploma in Life Insurance Sales Chartered Engineer and International Professional Engineer, and Marketing from the Life Underwriters Training Council USA Fellow of the Institution of Engineers, Sri Lanka, National and a Diploma in Business Management from the National Academy of Sciences, Sri Lanka and Institute of Project Institute of Business Management, Sri Lanka. He is a Fellow Managers, Sri Lanka. Member of the Chartered Institute of Marketing, UK and the Institute of Management, UK. He is also a Member of the Prof. Ranasinghe obtained his PhD from the University of British Institute of Certified Management Accountants, Australia. Columbia, Vancouver, Canada as a Canadian Commonwealth Scholar. He was honoured with, the Education Leadership Award Mr. Chapman’s management experience, spanning over thirty 2013 at the 4th Asia’s Best B-School Awards, Singapore, the years include sales, marketing and general management Award for Outstanding Contribution to Education at the World functions. His Industrial exposure spans Healthcare, Education Congress 2012, India, the Most Outstanding Senior FMCG, Consumer Durables, Insurance, Banking and Researcher in Technology and related Sciences award in 2012 by Telecommunications. the Committee of Vice-Chancellors and Directors (CVCD) of Sri Lanka, the Trinity Prize for Engineering in 2004 for outstanding Mr. Chapman is also a Non-Executive Director of Hemas contributions made to his chosen profession and the Sri Lanka Pharmaceuticals (Pvt) Limited. Association for the Advancement of Science (SLAAS), General Research Committee Award for Outstanding Contribution to Sri Mr. Chapman was the former Managing Director Lankan Science in 1999. GlaxoSmithKline (GSK) Pharmaceuticals and served on the Boards of Glaxo Wellcome Ceylon Limited and SmithKline He is the Deputy Chairman of Sampath Bank PLC, He is an Beecham Pvt. Ltd. Some of his previous appointments include Independent Non-Executive Director of Access Engineering PLC, Managing Director - Hemas Healthcare Sector, Marketing Teejay Lanka PLC, Resus Energy PLC and UML Heavy Equipment Director - Reckitt Benckiser, Senior Brand Manager Unilever, Limited. Managing Director/CEO – Lanka Orix Leasing Company and Director Life - Ceylinco Insurance. He is a past Vice-Chancellor of the University of Moratuwa, past Chairman of the Committee of Vice-Chancellors and Directors Mr. Chapman was also a former Director/ CEO of Janashakthi (CVCD) of Sri Lanka, former Council Member of the Association Insurance PLC. of Commonwealth Universities (ACU), former Fellow of the National University of Singapore and a former Non-Executive Mr. Chapman held several Industry positions including Honorary Director of the Colombo Stock Exchange and Lanka IOC PLC. President and a Founder Member of the Chartered Institute of Marketing Sri Lanka, President of the Sri Lanka Chamber of the Pharmaceutical Industry – the apex body for the pharmaceutical industry in Sri Lanka and Co-Chairman of the Pharmaceutical and Cosmetics Steering Committee of the Ceylon Chamber of Commerce.

30 North Asia. North in project KD of launching Zealand and in New working experience working of years has several He Asia. charge North of in Manager General former the was He Japan. Mitsubishi Motors Corporation, of Division Asia South and Africa East/ Middle of Department Asia South and Manager,Mr. is General the Inoue Africa 2017. in January Board Mr. to Hiroyasu appointed was the Inoue Non-Executive (Independent) Director Mr. Hiroyasu Inoue Jayawardenapura. Sri of University the of Management of Post GraduateMBA the Institute from (IPM),Management an and Sri Lanka Personnel of Institute the HR from in aDiploma (ICSA- UK). holds She Secretaries Chartered of Institute the Hisham of isMrs. Member an Associate 2008. in January Company Secretary Hisham as Rinoza appointed was Mrs. Company Secretary Mrs. Hisham Rinoza 31 U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Senior Management Team

General Managers

Mr. G Pilapitiya Mr. B Singhage Mr. R Siriwardene General Manager General Manager General Manager (New Vehicle Sales) (Technical, Parts & Accessories) (Human Resources & Administration)

Mr. T Jayasekara Mr. P Ellepola General Manager General Manager (Finance & Planning) (Lubricants & Car Care)

32 Deputy General Manager andAssistant General Manager Deputy General Managers Head ofDepartments Deputy General Manager Deputy Deputy General Manager Deputy Mr. ASJCooray Mr. SdeSilva (Marketing) (Truck &Bus)

Assistant GeneralAssistant Manager (Internal Audit &Monitoring) Deputy General Manager Deputy Mr. W PSKumara Mrs. SFernando (Technical) 33

U PLC Lanka Motors nited Assistant GeneralAssistant Manager Mr. KGunatilleka Assistant GeneralAssistant Manager (New Vehicle sales) (Human Resources/Legal) Mrs. RMHisham Annual Report 2017 Report Annual

| 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Senior Management Team

Deputy General Manager and Assistant General Managers

Mr. B de Fonseka Mr. T Hopwood Mr. Sudhakaran Assistant General Manager Assistant General Manager Assistant General Manager (Technical) (Public Sector) (Technical)

Mr. T Gunathilaka Mr. A N de Silva Assistant General Manager Assistant General Manager (Branch Operations) (Spare Parts)

34 Deputy General Manager andAssistant General Manager Deputy General Managers Assistant GeneralAssistant Manager (Information Technology) Mr. IUManthilake Assistant GeneralAssistant Manager Mr. K W DAAsanke (Technical)

35 Assistant GeneralAssistant Manager (Lubricants Sales) Dealer Assistant GeneralAssistant Manager Mr. RSenaratne Mr. SAhangama (New Vehicle Sales) U PLC Lanka Motors nited Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Senior Management Team

Subsidiaries CEO's

Mr. M Gunathilake Mr. K P N C M Silva Chief Executive Officer/Executive Director Deputy Chief Executive Officer Unimo Enterprises Ltd Orient Motor Company Ltd / UML Heavy Equipment Ltd

Senior Management Team - Subsidiaries

Mr. U Fernando Mr. H D Rajapakse Mr. D K N Nanayakkara Assistant General Manager Assistant General Manager Assistant General Manager (JMC Trucks) (Operations) (Chinese Vehicles)

36 Senior Management Senior Team -Subsidiaries (Sales - UML Heavy Equipment Ltd) -UMLHeavy (Sales (Chinese Passenger Vehicles) Assistant GeneralAssistant Manager Assistant GeneralAssistant Manager Mr. SPalliyaguru Mr. SLiyanage Mrs. NPalihena Finance Manager 37 (Finance -UML) GeneralAssistant Manager Ms. MMannan Mr. RAbayakoon (Chinese Passenger Vehicles -UEL) GeneralAssistant Manager (Perodua -UEL) GeneralAssistant Manager Mr.L Wijeratne Not Pictured U PLC Lanka Motors nited Mr.D Weerasinghe Senior Sales Manager Sales Senior (Yokohama Tyres) Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business

United Motors Lanka PLC Annual Report 2017 | 2018

Management Discussion and Analysis

Capital Inputs Value Creation Model

We create value for stakeholders carefully balancing their concerns. Our core expertise and processes support our role. Our value creation activities employ inputs from financial capital, social & Financial Capital relationship capital which includes All economic resources used to provide goods customers, business partners, share and services is our Financial Capital. holders and community, natural capital, human capital, intellectual capital and manufactured capital,

Our strategic plan is prepared Social & Relationship Capital considering our value creation model, Customer portfolio and their loyalty, our business inputs from our stakeholder engagement partner portfolio and their brands we represent Growth process, risk management process are our Relationship Capital. and a thorough evaluation of macro Relationship we have with our community is our Dynamic environment including political, Social Capital. Team economic, social, technological, legal and environmental factors.

We take pride in managing capitals and processes in an efficient manner as we know that this is vital to the successful Natural Capital and consistent delivery of increasing Natural resources in the environment we live in is stakeholder value. We maximise our are our Natural Capital. capacity to leverage our strengths, our industry expertise and our pool of resources to deliver mutual benefit to thousands of stakeholders who place their trust on us. Human Capital Employees and their competencies represent our Human Capital. Vehicle Sales Vehicle

Intellectual Capital Risk Management Our systems, processes and the knowledge base accumulated are our Intellectual Capital.

Manufactured Capital Land and building (owned and leased), machinery, equipment are our Manufactured Capital.

40 Business Segments Business Operation Sustainable How WeCreate Value Repairs and Services Strategic Drivers Leveraging on on Leveraging Governance Strategies strengths Outlook Mission Vision Spare Parts

Lubricants

Tyres Diversification

Equipment and Machinery Excellence Service

Assembly

41 Performance Rs. 353 Rs. Dividends Million : Profit Million 669 :Rs. Shareholders For Rs. 8.8 Billion 8.8 Rs. : Purchases suppliers: For Business Partners and Rs. 509 Million 509 Rs. Business the within Retained Interest Million 407 :Rs. For Providers of Funds Taxes 3.9 Billion :Rs. Government For Sales 14.9 :Rs. Billion For Customers PLC Lanka Motors United Rs. 964 Million 964 Rs. Remuneration and rewards : For Employees Environmental Impacts Environmental Economic, Social & Value Created Altered Capitals Altered & Delivered Outcomes Impacts Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Management Discussion and Analysis

Stakeholder Engaging with our stakeholders engagement As a Group, we believe that effective stakeholder engagement enriches our business, because our stakeholders help us to improve communications, obtain wider support, gather useful data and Customers Suppliers and Shareholders and Community and Employees business partners investors Environment information, and ensure more sustainable decision-making. Stakeholder • Service excellence • Contractual performance • Financial performance / • Commitment to community • Job satisfaction expectations • Service quality • Future business Return on Investment upliftment • Training and development We maintain regular stakeholder • Affordability of services opportunities • Governance • Ethical business conduct • Career advancement engagement through a range of formal • Maintaining healthy • Transparency and disclosure • Environmental performance opportunities and transparent mechanism that • Convenience relationships facilitates continuous communication, • Rapid response • Risk management • Responsible business • Rewards and recognition dialogue and feedback from our many • Timely settlement of dues • Sustainable growth practices • Work-life balance and varied stakeholder groups while • Ease of working • Minimum environmental • Value driven corporate raising awareness of the need for • Growth potential impact from the Company culture sustainable resource consumption and operations sustainable practices. We also continue to • Diversity pursue new avenues of communication Mode and Engagement Frequency Engagement Frequency Engagement Frequency Engagement Frequency Engagement Frequency that would enable our stakeholders to frequency activity activity activity activity activity give us more feedback to improve our Customer surveys Continously Regular As required Annual Reports Annually Events and When Performance Annually sustainability efforts. one to one and Annual sponsorships required appraisals engagements General and individual Our stakeholders are; Meetings reviews Regular one to Continously Telephone On a regular Extraordinary As required Corporate Online Open door As required • Customers one engagements discussions and basis General Website/ policy • Suppliers and business partners emails Meetings Face book • Shareholders and investors Corporate Continously Supplier As required Interim financial Quarterly Training As required Website/ relationship statements • Community and environment Face book, management • Employees LinkedIn, Instagram, Google display ads Conventional Continously On-site visits As Announcements As required Corporate On a media (press, radio and meetings required to CSE communication regular and TV) basis Customer visits As required Corporate Online Immediate As required Employee Annually Website/ Face market rewards and book disclosures recognition Customer As required One-to-one As required Employee As workshops discussions engagement required activities Corporate Online Regular As website one to one required engagements CSE website Online

42 frequency and Mode expectations Stakeholder Customers activity Engagement • • • • • workshops Customer Customer visits and TV) media (press, radio Conventional display ads Google Instagram, LinkedIn, Face book, Website/ Corporate one engagements onetoRegular Customer surveys Rapid response Rapid Convenience Affordability ofservices quality Service excellence Service Frequency As required Continously Continously Continously Continously As required business partners Suppliers and book Website/ Face Corporate and meetings On-site visits management relationship Supplier emails discussions and Telephone engagements one to one Regular activity Engagement • • • • • • Growth potential Ease ofworking Timely settlementofdues relationships healthyMaintaining opportunities Future business performance Contractual As required basis On aregular As required Frequency Online required As investors Shareholders and statements financial Interim Meetings General Extraordinary Meetings General and Annual Annual Reports activity Engagement • • • • • CSE website website Corporate discussions One-to-one disclosures market Immediate CSE to Announcements Sustainable growth management Risk Transparency anddisclosure Governance onInvestment Return Financial / performance Quarterly As required Annually Frequency Online As required As required As required Online 43 Environment Community and Face book Website/ Corporate sponsorships Events and activity Engagement • • • • • operations fromimpact theCompany environmentalMinimum practices business Responsible Environmental performance Ethical businessconduct upliftment Commitment to community PLC Lanka Motors United Frequency Online required When Employees • • • • • • • activity Engagement Training policy Open door reviews and individual appraisals Performance engagements one to one Regular activities engagement Employee recognition rewards and Employee communication Corporate Diversity Diversity culture Value driven corporate Work-life balance Rewards andrecognition opportunities Career advancement Training anddevelopment satisfaction Job Annual Report 2017 Report Annual Frequency As required As required Annually required As required As Annually basis regular On a | 2018

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Management Discussion and Analysis

OPERATING ENVIRONMENT

Dynamics of the global and local historically low levels for the duration Global economic growth economy affected and influenced Sri of the quantitative easing programme Lankan automobile industry in general which may be extended. Economic 3.8% and the Group in particular during the growth remained robust in the Euro year under review as detailed below. area as the region benefitted from low Crude oil price unemployment, an accommodative Global economic environment monetary stance and a dynamic external USD 65 per barrel Global economic growth in 2017 was sector. The solid global economic 3.8% (2.7% in 2016), continuing the dynamics that tightened job markets Federal Reserve Interest Rate upward movement experienced in global reverberated positively in household economic activity towards the latter part spending. 1.75% of 2016. World trade and manufacturing improved substantially during the Capital inflows to emerging economies financial services and wholesale and year, supported by the better market remained resilient despite rising retail trade activities. Rationalisation of sentiments and increased investments in interest rates in developed economies, government expenditure and the tight advanced economies as well as increased supporting broad based growth. monetary policy stance also affected manufacturing across Asia. Crude oil However, growth remained weak in some economic growth in 2017. prices rose to around USD 65 per barrel emerging economies. by March 2018, from USD 53 at the Meanwhile, investment expenditure beginning of the year, which reflected The IMF forecasts global economic grew at a slower pace compared to the Improving global demand and supply growth to be 3.9 % in 2018, which is previous year whereas consumption factors, including the OPEC agreement to an upward revision of 0.2% due to the expenditure, which witnessed some limit production. increased momentum of global growth slowdown in the previous year, and the expected impact of the recently accelerated in 2017. Although exports The Federal Reserve increased policy approved changes in U.S. tax policy. grew at a higher rate, benefitting from interest rates three times during the year, the stronger recovery of some of the Sri from 1% to 1.75% as economic growth Sri Lankan economy Lanka’s major export destinations such in the U.S. maintained a steady pace The Sri Lankan economy grew at a as the US and Europe, the substantial of just over 2.3%, backed by increased slower pace of 3.1 % in 2017, compared increase in imports resulted in a further consumer spending and improved levels to the growth of 4.4 % in 2016, amidst deterioration of net external demand. of business confidence that propelled challenges arising from both domestic Meanwhile, domestic savings grew at a capital expenditure. The Bank of England and external fronts. Severe drought slower rate while the net primary income also raised policy rates for the first time conditions that prevailed in the major from the rest of the world continued to in 10 years, from 0.25% to 0.5% based cultivation areas hindered growth contract during the year. International on low unemployment, rising inflation in agriculture activities, although a net current transfers moderated, which and stronger global growth. Although rebound was observed during the last reflected the slowdown in workers’ annual growth moderated in the United quarter of the year. Meanwhile, Industry remittances, due mainly to geopolitical Kingdom, the economy remained and Services activities contributed tensions and uncertainties in some stable due to the solid performance positively to economic growth in the regions including the Middle East. of the service sector. Both financial backdrop of the spill over effects of institutions are expected to announce subdued agriculture performance. The Colombo Port City Project, which further increases in the future as priorities The reinstatement of GSP+ boosted is a public-private partnership towards change from driving growth to managing manufacturing activities and provided developing a world-class city along with inflation. The European Central Bank stimulus for Industry activities amidst the a financial hub in South Asia, rapidly commenced tapering of the net assets moderation observed in construction progressed during 2017 in terms of purchasing programme but intends activities. Service activities expanded, land reclamation and construction of to maintain interest rates at current largely supported by the growth in the breakwater. Airport development

44 % atend-March 2017. to 14.04%by end-March 2018,from 13.40 (AWPLR)Rate increased by 64basispoints year. The Average Weighted Prime Lending at elevated levels towards theendof conditions andstabilised tight monetary in2017whichreflectedcontinued to rise Lending rates ofcommercial banksalso year at11.41% asat31March 2018. 2017, butdeclinedto endthefinancial increased to 11.81%by end-September which wasat11.38%as31March 2017 Weighted Fixed (AWFDR) Rate Deposit towards theendofyear. The Average although somemoderationwasobserved conditions, reflecting tightmonetary banks continuedto increase 2017, during interest2018. Deposit rates ofcommercial gradually declinedto 9.69%as at31March which wasat10.98%as31March 2017 the Government. 364days Treasury Billrate by offoreign theavailability financingto sentiments,favourable supported market system and bondauction the treasury yields, alongwiththemodificationsto rates and that existed policy between asignificantof 2017,correcting gap thesecondhalf substantially during Yields declined onGovernment securities prices. commodity international revisions ofindirect taxes, andrising dueto theadverseprices weather, upward 4%-6%, thecombinedresult ofhighfood was beyond theCentral Banktarget of on year 2017. inDecember The increase Consumer 2013=100)year Price Index, increased toInflation 7.3%(National hub.maritime as a the aimofdeveloping thecountry with develop theHambantota port further agreement withaChinesecompany to enteredPorts Authority into aconcession Further, Lanka theGovernment andtheSri theyear. were outduring carried Airport, the runway International atBandaranaike of activities, includingtheresurfacing end-March 2018. Rs.151.72 atend-2017to Rs.155.97 at theyear,by 2.8%during moved from which depreciated againstthedollar With thesedevelopments, therupee, exchange by theCentral liquidity Bank. offoreignamidst substantialabsorption of gradual appreciation oftherupee 2017,withsomeperiods December the USdollarfrom end-March to end- towards oftherupee against thestability investor confidence. This contributed EFF programme, whichhelpedimprove the third tranchesoftheIMF andfourth financing facility, anddisbursementof the receipt oftheforeign term currency onwards withtheissuanceofISB, on therupeeeasedgradually from May the market. The depreciation pressure foreignabsorb exchange from liquidity for theCentral Bankto opportunity proceeds, whichprovidedexport an andincreased conversionmarket of CSE andtheGovernment securities with higherforeign investments to the around from March 2017,particularly market. securities This situationturned foreign investments intheGovernment payments andtheunwinding of service expenditure,stemmed from debt import was dueto continued outflows that rupee. Lankan The depreciation pressure defend valueoftheSri theexternal foreign inorder exchange to market to thedomestic liquidity currency the Central Bankto supply foreign monthsof2017compelled first two the during that prevailed particularly depreciation pressure ontherupee reserves. international The significant foreign to buildup exchange market inthe Central Bankintervention whichlimited by theCentral Bank, implementedexchange rate policy the year underamore market-based rupee remained relatively stableduring Lankan valueoftheSri The external 45 PLC Lanka Motors United 11.41% Rate Deposit Average WeightedFixed 9.69% 364 days Treasury Billrate 7.3% Inflation 3.1% Economic growth rupee. value Lankan oftheSri to defend theexternal exchange inorder market the domesticforeign to liquidity currency Bank to supplyforeign compelled theCentral first two months of2017 the during particularly the rupeethat prevailed depreciation pressure on The significant 14.04% Lending Rate Average WeightedPrime Annual Report 2017 Report Annual

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Management Discussion and Analysis

OPERATING ENVIRONMENT

Motor vehicle industry The declining trend in brand new car sales continued, with only 10,400 brand new cars Brand new vehicles industry sold during the year under review. This was a drop of 9,180 units or 47% in comparison to 19,580 units sold last year. Cumulatively over the last two years brand new 2017/18 28,920 units registrations dropped by almost 80% or 40,806 units. The removal of the Ad-valorem rate of excise duty on motor vehicles and the increase in the excise rate based on the engine Brand new vehicles industry capacity as announced in the 2018 Budget contributed to a reduction in volumes, a trend which began as duties increased and the loan-to-value ratio reduced. The truck 2016/17 50,410 units segment also followed the trend, with brand new vehicle sales declining to 12,660 units in 2017/18, from 22,537 units sold in 2016/17, which is a substantial drop of 9,877 units or 44%. The dual-purpose vehicle market also declined by almost 60%, to end the year of review with a volume of 2,115 units. The SUV segment held its ground with a volume of As a result of the reduced 1,422 units in comparison with 1,410 units achieved last year. However, the sale of buses sales in the brand-new recorded positive growth during the year and rose by more than 44% to end the year car and truck segments, with a volume growth of 2,323 units, compared to 1,610 units sold the year before. the overall four wheel As a result of the reduced sales in the brand-new car and truck segments, the overall market also showed a four wheel market also showed a 43% drop during the year, moving down from 50,410 43% drop during the units to 28,920 units. Over the last two years, total brand-new vehicle sales dropped by 57,960 units or a decline of 67%. year, moving down from 50,410 units to 28,920 The Government announced in the 2018 Budget that, with a view to improve the safety units. Over the last two standards of the motor vehicles, imports of motor vehicles that did not comply with the following safety measures would be prohibited with effect from 01 January 2018. All years, total brand- new motor vehicles imported after this period should have: vehicle sales dropped by 57,960 units or a decline (a) Air Bags for the driver and the front passenger of 67%. (b) Anti-Locking Breaking System (ABS) and; (c) Three Point Seat Belts for the driver and passengers travelling in the front and rear seats

The effective date of this proposal has since been extended by six months.

The last Budget also announced that imports of motor vehicles below the Emission Standard of EURO 4 or its equivalent, would be prohibited effective from 01 January 2018 in line with health and environmental safety standards. The effective date of this proposal has also been extended by six months.

46 BUSINESS REVIEW level ofgross profit recorded lastyear. Despite thesevere competitionhowever, thedivisionwasableto maintainthesame achieved in2016/17,increasing by onlyRs. 1.2millionto endtheyear atRs. 795 million. Despite this,centre thedivisioncouldnotimprove atRatmalana. muchontherevenue This year wasthe first fullyear’s operationoftheCompany’s flagship service newly-built andservices Repairs andbenefitsofusinggenuineparts. to educate customers ontheimportance insurance companieswhopromote these second-handparts. The Company continues by inthesecond-hand market. exacerbated somemotor Theparts situationisfurther challenging dueto salesare thefree of usedaccident becomingvery availability part year. Onethird oftheCompany’s were contribution division.Spare from thespare parts million. However, ofRs. thiswasslightlybelow thecontribution 465millionrecorded last division by amere Rs. 2.6millionto endtheyear ofRs. withthehighestcontribution 458 ofprofits to thebottom lineoftheCompany,portion the surpassing Truck andBus than lastyear, whichwasencouraging. thehighest divisioncontributed The spare parts below lastyear. However, thedivisionwasableto maintainslightlyhighermargins divisionrecordedThe spare arevenue parts ofRs.1.6 billion,whichisRs. 115million Spare parts to 141units. 14% increase compared to lastyear. trucksalsoshowed agrowth Karma from 120units 20%. The Truck well withasaleof550units. andBusdivisionperformed This isanalmost sold through customer LCs compared to 353unitssoldlastyear, whichisareductionof thecurrent year,During thevehicle salesdivisionsold284unitsoutofwhich84were shown animprovement share compared inmarket to lastyear’s performance. Cars, share SUVs whereas vehicles andbuseslostmarket dualpurpose andtruckshave Composition of Mitsubishi andFusoComposition ofMitsubishi Share (Brand New Vehicle Category) vehiclesnew registration. The following andFuso tableindicates theMitsubishi ofbrand- share ineachcategory to 4%,from thelastcoupleofyears. the2%maintainedduring The Company’s andFuso share overall Mitsubishi ofbrandnew market vehicles doubled Vehicle salesdivision Product Overall market shareOverall market Buses Trucks vehiclesDual purpose SUVs Cars 2016/17 (%) 0.29 15 2 7 2 4 2017/18 (%) 47 0.25 10 5 5 8 4 PLC Lanka Motors United Rs. 795Million Revenue Rs. 5.8Billion Revenue Rs. 1.6Billion Revenue Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

BUSINESS REVIEW

Valvoline lubricants and Simoniz car care products Revenue from Valvoline dropped by Rs. 20 million over the preceding year and ended Revenue the year at Rs. 813 million, a marginal drop of 2.4%. However, margins were eroded due to severe competition and the appreciation of the US dollar, which had a significant Rs. 823 Million impact on the bottom line. From a contribution of Rs. 170 million last year, profits dropped to Rs. 91 million this year. However on a positive note, the division won the Award for the Highest Sales Volume in South East Asia for Valvoline for the financial year 2017. The division won the Simoniz maintained last year’s revenue by ending the year with a turnover of Rs. 9.82 Award for the Highest million, same as last year. Gross profit margins came under pressure during the year Sales Volume in South and had to be maintained at much lower levels compared to the previous year, which pushed the total contribution down to Rs. 1.6 million from Rs. 2.7 million achieved last East Asia for Valvoline for year. the financial year 2017.

3D Printing UML continued to expand its horizons to non-motor sectors and was appointed as the Diamond Reseller in Sri Lanka of Novabeans Prototyping Labs LLP (Limited Liability Partnership) which authorises the Company the exclusive rights to market, promote, sell, and provide after sales service and support in Sri Lanka for the entire range of products marketed by Novabeans.

TVS Lanka (Pvt) Ltd The Company took a strategic decision to divest its investment in TVS Lanka (Pvt) Ltd, due to the difficulty in sustaining profit margins in these segments and market competition. The decision is in line with UML’s strategic plan of concentrating on core business segments that enhance profitability.

Performance by UML subsidiaries Unimo Enterprises Limited (UEL) The Perodua division continued to be the major contributor to UEL performance, both in terms of revenue and profits. The division recorded a revenue of Rs.3.4 billion out of total Company revenue of Rs. 5.5 billion which is 62% of the total revenue. However, continued price increases as a result of the upward revision of duties and the prevailing Loan To Value (LTV) restrictions dampened Perodua Axia sales. Sales dropped from 1,282 units to 545 units during the year under review. Some of Axia sales were taken over by Bezza, the latest entrant to the UEL product portfolio from Perodua, launched in June 2017. Bezza has a four-speed automatic electronically controlled gear system, aerodynamic design for fuel efficiency and a spacious ergonomically designed interior, and is a revolutionary first for Perodua. It is commendable that despite negative market conditions, the Perodua division was able to achieve sale of 452 units of Bezza. However, Axia and Bezza in combination could only achieve a revenue of Rs. 3.4 billion in comparison to the revenue of Rs. 4.1 billion of last year, which is a drop of 17%.

48 in Peliyagoda shortly. JCB showroom thenew are isopened million. Expectations thatsaleswillpickuponce of saleswere andtheCompany theperiod achieved during incurred a lossofRs.13 moving equipment andpower generators. JCBearth and distribute Alimited number months inoperation.UMLinvested to import Rs. 75millionto setupthissubsidiary isthenewestUML Heavy memberoftheUMLfamilyisjustfindingitsfeet seven during EquipmentUML Heavy Limited thattherevenuedespite thefact wasonly30%ofwhatachieved lastyear. vehicleshiring wasthemainreason for theCompany to endtheyear onapositive note incurred intheprevious year. The profit ofRs. 36.9millionachieved from thedisposalof OMCL endedtheyear withaprofit ofRs. 17millionasopposedto alossofRs. 16 million thecurrent year275 millionduring ofunits, andinterms drop from 1,208to 182units. OMCL. As aresult, revenue whichwasatRs. 963milliontheyear before, dropped to Rs. The structurefor prevailing highduty thelower-endtrucksegment continuedto affect Orient Motor Company Limited million profit recorded lastyear. difficult year for theindustry, UELrecorded alossofRs. 181millionasagainsttheRs. 163 year’s revenue ofRs. 7.4billion. ina below expectations With alldivisionsperforming UEL recorded aturnover ofRs. 5.5billion,whichisadrop to last of26%incomparison than lastyear’s financecharge ofRs. 174million,anincrease of61%. 280 million,whichtook itstoll ontheCompany’s profitability. wasRs. 106million more It conditionspushedupfinancecoststoassembly products dueto Rs. negative market Finance costwasamajorchallengefor theyear. UELduring The stock build-upin profits. trend withaprofit ofRs. 16 millionfor theyear, whichwasRs. 6million below lastyear’s The Tyre division,whichshowed adownward trend inprofits lastyear, continued this year. ended theyear withalossofRs. 9millionasagainstaprofit ofRs. 5millionrecorded last the divisionwasunableto maintainthesameprofit margins asthepreceding year and JMC sold159unitslastyear compared theyear to 214unitsduring ofreview. However, below expectations. car endeditsfirstfullyear ofoperationswithonly325unitssales, whichwaswell 2016,recordedlaunched inOctober asaleof159unitsin2016/17.However, thesmall year before. theyear. during to expectations The Z100didnotperform Z100whichwas lost momentumthisyear, withsalesdecliningto 163units, from 576unitsachieved the theyear.during whichrecorded theyear before, apromising DFSKGlory performance conditionshadasevereThe negative effect onthesalesofassembledproducts market 49 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

FINANCIAL CAPITAL

The Company has a well thought out Income statement and focused approach to financial Revenue management that complies with the best practices and standards of all relevant Segment Revenue-Group Segment Revenue-Group statutory and regulatory bodies, as well 2017/18 2016/17 as prudently manages risk. Prioritising the 4.3% 4% use of its financial resources is critical to 0.2% 1.4% 1% the long term continuity of the business 5.6% 5% in today’s context of an evolving business landscape and increased volatility of a 10% range of factors beyond its control. 11.2%

The Company employs its financial 77.2% 80% capital effectively and productively to maximise the wealth of its shareholders while increasing the economic value of Spare Parts Vehicles Spare Parts Vehicles the business. Repairs Equipments Repairs Tyres Tyres Lubricants Lubricants Financial review

UML demonstrated its resilience to The Company recorded a revenue of Rs. 9.036 billion for the year ended 31 March 2018 external pressures by recording a Profit as against a revenue of Rs. 9.638 billion last year. This amounted to a drop of 6.25% year After Tax (PAT) of Rs. 1.457 billion for on year. Negative market conditions resulted in a drop of Group revenue by 17.9% to the financial year 2017/18. The Group Rs. 14.716 billion, as against a revenue of Rs. 17.925 billion achieved in the last financial recorded a PAT of Rs. 669 million. Group year. Revenue from brand new vehicles dropped by 22% at Group level but continued Net Assets Value per share which was to be the main contributor to the Group revenue with a more than 75% share. at Rs.106.46 at the beginning of the financial year increased by 18% to Gross profit Rs. 125.87 as at 31 March 2018. Having Gross profit margins during the year under review improved both in the Group as well due regard to the capital requirements to as in the Company. The Company margins improved from 25% to 27%. In the case of support growth and the dividend policy the Group, Gross profit margins improved to 20.54%, from the previous year 18.72%. of the Company, the Board of Directors declared a final dividend of Rs. 1.50, Other income which takes the total dividend for the Other income for the Company increased substantially during the year due to Rs. 826 year to Rs. 5 per share. million profit on the sale of investment in TVS Lanka. At Group level, the sale resulted in a profit of Rs. 82 million.

50 and theGroup. the total expensesofboththeCompany continue to bethemaincomponentof Group level. Administrative expenses over theprevious year, andby 12%at theyearduring increased by almost16% The total expensesoftheCompany Expenses 74% 77% Distribution Distribution Expenses-Group Expenses-Group 2016/17 2017/18 Others Others Administration Administration 3% 5% 23% 18% about Rs. 2billion,animprovement of18%. andtheprofitrevaluation for reserve theyear. theGroup, In theincrease was inequity roseEquity by Rs. 2.4billionintheCompany accounts, largely dueto increases inthe Equity from Rs. 6.2billionlastyear to Rs. 4.2billionthisyear, animprovement of32%. billion, whichisa60%improvement over theyear. The Group’s liabilitiesalsoimproved, At Company level, positionimproved thetotal liability from Rs. 2.8billionto Rs. 1.1 Liabilities moved upto 42%by 31March 2018. as at31March 2018.Group composition ofPPEwas31%asat31March 2017which 40% ofthetotal assets oftheCompany, asat31March 2017andthisincreased to 49% of theGroup remained almostthesame. Plant Property andEquipment accountsfor The total assets of theCompany grew 2017/18whereas by 6.7%during thetotal assets Assets Balance sheet income taxaswell. dropped by about40%inthecurrent year andacorresponding drop isseeninthe ofthetaxableincomeCompany.which wasnotpart However, Group PBT of Rs. 826millionreceived by theCompany from thesaleofinvestment Lanka in TVS reduced slightlywhencompared to lastyear. The mainreason for thisisthatthegain Company PBTincreased theyear, by almost30%during althoughtheincometax taxexpense Income with lastyear’s figures. increases ininterest rates whencompared have inthedeterioration allplayed apart increased stock levels, by 77%.Higher lesssalesdueto unfavourable structuresand duty was reduced by 60%compared to lastyear. thecaseofGroup, In financecosts The Company theyear hadanetfinanceincome during underreview, althoughthis Net finance cost /income 51 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

SOCIAL AND RELATIONSHIP CAPITAL

The heart of caring Another child from impoverished family was sent for congenital heart surgery to India during the year, two children were sent to SOCIAL CAPITAL India last year to undergo successful surgery. Both parents were also given the opportunity to accompany them. Sustainability issues, are gaining steady momentum and influence a business capacity to create value for its stakeholders today. Investors and employees are also becoming increasingly aware of these concerns, and consider them as being integral to assessing a company’s performance.

The corporate social responsibility initiatives of the Company during the current financial year reached beyond its customary support of child health and youth education to respond to the need of the hour, namely to help restore to normalcy, the lives of the victims of the May 2017 floods. This was the first time that the Company’s CSR efforts addressed disaster management, although the areas of health and education were addressed continuously. Handing over air tickets

Rewarding academic excellence This year, the Company rewarded the children of its employees who excelled in the Grade 5, O/Level and A/Level examinations. Winners of the three categories were awarded Rs. 10,000 , Rs. 15,000 and Rs. 20,000 respectively for the Tikiri, Navum and Yovun scholarships. The awards are to encourage high achieving school children to excel further in their studies.

Distribution of relief packs to flood victims of Matara

Distribution of scholarships to the children of the staff

52 worst affected familiesand100relief packswere distributed. to identifythe inMalimbada Office the Disaster Management and withtheDivisionalSecretariat Staffworked district. Matara inthe Another floodrelief outinMalimbada, initiative wascarried groceries, cleaningequipmentanddetergents.dry designed to gettheaffected backontheirfeet, whichcontained district. Angammana area oftheRatnapura This packwas reliefUML staffdistributed inthe packsto 100floodvictims those areas were alsoassisted. intheareasvictims inwhichithasapresence. Affected staffin The Company responded immediately to theplightofflood toResponding theneedofhour stakeholder group. of communication withthisimportant intensified andexpanded itschannels reinforced theyear during asUML The Company’s excellence service was distributed todistributed 105families. were alsoprovided withtheserelief packs. The packswere district) (Ratnapura ofthelandslidesinKiribathgala The victims mentioned relief packsthat were to distributed 100families. with theabove district assistance to 100familiesintheRatnapura Japan,alsostepped Corporation Motors into provideMitsubishi ofRatnapura ofrelief victims Distribution packsto flood 53 with this important stakeholder group. stakeholder with thisimportant as UMLintensified andexpandeditschannelsofcommunication The Company’s excellence wasreinforced service theyear during Understanding andreaching outto theCustomer thatexceeds theirexpectations. customers withaservice thatenabletheCompany to provideopportunities discerning andprovideexperience UMLhasgeared feedback, upto provide to guidetheir purchase decisionsaswell asto share their online thathasshopperssurfing acompetitive marketplace In Customers theserelationships are givenmethodologies ofnurturing below: groupsThe various andtheCompany’s ofstakeholders integral to itsgrowth ofthebusiness. andcontinuity andmaintainingtheserelationships is thatnurturing and knows and farreaching relationships withmany groups ofstakeholders, Company. theyears, Over theCompany hasdeveloped wide areRelationships amongthemostvaluableassetsof RELATIONSHIP CAPITAL Sponsorship Promotional Activities Marketing Direct Direct PLC Lanka Motors United Institutions Financial Gathering Customer Customer Customer Network Branch Centre Annual Report 2017 Report Annual Call

Traditional Digital Media Media

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Management Discussion and Analysis

SOCIAL AND RELATIONSHIP CAPITAL

One initiative pursued was to increase the frequency of Trade-in of their used vehicles as part payment for a brand customer get-togethers. The feedback obtained from these face- new vehicle from the UML Group was an offer introduced to to-face interactions was used to improve service by determining reach out to the existing customers and customers who have customer wants and needs. purchased other brands. The offer was initially only for the Mitsubishi brand, but it was extended to all vehicles marketed by the Group, due to its popularity.

The Company has had an active digital presence in recent years and intensified its social media landscape this year. We reach our customers through five active Facebook pages.

A three-fold strategy was pursued when engaging on social media platforms. The initial step of the strategy was to establish the Company’s online presence, while the next step was to build the page fan base from which customer engagement evolves. These processes have now been completed and the Company is at the final stage, namely conversion of customer engagement Customer gathering to generate leads for potential sales prospects.

The Unimo Sales Network doubled in the year by expanding UML FB page the UEL's presence through the appointment of new sales dealers in Panadura, Galle, Embilipitiya, Wellawaya, Bandarawela, Kuliyapitiya and Mahiyangana. In line with this expansion, promotions were intensified in many areas of the country to reach out to customers in different regions.

An innovative mobile app was also introduced for all UML brands which has streamlined the Company’s after sales services. Customers can now schedule a service, check the service history of their vehicles, purchase spare parts online, obtain assistance as well as quotations, and to some extent, for mechanical and body repairs. The app also enables customers to contact their UEL FB page insurer directly, in an event of an accident. Key locations nearby are also identified by the app. The Company uses the app as a marketing channel as well, to introduce new promotions.

UML Mobile App

54 UML LinkedIn page UML LinkedIn UML Instagram page media. presence onsocial mediaplatformsmarketing thanin traditional purchasing history, whichpromotes amuchmore fine-tuned be targeted andeven by location,educationlevel, industry strategy to thosesegments.the marketing Userscouldalso and potential customers, whichenablescustomisation of personal insightsinto thelifestyle, andhabitsofexisting likes the Company advantagesofaccessto withthedistinctive media,suchasFacebookSocial have andInstagram, provided has aresponse rate of100%onFacebook. mind brandawareness. ofresponsiveness, terms In theCompany promotions, whichwere top-of-the alsosuccessfulinensuring by supported Viber, WhatsApp andlocation-basedsmsusedfor were someoftheplatforms accessedby customers whichwere Display andGoogle Network Facebook, ,LinkedIn Instagram theyearspend during wasconsiderablyhigherthanlastyear. which gave higherreturns oninvestments. Digital marketing which enabledbroader reach andmore focused targeting The Company increased it’s focus onsocialmediaplatforms 55 to instil good driving habits.to instilgooddriving programmes inorder to enlighten road driversonnew rulesand The Company ofdrivertraining aseries alsoconducted Communication onGuruAbhimanascheme care products. registration aswell ason Yokohama, Valvoline andSimonizcar card.loyalty Additionally, specialdiscountswere given onvehicle andafree a comprehensive of3years or100,000km warranty by qualifiedtechnicians, internationally labourfree two services, provided clinics thecustomers withthebenefits offree service to seven years, instalmentsandafree attractive credit card. UEL days,approval arepayment working withintwo ofup period ofuptoincluded apre-approved Rs. loanfacility 3million,loan were given arangeofbenefitsfrom thePeoples’ Bankwhich at aspecialprice, underthe “Guru Abhimana” scheme. Customers and Peoples’ Bankto offer theZ100carto government teachers ofEducation This year theCompany tiedupwiththeMinistry Customer association programmes revamped theyear during to promote flexibility. from othercompanies. vendors wasalso The listofthird party ofgettingdiscountsfor products customers withtheopportunity is now openedto theGroup. programmeThe loyalty provides programme andPerodua onlyfor whichwasearlier Mitsubishi membership sincecommencementin2011. The customer loyalty The “Privilege Circle” programme loyalty continuesto grow in Customer loyalty programme traditional mediachannels. spenderswhowere more thanhigh-end inclinedtowardssavvy provedsince experience thatthissegment wasmore digitally- customers viasocialmedia The Company targeted middle-end PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

SOCIAL AND RELATIONSHIP CAPITAL

Driver training programme

Reinforcing the relationship The Company has a carefully focused approach Customer to manage customer relationships. This includes Care customer database management, complaint management system and continuous surveys to ensure customer satisfaction.

The Call Centre constantly receives customer feedback and has enabled the Company to engage more with its customers. Customer feedback obtained by the Call Centre enables the Company to target the most effective media for Customer relations and experience engaging potential customers. The Call Centre also provides product information to customers • Co-ordinating with customers regarding customer complaints. and assesses the number of inquiries received and • Customer database cleansing. measures the effectiveness of its advertising and • Coordination of customer centric events. promotional activities. • Documentation of customer complaints and feedback.

Communication with customers is not concluded on completion of the sale. On the contrary, Customer insights analysis the sale forms the basis of future customer • Daily data analytics generated through the call centre. interactions, and communication is maintained through continuous follow-up phone calls to • Customer database cleansing. inquire about efficient aftersales service and • Compiling of daily, weekly and monthly reports. inquire on the status of the vehicle purchased. Any perceived issue is then brought to the Call centre notice of the top management and resolved immediately. • Customer sales inquiries handling. • Follow up on customer inquiries. Close relationships with customers are maintained • Conduct cross sectional surveys. around the country by the Company’s sales network through regularly scheduled meetings in • General inquiries. both the private as well as public sectors.

56 by a third party researchby agency. athird party conducted surveys customer satisfaction Company highon hasbeenscoring that corrective measures are taken. The level, responsiveness andto ensure the year to improve customer service levels were satisfaction during conducted to measure customer surveys External appearance to customers. present awell-groomed andprofessional and personalhygiene to enablethemto grooming, like skills etiquette on soft Training outfor iscarried staffatalllevels, that exceeds customer expectations. Company onattainingalevel ofservice placedby the staff reminds ofthepriority The “Api United to Serve” badgeworn by such issuesare speedilyaddressed. issues oncustomer care, that ensuring to discuss andmeetsweekly Conduct staff conform to theCompany’s Code of customer needs. The team ensures that ofrapidresponsiveness to importance which includeeducatingstaffonthe team addresses issuesoncustomer care, the Company. Aninter-departmental mindsetthroughout customer service and hassuccessfullyinculcated a years ago, pursued isbeingactively The ‘Api United’ initiative begansix Building acustomer centric team aware ofproducts. ofitsportfolio and existingcustomers them to make to engagewithnew ofpartners network presence, theCompany utilisesits areas whereIn theGroup hasno on offer. awareness products andservices ofnew frequently to increase customer Promotional are activities alsoheld Annual General Meeting on Company affairs. consideration to theirideasandproviding them withtimelyandaccurate information The Company isalsoaware to engageshareholders ofitsduty by giving due investors whilstconforming to procedures. theabove regulatory leaderUMLisboundtoExchange deliver maximumvalueto (CSE). its As anindustry andtheColombo andExchangeregulations Stock Commission oftheSecurities (SEC) investors, prudently. andmanagesrisks As alisted company, we are governed by the itsbusinessinamannerthataddsvalueto itsshareholdersconducts andprospective The Company follows governance ofgoodcorporate atalltimesand thepractices ofdisclosures atalltimes.and to andclarity ensure consistency UML iscommitted to promote effective andopencommunicationwithallshareholders Shareholders andsustainability.quality segments. Partnership isonlywithreputable supplierswhofollow standards stringent of aroundaccessories theworld, whoare mainlyleadersintheirrespective business witharangeofpremierThe Company suppliersofautomobiles and partners purchase from theCompany isofthehigheststandard andreliability. ofquality productthey themostchallengingduring timesandassured buyers thatevery out bothlocallyandoverseas. This strategy hasensured theCompany’s profitability onlyoncerigorous classproducts releasedwith world testing iscarried to themarket Company andmeettheseshortfalls hasbeento identifygapsintheautomobile market renowned brandsofautomobiles, andcarcare. strategy accessories ofthe Akey inproviding themwiththebestinclassofsomeworld’sexpertise most UML hasbeenaddingvalueto thelives ofcustomers for more than70years, with brand positioning Distinctive andmarket 57 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

SOCIAL AND RELATIONSHIP CAPITAL

Enhanced shareholder value through increased return on investment The entire business is modeled to create sustainable value to all stakeholders and the key portion of the value created through business is distributed to its investors as its primary stakeholder.

Over the years, UML delivered on its promise to shareholders by ensuring consistent returns on their investment through capital appreciation and dividends.

The Company’s asset base has grown steadily during the years and supports a strong foundation that enables the company to withstand the competitive business environment. Prudent corporate strategies have resulted in the delivery of consistent returns on capital employed in the business, which consequently enhances shareholder value.

2013/14 2014/15 2015/16 2016/17 2017/18 Shareholders’ Funds – Group (Rs. Mn) 8,097 10,436 10,312 10,742 12,700 Dividend Per Share (Rs)* 13 8 11 7 3.5 Net Assets Per Share – Group (Rs.) 80.25 103.42 102.2 106.46 125.87 Market Capitalization (Rs. Mn) 8,274 8,889 8,375 7,870 7,668 * Dividend per share has been calculated for all periods, based on the dividend paid during the year and the number of shares in issue as at 31 March 2018.

Shareholders funds Net assets per share Market capitalisation Group (Rs.Mn) Group (Rs.) Rs.(Mn) 14,000 140 9,000

8,800

12,000 120 8,600

8,400

10,000 100 8,200

8,000

8,000 80 7,800

7,600

6,000 60 7,400 2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18

The Company’s shareholder communication policy strives to ensure that all shareholders have timely access to publicly available Company information which enables shareholders to actively engage with the Company and exercise their rights as shareholders in an informed manner.

The Company encourages shareholders to be physically present at its Annual General Meetings and other General Meetings, the primary forum for shareholder participation, interaction and communications. If the shareholder is unable to attend, he/she has the right to appoint proxies to attend and vote for and on their behalf at such meetings. Notices of General Meetings, accompanying papers, circulars and required documents are dispatched to shareholders by post within the prescribed time. At the shareholders’ meetings, the Board of Directors, members of the Board Sub-committees and auditors where needed, are available to provide clarification to shareholders.

58 customer andexpanditscustomer loyalty base. to build activities outvarious targets, ensure andaccessby productavailability carrying The by Company meetingsales strivesto exceed ofitspartners theexpectations standards stipulated by itspartners. operations. The Company hasalways invested inupgrading itsfacilitiesto theglobal UML iscommitted inallareas to grow ofbusiness share ofourpartners themarket withsomeofthemostrenowned globalbrands, leaders.UML partners whoare market Company standsfor. andhave thereputation andreliability the earned ofquality of products andservices whosupplytheCompanyrelationships withwiderange withglobalandlocalpartners has over theseven decadesofitsoperations, anddeveloped effectively nurtured have addedsubstantialvalueto thebusiness.Successful partnerships The Group be achieved, andto towards work acommongoalthatyieldstangible benefits. Partnerships provide theCompany to achieve whatmay withthecapacity nototherwise withreputable businesses. the Group believes inthevalueofpartnering firmly From to poolingresources brandexposure sharing to knowledge andaddingcredibility, Business partners to No.100, Park Hyde Corner, Colombo 02orby emailto [email protected] questions, requests andcommentscanbeaddressed by to post theCompany Secretary and provide commentsandsuggestionsto Such theDirectors orManagement. Shareholders may atany timedirect questions, request for publiclyavailable information well aspress releases stakeholders. andannouncementsto external andprovidesstakeholders information ontheCompany, as includingallAnnualReports The Company’s website (www.unitedmotors.lk) facilitates communicationwithall requirements.regulatory shareholders by way ofCompany announcementandcirculars incompliancewith and regulations. From timeto time, theCompany communicates information to with theListingRulesofColombo Stock Exchange andotherapplicablelaws are financialstatements produced andannualreports inaccordanceThe quarterly 59 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

SOCIAL AND RELATIONSHIP CAPITAL

Mitsubishi Motors Corporation, Japan (MMC) based in Tokyo, Japan, MMC is a global vehicle manufacturer and member of the Mitsubishi Group of Companies, sells and services minicars, minivans, SUVs, LCVs, pickup trucks and passenger cars in more than 160 countries.

Nissan Motor Company Limited has invested 34% in MMC making it the single largest shareholder while Mitsubishi Heavy Industries Ltd, Mitsubishi Corporation, the Bank of Tokyo- Mitsubishi UFJ, Ltd remain as shareholders.

Sojitz Corporation, Japan is UML’s trading partner in the supply of Mitsubishi vehicles, is part of the Sojitz Group, which has 409 subsidiaries and 216 affiliates all over the world, and is a general trading Company engaged in a range of global businesses, including buying, selling, importing, and exporting goods, manufacturing and selling products, providing services and planning and coordinating projects, in Japan and overseas.

The corporation also invests in various sectors and conducts financing activities. These sectors include automobiles, energy, mineral resources, chemicals, food commodities, in addition to ensuring premium after-sales facilities.

Mitsubishi Fuso Truck & Bus Corporation, Japan (MFTBC) is a German-owned, Japanese- based manufacturer of trucks and buses, and is a fully consolidated business unit of Daimler Chrysler, the world’s largest commercial vehicle manufacturer. Fuso takes its place alongside Mercedes-Benz, Freightliner, Western Star & Bharath Benz which are all global leading truck brands. Fuso plays a crucial role as the Group’s Asian pillar and centre for light-duty trucks and hybrid technology, and occupies global leadership position in these areas. Fuso’s technology development is focused on three inter-related areas - fuel efficiency, environmental sustainability and safety.

Perodua Sales Sdn Bhd, Malaysia is a wholly owned subsidiary of Perusahaan Otomobil Kedua Sdn Bhd (Perodua) a Malaysian based manufacturer of compact cars.The Company over two decades has introduced class leading models such Perodua Kelisa, Viva, Axia and Bezza.

60 engines. Today, theDFSKminitruckisoneofChina’s minitrucks. mostsoughtafter mini trucks, MPV’s, motorcycles aswell asATVs andauto andshockabsorbers, carspare parts sitesformed withinChina,producing DFSKwhichoperates minivans, sixmanufacturing A jointventure DFM between (Dongfeng Group, Motor Group Motor China)andtheSokon ofJapanandPeugeotsuch asKIAofKorea, Honda,Nissan ofFrance. the Dongfeng Group hasstrategic ventures renowned withworld automobile manufacturers companies inChinato commencemassscalevehicle production asfarback1930. Today, a 10.8%share oftheChinesevehicle market. The Group isconsidered oneofthefirst vehicle manufacturer inChinaandsellsalmost2millionvehicles annually, whichrepresents oftherenownedof vehicles, Dongfeng Group isasubsidiary ofChina,thesecondlargest Motor GroupChongqing Sokon Imp. &Exp. Co. Ltd, Chinamanufactures ofDFSKbrand commercial vehicle segment inthemassive Chinesemarket. CompanyMotor ofUSAasits majorshareholders. The Company caters to thetop endofthe Ltd., isaPublic Company, Limited Liability withtheJianglingHoldingCo., Ltd., andFord Ltd., Co. companiesinChina.JianglingMotors among thetop 500industrial andranked The JMCrangeofcommercials vehicles are manufactured by Co. JianglingISUZUMotor vehicles) andSUVs.utility trucks,The ofproducts includinglightduty pickups, Company BUVs hasavariety (business Asia EastAsia. South andSouth East,Central America, andSouth clients from Middle Africa, Co. andExport Ltd., Chinawasestablishedin1993,andserves Jiangling Motors Import vehicle manufacturers inJapanasanoriginal tyrefor vehicles. brandnew Yokohama tyres, andwasestablishedin1917. Yokohama tyres are by selected almostall Yokohama RubberCompany Limited, renowned manufactures world- Japan-(Yokohama) 61 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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SOCIAL AND RELATIONSHIP CAPITAL

Zotye Automobile Co. Ltd, China was founded in 2003, which is a modernized privately owned enterprise with its core business of automobile assembly, development and manufacturing key components parts such as moulds, sheet metals, transmission. Zotye has world class production lines for stamping, soldering, painting, assembly and dynamic testing line.

In 2007, Jiangnan Automobile Co., Ltd. was merged into the Zotye Holding Group. Jiangnan Automobile Co., Ltd. is the only sedan car manufacturer in Hunan, China, and manufactures the popular classic model sedan car, Alto. The Nomad compact SUV is also a product of Zotye Automobile Co. Ltd.

The International business is managed by Zotye International Automobile Co., Ltd. The Zotye Holding Group is in the process of reforming manufacturing techniques to upgrade Jiangnan Automobile Co., Ltd.

Brilliance Auto Group, China is officially known as HuaChen Group Auto Holding Co., Ltd., is a Chinese automobile manufacturer. The company manufactures a range of products for the automotive industry, including automobiles, micro vans, and automotive components, but its principal activity is the design, development, manufacture and sale of passenger cars under the Brilliance brand.

Its commercial vehicle brands include Jinbei and Granse minibuses as well as Huasong premium MPVs. In 2003, the Group established a joint venture with BMW, BMW Brilliance Automotive Ltd., to produce BMW 3-series and 5-series sedans in China.

Valvoline International (Pvt) Ltd., started its lubricant operation in 1866. The Company now serves more than 140 countries worldwide and is a leading marketer, distributor and premium producer of quality branded automotive and industrial products and services. Valvoline is a listed Fortune 500 Company and presently operates 30 fully-owned blending plants in various parts of the world, and has an established presence in USA, Brazil, Australia, New Zealand, China and India.

Valvoline products include automotive lubricants, transmission fluids, gear oils, hydraulic lubricants, automotive chemicals, specialty products, greases and cooling systems. .

62 remains the industry benchmark for benchmark carcare anddetailingproducts.remains theindustry repair, maintenance whileSimoniz andwinter productsto theautomotive aftermarket appearance,leader inthemanufacture ofcarcare products, performing supplyingsuperior protect vehicle coolingsystems since1927.Holts, ontheotherhand, hasbeenaglobal fluidandpowercoolant, brake fluidandisacclaimedfor steering itsantifreeze/coolant that Prestoneproducts andservice. isthenumberonebrandedconsumerchoicefor antifreeze/ Prestone, HoltsandSimoniz,allspecialiseindifferent areas ofcarcare andmaintenance Lanka, where JCBbusinessesare Operations. managedbyLanka, itsIndian The Company’s to Nepal, and Sri alsoextends Bhutan,Bangladesh,Myanmar network Fabrications, Loaders. Excavators, Steers Mini andtheiconicBackhoe Skid 114-acre, eco-friendly, green facility. manufacturing todayThis facility manufactures investment wasmadeat Jaipurin2014withtheinaugurationofa inIndia A further engineers, Pune alsohasJCB’s largest Design Center outsideofthe United Kingdom. Loaders, equipmentandFabrications Compaction for theGroup. With over 400 Pune for linebusiness. Heavy manufacture These factories Tracked Excavators, Wheeled categories. Operations were at expandedin2006and2007by factories settinguptwo and hassinceexpandeditsproduct rangeto over 50different modelsineightproduct The Company Loader aboutfour introduced inIndia decadesago theiconicBackhoe countries. to more hubfor than93 exported Globalmarkets, isamanufacturing JCBIndia markets, equipmentfor global itmanufactures awiderangeofworld-class inIndia, factories ofJ.C Bamfordowned subsidiary Excavators, United Kingdom. With five state-of-the-art equipment inIndia. The asajointventure Company in1979andisnow started afully and construction Limited, isaleadingmanufacturer ofearthmoving JCB India India 63 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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SOCIAL AND RELATIONSHIP CAPITAL

Guangxi LiuGong Company Ltd, China Guangxi LiuGong Company Ltd a leading construction equipment manufacturer offering a full range of extreme duty, intuitive machines for construction equipment owners who are constantly challenged to do more with less. The Company is headquartered in Liuzhou and China, has one of the most expansive arrays of product lines of any Chinese manufacturer. This includes wheel loaders, excavators, bulldozers, motor graders, pavers, cold planers, skid steers, backhoe loaders, rollers, forklifts, truck mounted cranes, crawler cranes, pipe layers, mining dump trucks and concrete equipment.

The machines are uniquely suited to rapidly growing markets because they are simple to operate, easy to service and affordable. The Company is among the world’s fastest growing CE firms and 35 % of total sales revenue if from overseas markets.

LiuGong has one of the dealer networks of any Chinese exporter, with more than 300 dealers in over 130 countries and 2,650 sales outlets, all supported by 12 regional offices with adjacent parts depots.

Novabeans, India Novabeans is a premier 3D printing solution provider in India. The company provides the most advanced and comprehensive 3D design-to-manufacturing solutions including 3D desktop printers, 3D scanners, 3D printing pens, 3D printing materials, 3D printing training workshops, 3D printing school kits, 3D printing professional support, made to order 3D design, 3D printing consultancy and services in India. Its powerful digital thread empowers professionals, students, and individuals everywhere to bring their ideas to life in material choices including plastics, metals, resin, silicon, ceramics and edibles, empowering customers to imagine, design and make their future. Novabeans is involved in three key 3D printing innovation activities namely, 3D Education, 3D printing and 3D printing services.

64 systems were examinedand changeswere madeto LED lighting the year to save energy throughout the Company. Lighting monitored atalllocationsandmany initiatives were during taken Energy consumptioniscarefullyis ofparamountimportance. UML usesignificant energy resources and energy efficiency Improving energy efficiency aligned to environmentally-friendly practices. positive changes couldbemadewere identifiedand thesewere continuously updated withgreen messages. Areas inwhich brought to theforefront with circulars andGreen NoticeBoards in environment management.Environment awareness is of greening thebusinesswas seen asbeingthefirststep Accordingly,long- term. staff awareness oftheimportance ethics,in itswork ifourgreen initiatives are to beeffective and We believe thatenvironment awareness mustbeinculcated stakeholders. monitor communication ofitsenvironmental commitmentto continuous improvements withintheCompany aswell asto indicators (KPIs)to measure performance designing key business, especiallyfrom operations. workshop These include to manage environmental inallareas issuesthatmay arise of bodies. oftools andprocesses Aseries have beendeveloped compliancewiththerequirements strict ofallregulatory disposing ofwaste. This drive to improve isin sustainability efficiency, andresponsibly reducing water useandcurtailing of reducing itsenvironment footprint by improving energy We continueto pursueourenvironmental managementgoals Promoting agreener workplace to theenvironment.harm procedures andpoliciesto ensure theseoperationsdotheleast responsible citizen, corporate theCompany hasinplaceseveral effluents insomeareas ofitsoperationmore thanothers. As a As aleaderintheautomobile sector, theCompany produces NATURAL CAPITAL Water treatment plantinJaffna 65 providers. disposed through anagreement withaspecialisedservice are atUMLworkshops also safelyfrom vehicles serviced Waste oil, burnt usedoilfilters andotherusedcomponents like hazardous andtechnological waste to third parties. environment standards, The Company responsibly disposesof compliancewith componentofensuring an important technologicalworkplace, waste managementhasalsobecome As more andmore technology continuesto beusedinthe shippedfrom overseas.spare parts the large quantities ofcardboard vehicle usedinpackaging UML hasalsointroduced asystem for andrecycling collecting documents onlywhenabsolutely necessary. aswell sides ofasheetpaperwhenprinting asto print paperandadvisesstaffto recycled useboth post-consumer to third parties. The Company of now usesahighproportion andusedpapersare given for recycling Reduce-Reuse-Recycle outaccording tomanagement iscarried the3Rconceptof were theyear madeduring to reduce thequantitiesused. Paper Paper isamainconsumableintheofficesandconscious efforts to useresourcesidentifying opportunities more efficiently. reduces waste generated from by itsofficesandworkshops and healthconsequencesofwaste andcontinuously material the Company isfullyaware oftheenvironmental, economic facilitiesgenerateOur workshop substantialwaste, however Curtailing, recycling andresponsibly disposingofwaste financialyear.next roofs.workshop toThis project isexpected becompleted inthe generate andOrugodawatte 2MWsolarpower usingRatmalana Feasibility studieshave beencompleted intheproject to energy alternatives intheform ofsolarpower to itsoperations. The Company isalsointheprocess ofintroducing renewable consumption. reduce electricity Notices placedinprominent placesreminded staffofways to lighting andreduce lighting. theenergy usedfor artificial sheets were introduced inseveral locationsto increase natural units were replaced where necessary, andtransparent roofing equipmentandairconditioning electrical high-consumption wherever consumption.Faulty possibleto reduce electricity or PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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SOCIAL AND RELATIONSHIP CAPITAL

Reducing water use Water is a critical and fast depleting resource, so several ‘water smart’ initiatives are used to ensure efficient water use. Regular inspections are scheduled to ensure that water wastage is kept to a minimum.

All workshops have water treatment plants and ensure that waste water is disposed of responsibly or recycled for other uses. Both workshops, in Orugodawatte and Ratmalana, for instance, recycle water for other uses like gardening.

Customer green initiatives The Company displayed the Mitsubishi Outlander PHEV (Plug-In Hybrid Electric Vehicle) at the Colombo Good Market at the Racecourse during the year to promote environment friendly vehicles to good market shoppers.

Vehicle display at Colombo Good Market

Green products UML continue to add innovative and eco-friendly vehicles to its product portfolio by further adding the Perodua Bezza during the year under review which includes eco-friendly drive and has a quieter, cleaner and low-emission engine.

UML continues to market the Mitsubishi Outlander PHEV, the worlds first plug-in hybrid electric 4WD SUV, Mitsubishi Attrage which has many eco-friendly features and the Perodua Axia which is the first energy efficient vehicle launched by Perodua.

Other stakeholder initiatives The importance of greening the environment continued to be communicated to the stakeholders through ‘Green Boards’ set up in key locations around the country to address diverse aspects of the environment. Efforts were made during the year to maintain and upgrade the Green Boards at Green Path, Kandy town and at the Anuradhapura clock tower.

66 productivity and their long term commitmentto andtheirlongterm theCompany.productivity recognition andretention. hasbenefitedThis theCompany inturn, ofenhancedemployee interms offinancialandnon-financialbenefitsare onofferA variety to ensure employee development, success over theyears. the besttalent.Having acompetent team ofprofessionals to staffcontributed theGroup andskilled challenging environment, theCompany continuouslyinvests inacquiring, buildingandretaining drivers ofinnovation, growthas oneofthekey andstability. order to In stay abreast withthe We believe thatourpeopleare ofoursuccessandwe thecornerstone recognize humantalent and thebalance40%isexecutives. are females dueto thetotal thenature staffstrength, oftheindustry. 60%are Of non-executives The total staffstrength oftheGroup was985asat31March 2018ofwhich93%are malesand7% Employee profile HUMAN CAPITAL Employee 93% Profile Male Gender based Culture Performance Female 7% 60% Development Talent Non Executive Employment Category CAPITAL HUMAN 67 Engagement Employee Executive PLC Lanka Motors United 40% Rewards and Benefits Annual Report 2017 Report Annual Industrial Relations | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

Performance based culture performance areas in which individual KPIs are given a weight We have introduced a series of initiatives to uplift the standards of 70% and 20 % for competencies and the balance 10% for of excellence that hold the key to a strong performance-based customer care. The ratings at performance appraisal are directly culture. These initiatives are reinforced by a systematic and linked to increments and promotions. Competency mapping transparent performance management process linked to talent for individuals and divisions are designed based on the ratings development interventions. received at the performance appraisal. The gap analysis identifies the training needs through a process of competency mapping, At the beginning of each financial year, Key Performance recommendations by department heads as well as other Indicators (KPIs) are set for every individual aligned with business requirements and corporate goals. The annual training divisional and organisational objectives. The competencies plan is prepared based on a training needs analysis based necessary for each individual are also identified. The annual on which training and follow-up sessions are conducted and performance evaluation at the end of the year measures the monitored for improvements throughout the year. actual performance against the KPI. Evaluation is based on three

Performance Management Training and Development

Performance Recommendation based Pay and by Heads of Rewards Departments

1 2 3 4 5 6 KPIs / Performance Competency Training Needs Training Plan Training and Competencies Appraisal Mapping / Gap Analysis Follow-up (Set at the Analysis Sessions beginning of the financial year)

Succession Business Planning Requirements

68 Staff atalllevels are to develop theirskills. provided withtrainingopportunities talentisvitaltoDeveloping meetthedynamicandevolving needsofcustomers andotherstakeholders. Talent development Competency Action plansfollowedAction upby HR/HOD, Follow upsessions by thesametrainer Sales Identify training needthrough mapping,businessneeds, competency 360 Knowledge evaluation, employee results andspecialrequirements survey Formulate oftechnical/ variety thetraining plan,conduct Product Assign tasksto individualsandgroups to becompleted Review/ FollowReview/ upin3months and6months Leadership Conduct training/Conduct coaching Our TrainingOur Portfolio Develop action plans Develop action based ontherequirement. within agiven timeperiod Training Process non technical trainings Identify Gaps Knowledge Technical 69 Compliance PLC Lanka Motors United Health and IT skills Safety Customer Care development Conferences professional Seminars/ Seminars/ for Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

Training hours Nature of training employee category

42%

14% 40%

60%

44%

Managers and above Product knowledge Asst. Managers and Executives Competency based Non-Executives

Total Training Total Training Hours Hours 2017/18 2016/17 Category Managers and above 1351 805 Asst. Managers and 4200 4165 Executives Non-Executives 4033 3609 9584 8579 Type of training Local 9424 8347 Foreign 160 232 9584 8579 Nature of training Product knowledge 3816 5120 Competency based 5768 3459 9584 8579

70 addition to 160hoursoftrainingoverseas. advisorsand1086hoursfor salesstaffoftheGroup in service completed including2570hoursfor technicians workshop / thefinancialyear,During 3816hoursofproduct trainingwere to provide solutionsfor customers’ issues. aswell asthecompetency attheirfingertips product knowledge by theCompany.excellence benchmarked These staffmusthave employeesand workshop to provide customers withtheservice Comprehensive isvitalto enableallsales productknowledge Product training Practical sessionofFuso salestraining the improvement ofprofessional, personal andsocialskills. relationship managementaswell. Areas covered alsoincluded product, competitor information and addressed customer Authorised SalesPersonnel”. The trainingwasbeyond providing Academy ofdeveloping ourstaffto withtheobjective be “Fuso which were by conducted acompetent trainerfrom theFuso programme for theFuso Truck andBusteam occasions ontwo covered 1770hours. The Company training aten-day conducted The mainfocus theyear during wasonFuso salestrainingwhich Product training PHEV Outlander onMitsubishi 71 hours compared to lastyear. traininghoursincreased Competency by 2309 leadership skills. and skills interpersonal effective communication, team work, organising, negotiation,timemanagement, drive for results, divisions. The mainareas covered were follow-up, planningand under review inresponse to identifiedgapsintherespective Diverse programmes were thefinancialyear during conducted Leadership training Managementteam fortheSenior provided gaps. theyear thosecompetency during to bridge trainingsare andcurrent levelsexpected where necessary to evaluation identifyany the gapsbetween performance outattheannual role. assessmentiscarried Acompetency where asetofcompetencies are allocated for eachjob competencies developed isconsisted internally ofthirty whichhadbeencompiledand library The competency basedtrainingCompetency ELC training. /M3(Electrical) worldwide. Two staffmemberswere sentto Japanthisyear for provided oncompletionofthetrainingisrecognisedcertificate eachyear.programme products conducted onMitsubishi The technical international (MSTEP) isaworldwide training Service TechniciansThe Mitsubishi Education Programme MSTEP training levels. skill each sessionto measure to assesstheir participant’s knowledge persons eachmonthandassessmentswere after conducted outforcarried staffby thesalesandworkshop resource internal Additionally, comprehensive product trainingprogrammes were PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

External training The Company also provided staff with opportunities to participate in seminars, summits, conferences and workshops conducted by different professional institutions in the country. Employees in different disciplines attended about 20 training programmes conducted overseas.

Each training programme was evaluated to assess whether the desired outcome was achieved and the programme was monitored in line with the training plan. The Company improved its training evaluation during the current year by agreeing the required outcomes prior to the training, in consultation with the respective divisional heads and conducted follow-up sessions in The strength of teamwork intervals of three and six months to assess the effectiveness.

Building skills in customer service Training on health and safety Special focus was given during the year to provide customer The Company is committed to provide a safe and secure care training for those customer service staff in Colombo workplace for its employees, and follows all national guidelines and Orugodawatta as well as in the Company’s branches in on health and safety in the workplace. Various activities related Ratmalana, Matara, Kandy, Kurunegala and Ratnapura. to health and safety was conducted at workshops and offices which include safety training and fire drills. Workshop staff is All call centre staff were also given special training to improve provided with safety equipment as well to ensure hazard-free their interpersonal skills and to build a rapport and long-lasting operations. relationship with the customers.

All new members at every level of the Company were also trained to develop a customer-centric approach in their work. These trainings were initially provided at the time of their orientation and through different training programmes later on. The training were geared to minimise customer dissatisfaction that could arise as a result of inadequate or poor customer service skills.

Functional training Programmes on Microsoft Office software was conducted for several divisions to improve work effectiveness and to enhance IT skills. Some employees were sponsored by the Company to follow special IT courses that enriched their knowledge and skills in their particular area of work. The IT division carried out several programmes for new employees to familiarise them with the in-house IT system.

Marketing related training programmes on digital marketing and branding have enriched the knowledge of the Marketing team.

72 Company. engaging employees withthe further the year have alsobeensuccessfulin out through channelsthroughout various Employee appreciation initiatives carried staff andthemanagement. substantially reduced thegapbetween by ushas practiced policy The open-door changes onorganisational practices. raise theirvoices to introduce positive to provided employees theopportunity among thedifferent divisionsaswell as programmes strengthen teamwork environment. These working the year to maintainacollaborative engagement programmes throughout We employee various conducted Employee engagement Pirith Ceremony Secret Friend? Who isyour UML Rhythms for Retirees Appreciation Service 73 Programme UML Induction 2018 Masterminds UML PLC Lanka Motors United Employee Engagement Recognizing Performers Engagment Employee Survey High High Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

UML induction programme – “More The overall Group OHI for 2017/18 was 79%, in which job satisfaction was 77% while than just welcoming new recruits” the relationship with the supervisor had improved to 84%, 82% of employees rated the Orientation of new recruits takes place Company as a great place to work. each month on multiple aspects of the Company which includes policies and GROUP 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 procedures, compliance, products and OHI 69% 72% 75% 72% 73% 70% 79% services, customer care and personal grooming to which team building 2017/18 activities are added and HR facilitates 79% an open forum for discussions. UML induction programme strengthens the engaged culture at UML by equipping 2013/14 the new recruits with the necessary 75% knowledge as well as enables them to 2015/16 network with their colleagues and the 73% Management.

Recognising high performers 2012/13 2014/15 Employee recognition plays a vital role in 72% 72% creating an engaged workforce at UML. 2016/17 High performers who exceeded their 70% 2011/12 targets were recognised by the GCEO/ 69% ED on the first working day of the year. Such recognition schemes not only Overall Group OHI appreciate high performers but motivate other employees to enhance their level Survey findings revealed that the Company’s stability, job security and job satisfaction of performance, which also ultimately were the main motivators for employees to work at UML. results in more engaged employees. Motivational Factors Employee survey to work at UML Group

Since 2011, the Company has been 30% conducting an annual employee survey aimed at addressing employee concerns. The Organisational Health Index (OHI) focuses on areas that drive the greatest improvements in the Company and pinpoints areas that needs improvement 36% as well as identifies actions that could be 34% taken to improve the identified areas.

Employees are given the freedom to Stability of the Company Job security express their opinion on their satisfaction Job satisfaction on communication, teamwork, job/work and their relationship with superiors. The results of the survey are distributed to the respective Heads of Divisions, Functional Managers and Team Leaders, who are given the mandate to improve identified gaps within their control.

74 continuous growth oftheCompany. for the andisimportant ofhis/herjobfunctions knowledge as for isalsoimportant businesssuccess. knowledge General component The Company isacritical believes thatknowledge Genius” 2018– UML Masterminds theReal ofExploring Journey “The engagement withtheCompany. Company organised several events to enhanceemployee order toIn improve theemployee engagementfurther, the Parts team were thewinnersofchampionship. Spare Parts team qualifiedfor theGrandFinale, andtheSpare andgeography.well ashistory The Vehicles Salesteam andthe scienceandtechnology,business, andliterature sports, as arts teams. The were masterminds suchas tested subjects onvarious finals. Competitive contests ineachround were heldbetween round,stages –thepreliminary semi-finalsand quarter-finals, forteam this. participated infourThe quizwasconducted withfour18 teams from membersineach alldepartments across quizcompetitionconducted theGroup.departmental Finale on23February 2018. wasconducted This wasaninter- 2017 andcontinuedfor three consecutive months, theGrand 2018”“UML Masterminds commencedtowards theendof The Grand Finale –UMLMasterminds 2018 75 Winners of the Championship - Spare parts team Winners oftheChampionship-Spare parts Demonstrating vocal talents UML Rhythms among teams andspectators. acollaborative culture andnurtured ofteam work knowledge toteams, expandtheir provided themwiththeopportunity andcapabilitiesofthe The quizbrought outtheknowledge Runners-up -Vehicles salesteam PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

Finalists of UML Rhythms on stage Awards presentation to the 2nd runners-up & the most popular singer

“UML Rhythms” is another historical milestone in the Company’s journey to engage its employees as its main stakeholders. This was an evening of fun and entertainment at which employees of the workshop and spare parts divisions showcased their vocal talents. The competition was conducted for several consecutive months. Applications were called from workshop and spare parts employees and the first audition was held at Orugodawatte at which over 50 applicants were auditioned. Of these, 15 contestants were shortlisted for the semi-final. The Grand Finale was held on 6 January 2018 in the presence of a Awards presentation to the winner of UML Rhythms large gathering at a grand event held at Ratmalana premises. Renowned artists were invited to judge the contestants, and in addition to the performance of the finalists, many other events were organised by divisional members, which made the Grand Finale a truly magnificent event.

‘Who is your Secret Friend?’ The spirit of sharing and caring is considered to be one of the major channels of engagement at UML. The Company carried out “Who is your Secret Friend?” initiative at all operating locations, in keeping with the spirit of the season. Each employee received a surprise gift on the first working day of the year from his/her ‘secret friend’ who was selected through a Awards presentation to the 1st runners-up process of drawing lots earlier.

This initiative enabled employees to strengthen their relationships and get to know each other. It was also effective in enhancing the bond between the employees.

76 appreciation awards theyear during underreview. appreciation awards.service Twelve retirees received service progress theircareer during ishonoured andrewarded with to theCompany’s atwhichtheircontribution gathering staffmemberwhoretiresEvery isfelicitated ataspecial appreciation forService retirees Annual Pirith Ceremony 2017 in thepresence ofemployees andseniormanagement. was heldon10November 2017attheOrugodawatte workshop essential for itsgrowth andprogress. The annualPirith ceremony The Company religious believes thatinvoking blessingsis Pirith ceremony An eveningAn ofcelebration organised foraretiree 77 financial benefits. rewarding career thatgoesbeyond definedfinancialandnon- The UMLGroup iscommitted to provide itsstaffwitha some ofthenon-financialbenefitsenjoyed by ouremployees. memberships ofdifferent cross teams/projects are functional awards,sessions, retirement longservice awards and foreignIncentive trips, localandforeign trainings, coaching of staffwere given bookvouchers atthebeginning oftheyear. examination were presented theyear. during Allschoolchildren attheGCEAdvancedfor Level outstandingperformance Grade 5scholarshipexaminationandtwo “Yovun” scholarships “Tikiri” scholarshipsfor schoolchildren whosucceededatthe who demonstrate outstandingacademicperformance. Three the educationofchildren ofstaffandare awarded to those Three ofscholarships; types Navum and Tikiri, Yowun, support some oftheloanfacilitiesavailable to staff. value to arewarding career. loansanddistress loansareThrift special medicalinsurancefor illnessesadd accidentsandcritical comprehensive medicalschemecovers theentire familyand basedbonuses. Additionally a increments andperformance- UML provides anumberoffinancialbenefitsthatincludeannual Rewards andbenefits PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

HUMAN CAPITAL

Some of the privileges and entitlements UML employees receive are as follows:

Financial Benefits Non-Financial Benefits Annual increments Incentive foreign trips Annual customary bonus Local and overseas trainings Performance based bonus Coaching sessions Insurance facilities including critical illness cover Long service awards Encashment of leave Retirement awards Loan facilities Memberships in cross functional teams/projects Scholarship programmes and book vouchers for children of staff members Recognition of high performers Payment of memberships in professional institutes

Industrial relations Child labour The policies and procedures established at UML maintain Child labour is strictly prohibited in the workshops, service harmonious relationships between the Management and staff. centres and the offices. This extends to manual and semi-skilled Policies and procedures like the Whistleblowing Policy, Share work. UML’s minimum age of recruitment has been maintained Trading policy, Non-Disclosure Agreement, Conflict of Interest at 18 years from inception. and Code of Business Conduct and Ethics are in place to ensure that work is carried out ethically, professionally and with minimal Equal opportunity disruptions. UML is an equal opportunity employer and looks on diversity and inclusiveness as a vital strategy for driving creativity and The Company is committed to upholding and improving innovation in the workplace. The Company accepts diverse relationships with its workforce, which includes their right to be perspectives, believing that every employee is important and treated with dignity, respect and fair play. Industrial Relations are that individual differences enhance the work environment. Every well maintained across the Group incompliance with applicable employee is provided with the same opportunities as his/ her laws, regulations, statutory obligations, awards, agreements colleague, for recruitment, promotion, compensation, benefits and guidelines. The Company’s approach to industrial relations and training, and women are encouraged to join the Group. is a two way approach and workers are free to engage in open dialogue. The open door policy at UML further fosters a harmonious work environment that promotes trust.

Code of business conduct, ethics and integrity UML employees are apprised of Company standards through an established Code of Business Conduct and Ethics, the Employee Hand Book and Customer Care Code of Conduct, which they are expected to follow and put into practice at all times.

Codes of business conducts

78 INTELLECTUAL CAPITAL faced, whichare usedas learning insights obtained, andthechallenges gained inthecourseofbusiness, progress ofour business, theexperiences and procedures thatdocumentthe We also have inplaceprocesses, systems achieve ourgoalofbusinessexcellence. competitive advantage andhelpsus of ourstaffatalllevels. This gives usa and professional andknowledge skills substantially inupgrading thetechnical innovation, andsustainability. We invest which reinforces ourfocus onquality, approach to allareas ofourbusiness have introduced aknowledge-based have passedonto ourshareholders. We translated into economicvaluethatwe positive hasbeen bottom lineimpact adifficultyear.despite experiencing This onourbottom line.impact This year too, whichhave resultedskills inapositive management management andimpact efficient capitalmanagement,risk geared to optimisecapitalinputsthrough team inour organisation, whoare well We alsohave onboard aprofessional repair thevehicles ofourcustomers. teams to inour workshops maintainand technicalcompetent andexperienced reputeof international necessitate ofourstaff.skills brands The servicing This successhasbeendueto the vehicles. ofmotor andservicing the marketing in invaluable andexpertise experience over seven decadeshasgainedusthe for Lanka inSri automotive industry UML’s leadershippositioninthe Knowledge andexperience business. operate asustainableandlong-term procedures inplacethatensure we reputation, theprocesses, systems and how ofourpeople, ourbrand the know- created by thevaluegenerated from capitalintheCompany is Intellectual • • • under review. The Company andGroup have numerous theyear earned accoladesduring Awards andaccolades sense ofresponsibility to ethicalstandards andpractices. reputation, technological position,anddeep competencies, leadershipmarket The Company’s store knowledge hasbeenaugmented by itsstrong brand Brand andreputation in accomplishingourobjectives. that our processes to confirm andproceduresindependent parties are effective withinsetparameters. frameworks Oursystems areand statutory reviewed by and systems to ensure thatwe dobusinessinaccordance withprescribed legal process manuals, aswell asimplemented financialandaccountingcontrols projects. whenwe experiences setupournext We have developed system, Chartered Accountants of Sri Lanka (CA Sri Lanka). (CA Sri Accountants Lanka Chartered ofSri 2016/17Awards of disclosure by conducted theInstitute attheAnnualReport Award intheAutomobile sector, for and thehighstandards ofreporting The Company wasrecognised, for thetenth consecutive year, withtheGold the financialyear 2017. Valvoline won theAward for Sales theHighest Volume EastAsia inSouth for in2017. brand theNo. 1placeintheBestof Bestcategory BrandFinancepremier brandsratingagency which awarded theMitsubishi The Company’s andreliability wasrewarded commitmentto quality by 79 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Management Discussion and Analysis

MANUFACTURED CAPITAL

‘Manufactured capital' refers to the material goods and infrastructure owned, leased or controlled by the Group, which contribute to providing products or services, but are not embodied in its output. This capital too plays a key role in our value creation process.

The Company owns five main properties, namely, the land of the head office located at Hyde Park Corner, Colombo 02, three lands that house the two main workshops at Orugodawatte and Ratmalana, the workshop at Jaffna and the land in Vauxhall Street which is currently used as a Fuso showroom.

Rest of the premises occupied by the Company are on leasehold lands. Therefore, the Company has a healthy mix of freehold and leasehold lands. The freehold lands are in prime locations that continue to drive shareholder value. During the year, additions to buildings were Rs. 107 million, which included transfers from capital work-in-progress. This confirms the Company’s continued commitment to expanding its footprint and also carrying out improvements to maintain the value of its buildings.

The Company represents a range of top international brands of vehicles and understands that its after- sales operation must support these brands. Therefore, we purchase the latest tools, such as diagnostic machines from our principals. During the year under review, the Group spent Rs. 35 million on the purchase of new tools and machinery.

UML operated for a number of years with an ERP developed in house. However, as time passed the Company realised that the needs of its stakeholders had expanded. As a result, the world- renowned SAP software is being implemented, which will substantially improve efficiency and the speed of operations. Substantial amount of money was committed to the project since the Company understands the importance of maintaining a state-of-the- art digital infrastructure. The project is scheduled for completion in the next financial year.

OUTLOOK FOR THE FUTURE The Company will continue to pursue its strategy of streamlining business operations by focusing on its core business of marketing and distributing four wheelers and genuine spare parts, and divesting unprofitable business.

The Company performance in recent years has been mostly determined by the fiscal policies of the Government. Therefore, UML will aggressively look at diversifying into more profitable and less regulated segments in the non-motor industry in the years to come.

New products The Company will increase products in the small car category with a 1000cc engine capacity to take advantage of the current duty structure. The Mitsubishi K-Car which is an attractive product in this segment will arrive at UML in the next financial year. Two other products launched by Mitsubishi in other countries, namely the Mitsubishi Eclipse Cross and the Mitsubishi Expander are also scheduled for launching in Sri Lanka in the next financial year.

The market opportunities presented by the JCB and LiuGong agencies, the newest additions to the Company’s list of world renowned brands will be exploited during the next financial year. The JCB office in Peliyagoda with the main show room, vehicle yard, workshop and stores was opened recently.

80 proceeds according to plan. solar power to thenationalgrid withintheyear ifconstruction financialyear.the next The Company plansto this contribute progress andscheduledfor of completinginthethird quarter roofsworkshop andOrugodawatte, inRatmalana isnow in project toSolar generate 2MWsolarpower usingUML’s theyear.during 2018, following whichthisproduct willbepromoted extensively ofColombo inJune first show room willbeopenedintheheart thisyear,established inJanuary willbelaunchedshortly. The The Company’s withNovabeans, 3DPrinting India, agency Non motor inthepipeline projects 81 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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United Motors Lanka PLC Annual Report 2017 | 2018

How We Govern

We firmly believe that good corporate Governance Structure governance is not only fundamental The Board of Directors is the apex body responsible and accountable for the in ensuring that the Company is well stewardship function to the Shareholders. The Directors are collectively responsible for -managed in the interest of all its upholding and ensuring the highest standards of corporate governance and inculcating stakeholders, but also essential to ethics and integrity across the companies. attain long-term sustainable growth. As we believe, corporate governance The Board has delegated some of its functions to Board Sub Committees, enabling the is of utmost importance in driving the Committees to focus on their delegated areas of responsibility and impart knowledge Company towards sustainable success, and experience in areas where they have greater expertise, while retaining final decision the Board is committed towards rights pertaining to matters under the purview of these Committees. maintaining its high standards of corporate governance in managing the The Company has four Board Sub-Committees. Company in an ethical, efficient and • Audit Committee effective manner. This report aims to • Remuneration Committee provide an overview of the corporate • Nomination Committee governance framework of the Company, • Related Party Transactions Review Committee including the structure, principles, policies and practices of corporate Details of Board Sub Committees are detailed in the Sub Committee reports. governance at UML. Clear definitions of authority limits, responsibilities and accountabilities are set and The Board of Directors, led by the agreed upon in advance to achieve greater operating efficiency and to expedite the Chairman is responsible for the decision making, through a Committee structure ensuring that Group Chief Executive governance and ensuring that Officer/ Executive Director, Executive Director – Finance, Executive Director – (After governance structures, policies and Sales) and other divisional heads are accountable for the total company, division processes are sufficiently robust and respectively. relevant in a fast changing environment. The structures, framework and processes The Corporate Management Committee under the leadership and direction of the are reviewed regularly to identify areas Group Chief Executive Officer/Executive Director, implements the policies and strategies for improvement to ensure that all determined by the Board and manages business affairs of the Company through elements of our governance framework delegation and empowerment. are fit for the purpose, enabling value creation and growth.

The Board sets the tone at the top by promoting professional standards and corporate values that cascade to senior management and to other employees. The code of conduct, policies, procedures and processes are some of the key mechanisms through which these standards and values are cascaded down to ensure adherence across the companies in the Group.

84 Internal Governance Structure External Regulations External • • • • the business. applicablefor Acts Other 2007 Companies No. Act 07of (CSE) Colombo Stock Exchange Listing Rulesofthe Lanka. of Sri Accountantsof Chartered 2017 issuedby theInstitute Corporate Governance Code ofBestPractice on

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e e t a l e R 85 PLC Lanka Motors United growth long-term sustainable also essential to attain of allitsstakeholders, but managed intheinterest that theCompany iswell- fundamental inensuring governance isnotonly that goodcorporate We believe firmly Annual Report 2017 Report Annual | 2018

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How We Govern

Governance framework In setting the governance framework, the Board takes into account the external regulations which comprise of Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka, Companies Act No. 07 of 2007, Listing Rules of the Colombo Stock Exchange and best practices to deliver value to stakeholders in a clear and transparent manner.

The internal regulations comprise of the following;

• Articles of Association • Terms of reference of Board and Board Sub-committees • Code of Business Conduct and Ethics • Policies and procedures • Risk management framework

The above is drafted in line with;

• Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka which seeks to address all rights of key stakeholders. • Continuing Listing Rules of the Colombo Stock Exchange which addresses the rights of the investors. • Companies Act No. 07 of 2007, which includes provisions for preserving the rights of shareholders. • Inland Revenue Act No. 24 of 2017 and other Acts which are applicable from regulatory bodies. • Shop and Office and Wages Board Acts, Gratuity Act and Termination of Employment of Workmen Act which addresses the rights of employees and responsibilities of employers.

This report summarises how the Group is governed. We have used the structure of the Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka to detail the governance structures and processes.

Compliance The disclosures below indicate the level of conformance with the above Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka which comprises of eight fundamental aspects namely: A. Directors B. Directors’ Remuneration C. Relationships with Shareholders D. Accountability and Audit E. Institutional Investors F. Other Investors G. Internet of Things and Cyber Security H. Environment, Society and Governance Reporting (ESG Reporting)

86 principles Corporate governance the Board andresponsibilitiesRoles of Regular meetings Regular The Board A. Directors reference Code A.1.2 A.1.1 A.1 status Compliance Complied Complied Complied Details ofcomplianceDetails against thebudgetonamonthlybasis. oftheindividual businessunits budgets andmonitor performance plansforrestructuring existingbusinesses. The Board alsoreviews The Board evaluates andapproves allinvestment proposals and the that theCompany complieswithapplicablelaws andregulations. The Board ensures thatprocedures andprocesses are inplaceto ensure is reliable andalso ensures thattheCompany’s assets are safeguarded. the financialinformation onwhichdecisionsare madeandpublished oftheCompany’ssystems managetherisk businessandensure that outthistask. CommitteeThese hasbeenspecificallyassigned to carry system and for reviewing itseffectiveness onacontinuousbasis. Audit The Board recognises itsresponsibility for theGroup’s controls internal Company. to implementthebusinessstrategies for necessary the the knowledge Executive DirectorOfficer/ whohastherequired and experience skills, CommitteeCorporate Management ledby theGroup ChiefExecutive pointfor strategy formation.starting The Board hasputinplacea andthisisthe expectations continuously monitors thestakeholder progress onstrategy implementationatBoard meetings. The Board ofthecompaniesinGroup.sustainability Board evaluates the strategies mediumandlongterm whichare aimedatlongterm short, The Board hasprovided strategic directionto thedevelopment of Board. The onpage101. attendance atmeetingsissummarised of submittinginformation have beenagreed anddocumented by the reports. ofBoardThe regularity meetingsandthestructure andprocess its own scheduleofmeetingsassetoutintherespective Committee The Board meetsonamonthlybasisandeachSubCommittee has matters set before theBoard. andindependentjudgementstoperspectives thedeliberationof professionals drawn from multiplefields. diverseThey bring PLCThe Board ofUnited Lanka Motors nineeminent comprises oftheGroup.functioning and establishingasoundcontrol for framework thesuccessful judgement. The Board gives leadershipinsettingthestrategic direction complemented andindependent withahighsenseofintegrity andknowledge experience All Directors possesstheskills, 87 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Corporate governance Code Compliance Details of compliance principles reference status

Act in accordance with laws A.1.3 Complied The Company has complied with all applicable laws and regulations during the year. The Board members are permitted to obtain independent professional advice from third parties whenever deemed necessary, at Company’s expense.

Independent professional advice was sought on matters in accordance with above provision on three occasions. Access to advice and services A.1.4 Complied The Company Secretary provides support to the Board ensuring that of the Company Secretary Directors receive timely and accurate information required to fulfill their roles. She attends all meetings and ensures that minutes are kept for all proceedings at the Board meetings.

Insurance cover is in place for Director’s liability. Independent judgement A.1.5 Complied The Board comprises senior professionals from their respective fields and uses their independent judgement in discharging their duties and responsibilities on matters of strategy, performance, resource allocation, risk management, compliance and standards of business conduct. The composition of the Board ensures that there is sufficient balance of power and contribution by all Directors. Dedicate adequate time and A.1.6 Complied All Directors are provided with notice, agenda and board papers in effort to matters of the Board advance of each meeting to ensure that Directors have sufficient time and the Company to review the same and call for additional information or clarifications if required. Members of the Corporate Management Team make presentations to the Board on the business environment, regulatory changes, operations and other developments on a regular basis to facilitate enhancing the knowledge of the Board on matters relevant to the Group’s operations. If necessary in the best A.1.7 Complied - interest of the Company, one-third of the Directors can call for a resolution to be presented to the Board. Board induction and training A.1.8 Complied No new appointments during the year under review. The Directors are regularly updated by the GCEO/ED on relevant information regarding internal and external environment.

88 principles Corporate governance finance offer guidanceonmatters of to acumen andknowledge Availability offinancial good corporate governancegood corporate Chairman’s role inpreserving Company for managementofthe executive responsibilities of theBoard from the thebusiness Separating reference Code A.4 A.3 A.2 status Compliance Complied Complied Complied Details ofcomplianceDetails and competence to guideandadviceonmatters relating to finance. Accountants knowledge are ontheBoard whopossessthenecessary Two Accountants/ Management seniorChartered Chartered Chairman ensuresChairman suchinformation isadequate for decisionmaking. ispresentedInformation to theBoard viaBoard papersandthe decisions. key to making prior making. areTheir andconcerns assessed individualviews objectively ofalltheDirectors indiscussionsanddecision optimum contribution consideration are recorded intheminutes. ensuresThe Chairman the matters on theagenda. Views expressed by Directors onissuesunder Directors to are discuss encouragedto seekinformation necessary and responsibilities andtheBoard andCommittee structures. All Directors on time. AllDirectors have beenmadeaware oftheirduties information onmatters included intheagendaisprovided to the managementandcompliance.allocation, risk Sufficientlydetailed consideration matters relating to strategy, resource performance, with theDirectors, theCEO, andtheCompany into Secretary, taking for Board isdeveloped inconsultation by Meetings theChairman as asoundBoard onstrategic andoperationalmatters. The agenda and maintainingopenlinesofcommunicationwithKMPs, acting responsible ofallDirectors for theeffective ensuring participation and facilitatingtheeffective discharge ofdutiestheBoard andis providesThe Chairman leadershipto theBoard, order preserving power and authority instrategicpower andoperationaldecisions. andauthority formulated framework by theBoard.policy This ensures balanceof progress andimplementingthestrategies oftheCompany withinthe The CEO isresponsible for managing thebusiness, its monitoring Charter. roles andtheCEOare definedintheBoard oftheChairman clearly whilst theCEOisanExecutive Director appointed by theBoard. The oftheBoard.functioning isaNon-ExecutiveThe Chairman Director authority. isresponsibleThe Chairman for leadingandtheeffective inorderline withbestpractice to maintainabalanceofpower and andtheCEOhaveThe positions oftheChairman beenseparated in 89 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Corporate governance Code Compliance Details of compliance principles reference status

Board Balance A.5 Complied The Board comprises of nine Directors of whom six including the Chairman hold office in a Non-Executive capacity. Out of six Non- Executive Directors four Directors are independent.

The Board determines the independence or non-independence of all Non-Executive Directors based on their declaration and their information available to the Board. Two Non-Executive Directors are non-independent as per the criteria specified.

Chairman holds a meeting at least once a year only with Non-Executive Directors.

Company Secretary takes necessary action to record all unresolved matters and details required by the Board for further clarifications and ensures to submit required details for next Board meeting for effective decision making.

Provision of appropriate and A.6 Complied The Directors are provided with a comprehensive package of timely information information for the regular Board meetings which is circulated in advance of scheduled meetings. These include an executive summary with detailed analysis of financial and non-financial information. The Chairman ensures that all Directors are properly briefed on issues arising at Board meetings. Appointments to the Board A.7 Complied Nomination Committee has set in place a formal and transparent procedure for nomination of candidates for appointment as Directors. Nomination Committee evaluates the resumes of potential candidates for consideration as Directors and makes recommendations to the Board for nomination.

This process is based on an annual assessment of the combined knowledge, experience and diversity of the Board to identify additional perspectives to ensure its effectiveness at all times.

Appointments of new Directors are communicated to the Colombo Stock Exchange and shareholders through an announcement. The communications include a brief resume of the Director, relevant expertise, key appointments, shareholding and his/her status of independence.

There were no new appointments to the Board during the year.

The details of the Nomination Committee are given on pages 109 and 110.

90 principles Corporate governance the ChiefExecutive Officer. of assess theperformance should atleastannually The Board ofDirectors regarding Directors specified information to disclose Annual Report committee performance Appraisal ofBoard and regular intervals regular intervals at themselves for re-election All Directors shouldsubmit reference Code A.11 A.10 A.9 A.8 status Compliance Complied Complied Complied Complied Details ofcomplianceDetails the Remuneration Committeethe Remuneration againstpre-agreed targets. outby oftheCEOiscarried oftheperformance An annualevaluation held by eachDirector isgiven onpage101. The total number ofBoard positions(excluding directorship inUML) meetings are given onpage101. Directors’ attendance atBoard meetingsandBoard SubCommittee profilesBrief oftheDirectors are given onpages28to 31. was carried out during theyear outduring underreview.was carried An Evaluation ofAudit Committee Committee andtheRemuneration • • • • questionnaire addressing whichisinfour thefollowing; separate parts outattheendofyearappraisals are through carried astructured There isaformal process for appraisalofBoard performance. The rotation. on alsoseeksre-election theChairman Accountants Lanka, ofSri of Corporate ofChartered Governance2017issuedby theInstitute from office. However, inlinewiththeCode ofBestPractice keeping third ofNon-Executive directors excluding shallretire theChairman According AGM, to theCompany’s one ofAssociation, atevery Articles Evaluation ofNon-Executive Directors. by eachDirector.Self-evaluation oftheChairman Evaluation oftheperformance oftheBoard performance collective Overall 91 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Corporate governance Code Compliance Details of compliance principles reference status

B. Directors’ remuneration Remuneration Committee B.1 Complied Remuneration Committee decides on the Executive Directors Remuneration.

As per the requirements of the Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka and the Listing Rules of Colombo Stock Exchange, the majority of the members should be independent. Subsequent to the acquisition of 30% stake in UML by R I L Property PLC, the Remuneration Committee was reconstituted w.e.f. 9 November 2017. Accordingly, Prof. Malik Ranasinghe was appointed as the Chairman of the Remuneration Committee while Mr. Sunil G Wijesinha continues to be a member of the Remuneration Committee.

All members of the Remuneration Committee are Non-Executive Directors and majority is independent as of the year end.

Details of the Remuneration Committee are given in the Remuneration Committee report on pages 106 to 108. The level and make up of B.2 Complied The remuneration scheme for Executive Directors is structured to align remuneration rewards to their individual and Corporate performance.

Executive Directors terms of employment are governed by the contract of service.

Non-Executive Director’s fees are based on the time commitment and responsibilities of their role taking into consideration prevailing market rates.

Salary surveys are carried out frequently to identify the salary levels of comparable position in other companies and necessary steps are taken to retain staff.

Salary increments are based on individual ratings in performance appraisals.

The Company does not have share option schemes for employees. Disclosures related to B.3 Complied Details are given in Remuneration Committee Report on pages 106 to remuneration in Annual 108. Report The remuneration paid to Executive and Non-Executive Directors is disclosed in aggregate in Note 13.1 to the financial statements.

92 principles Corporate governance shareholders Communication with general meetings ofother AGM andconduct Constructive useofthe C. Relationships withshareholders reference Code C.2 C.1 status Compliance Complied Complied Details ofcomplianceDetails responded by theCompany inwriting Secretary. valuesoftheCompany.with thecorporate are raisedinwriting Matters ensure are thatthey addressed inanappropriate mannerinkeeping theBoardkeeps appraisedofissuesraisedby theshareholders to be raisedthrough theCompany Secretary. The Company Secretary forumThe principal for shareholders istheAGM, whilematters canalso are posted ontheCompany’s website. stock reports, interim exchangeAnnual reports, announcementsetc. the AGM. shareholders and are financialstatements, theinterim AnnualReport theCompany modesofcommunicationbetween andthe primary integrity, timelinessandrelevance oftheinformation provided. The on opencommunicationandfairdisclosures withemphasisonthe communication for engaging withshareholders. The Company focuses The Shareholder Communication Policy setsoutmultiplechannelsof the date of AGM. at themeetingandbepublishedinwebsite withinamonthfrom ensure thatinformation required undertheCode willbemadeavailable Where thevote isrequired onashow ofhands, theCompany will voting isindicated intheproxy form. oftheprocedures days inadvance. thatgovern Asummary workings resolutions thatmay besetbefore theshareholders attheAGM, fifteen and Accounts which includesinformation relating to any other Notice ofthemeetingiscirculated together withtheAnnualReport by theChairman. Committee to respond to any questionsthatmay bedirected to them NominationandRelated Party Remuneration, Transactions Review ensuresThe Chairman thepresence oftheAudit, oftheChairman The Company records allproxy votes lodgedfor eachresolution. Separate resolutions are proposed for eachsubstantiallyseparate issue. Companies No. Act 07of2007. ofAssociation andthe special resolutions asdefinedintheArticles appointment ofDirectors andAuditors andothermatters requiring oftheBoard ofDirectors, Auditedadoption ofAnnualReport Accounts, for matters reserved theshareholders whichincludes decision making The AGM provides aforum for in allshareholders to participate 93 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Corporate governance Code Compliance Details of compliance principles reference status

Disclosure of major and C.3 Complied In terms of the requirements pertaining to immediate disclosures, the material transactions Company notified the Colombo Stock Exchange about the relevant transactions as soon as they are approved by the Board of Directors in order to ensure dissemination to the public.

There were no transactions which would materially change the Company’s or Group’s net asset base or any major related party transactions apart from those disclosed in the Annual Report of the Board of Directors on page 127 and Note 40.5 to the financial statements on page 209. D. Accountability and Audit Present a balanced and D.1 Complied All efforts are taken to ensure that the Annual Report presents a understandable assessment balanced review of financial position, performance, business model, of the Company’s financial governance structure, risk management, internal controls, challenges, position, performance, opportunities, and prospects combining narrative and visual element to business model, governance, facilitate readability and comprehension. structure, risk management, internal controls, challenges, In the preparation of interim and annual financial statements, all opportunities and prospects. requirements of Companies Act No. 07 of 2007, Sri Lanka Accounting Standards and reporting requirements prescribed by the regulatory authorities has been complied with. Audit Committee reviews interim and annual financial statements and recommends to the Board prior to publication.

The following disclosures as required by the Code are included in this report; • Management Discussion and Analysis on pages 40 to 81. • Annual Report of the Board of Directors on pages 123 to 129. • Statement of Directors’ Responsibilities in relation to the financial statements of the Company on pages 134 and 135. • Statement on going concern of the Company is set out in the Statement of Directors’ Responsibility and item 7 of the Annual Report of the Board of Directors on page 124. • Directors’ Statement on Internal Control on pages 121 to 122. • Independent Auditors’ Report on pages 137 to 141. • Chief Executive Officer’s and Chief Financial Officer’s Statement of Responsibility on page 136. • Related party transactions disclosed in Note 40 to the financial statements and process in place is described in the report of the related party transactions review committee on pages 111 and 112.

No serious loss of capital to summon an EGM.

94 principles Corporate governance Review Committee Review TransactionsParty Related Audit Committee and theCompany’s assets shareholders’ investments controlinternal to safeguard and asoundsystem of Process management ofrisk reference Code D.4 D.3 D.2 status Compliance Complied Complied Complied Details ofcomplianceDetails Report onpages111and112. Report areactivities given intheRelated Party Transactions Committee Review ofits responsibilitiesDirectors and asoftheyear end. Asummary Executive Non-Executive Directors are ofwhomtwo Independent review committee consistsofthree transactions Non- Related party ceased to beamemberfrom thesameday. appointed asamemberoftheCommittee andMr. SunilG. Wijesinha be membersfrom 9November 2017.Prof. was Ranasinghe Malik Accordingly, Mr. Chanaka Yatawara andMr. Lafir ceasedto Aashiq Committee wasreconstitutedReview w.e.f. 9November 2017. inUMLby PLC, RILProperty stake theRelated Party Transactions members to beindependent.Subsequentto theacquisitionof30% all membersto beNon-Executive ofthe Directors andthemajority shouldbeindependent.Further,the Chairman theCode requires (Code) andtheListingRulesofColombo Stock Exchange, Lanka Sri Accountants ofChartered of Governance 2017issuedby theInstitute As pertherequirements oftheCode ofBestPractice onCorporate given onpages102to 105. intheAudit Committee Report Audit ofitsresponsibilities are Committee. andactivities Asummary to Audit the divisionwhodirectly reports by theInternal issupported It Directors Non-Executive and two Directors asofyear-end. The Audit Committee ofthree comprise independentNon-Executive appointed asamemberofAudit Committee w.e.f. 9November 2017. be amemberoftheAudit Committee. Mr. Chapmanwasalso Stuart of theAudit Committee Fernando Hiroshini whileMrs. continuesto Accordingly, Prof. wasappointed astheChairman Ranasinghe Malik PLC, theAudit Committee wasreconstituted w.e.f. 9November 2017 inUMLby Subsequent to RILProperty the acquisitionof30%stake shouldbeindependent. of themembersincludingChairman andtheListingRulesofColombo Stock Exchange, Lanka themajority Accountants ofChartered ofSri Governance 2017issuedby theInstitute As pertherequirements oftheCode ofBestPractice onCorporate on how theCompany isincludedonpages113to 120. managesrisk ControlsInternal given onpages121and122.Acomprehensive report onpages102to 105andDirectors’Committee Report Statement on regard controls managementandinternal to risk asgiven inAudit Audit Committee assiststheBoard indischarging ofitsdutieswith safeguard shareholder investments andassetsoftheCompany. The processes for control managementandinternal risk systems to the strategic andformulates objectives andimplementsappropriate The Board isresponsible for appetite for therisk determining achieving 95 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Corporate governance Code Compliance Details of compliance principles reference status

Code of Business Conduct D.5 Complied An internally developed Code of Business Conduct & Ethics which is and Ethics applicable to Directors, other Key Management Personnel and all other employees is in place which addresses conflict of interest and outside activities, privacy/ confidentiality, gifts and entertainment, personal investments, know your customers, anti-money laundering, accuracy of company records and reporting, protecting UML group’s assets, workplace responsibilities, raising ethical issues, responsibilities of superiors and managers, compliance with laws, rules and regulations, key irregularities and disciplinary procedures. Further, Code specifically addresses share trading policy, whistle blowing policy, conflict of interest and confidentiality policy.

The Code of Conduct is in compliance with the requirements of the Schedule J of the Code of Best Practice on Corporate Governance 2017.

The Board is not aware of any material violations of any of the provisions of the Code of business conduct and ethics by any Directors, Senior Management or other employees of the Company. Corporate governance D.6 Complied The Annual Report deals with the extent to which Company has disclosures complied with the requirements of the Code of Best Practice on Corporate Governance 2017 issued by Institute of Chartered Accountants of Sri Lanka and compliance with regulations of the Section 7.10 of the Listing Rules of Colombo Stock Exchange in relation to Corporate Governance. E. Institutional investors Shareholder voting E.1 Complied The Company’s performance is well communicated to the shareholders at the AGM. All other formal and informal suggestions and views of shareholders are conveyed to the Board. Evaluation of governance E.2 Complied Institutional investors are encouraged to provide any feedback on the initiatives governance related issues. F. Other investors Investing/divesting decisions F.1 Complied The Company’s Annual Report provides adequate information to Shareholders to make judgements or to seek clarifications on their investment decisions. Shareholder voting F.2 Complied Notice of Meeting is sent to all shareholders on time to encourage their participation at the Annual General Meeting and exercise their voting rights. The proxy form and instructions are given in Annual Report for the appointment of proxy. G. Internet of things and cyber security Internet of things and cyber G In progress Internet Security Policy (ISP) is in place. An external party will be security engaged to carry out a security audit. A designated officer has been appointed to independently monitor implementation of the ISP and report to the Board. Arrangements will be made to comply with the requirements under Section G of the Code in due course.

96 Status ofcompliance withtheListingRegulations 7.10oftheColombo Stock Exchange CSE Rule principles Corporate governance d c b a 7.10.3 b a 7.10.2 a/b/c 7.10.1 Board’s role onESGfactors Governance FactorsSocial Environmental factors a /b/c 7.10 Compliance ESG reporting H. Environment, (ESGReporting) andGovernance Reporting Society Disclosures relating to Directors Independent Directors Independent Non-Executive Directors the Board alongwithdetails. Provide aresume Directors ofnew appointed to Director’s experience. includingthe included intheannualreport resumeA brief ofeachDirector shouldbe Independence isnotmet. Independence specifiedfor ifcriteria Director isIndependent, The basisfor theBoard to a determine be independent Disclosure ofnamesDirectors to determined independence /non–independence. a signed anddated declarationofhis/her Each Non-Executive Director isto submit whichever ishigher, shallbe ‘independent’. Two ofonNon-Executive orone-third Directors, Executive Directors. Directors whichever ishighershouldbeNon- ofthetotal numberof At orone-third leasttwo Governance rulesofCSE ofcompliancewiththeCorporateConfirmation reference Code H.1.5 H.1.4 H.1.3 H.1.2 H.1 status Compliance future. complied in To be Details ofcomplianceDetails 84 to 101 and Risk Management report onpages113to 120. report Management 84 to 101andRisk onpages Discussion andAnalysisonpages40to 81,Governancereport requiredInformation by theCode isgiven intheManagement throughoutour businessstrategy andreported thisreport. areprinciples embeddedinourbusinessandconsidered informulating hasnotbeenapplied, framework ESG Although anESGreporting Status Compliance Complied Complied Complied Complied Complied Complied Complied Complied 97 Details ofComplianceDetails appointed during yearappointed during underreview. to theColombo Stock Exchange. NoDirectors were resumeDetailed Directors ofthenew are submitted Refer Board ofDirectors profiles onpages28to 31. independence onanannualbasis. Refer page127. The Board considersNon-Executive Director’s Refer page101for details. to theirindependence. Non-Executive Directors have submitted declarationsas independent. Out ofsixNon-Executive Directors, four Directors are Directors. Six, outofnine, Board membersare Non-Executive Governance rulesofCSE. The group isincompliancewiththeCorporate PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

CSE Rule Compliance Details of Compliance Status

7.10.4 Criteria for defining independence a. to h. Requirements for meeting the criteria to be an Complied Requirements specified are considered in deciding the independent Director. independence. 7.10.5 Remuneration Committee a. Composition Complied Refer page 106 for details. Remuneration Committee shall comprise of Remuneration Committee at the year- end consists Non-Executive Directors and majority should be of five Non-Executive Directors out of which three are independent. independent.

One Non-Executive Director shall be appointed An independent Non-Executive Director is the as Chairman of the Committee by the Board of Chairman of the Remuneration Committee as at the Directors. year end. b. Functions Complied Remuneration of Group Chief Executive Officer/ Remuneration Committee shall recommend the Executive Director is recommended by the remuneration of the Chief Executive Officer and Remuneration Committee. Executive Directors. c. Disclosure in the Annual Report Names of Remuneration Committee members Complied Refer Remuneration Committee report on page 106 for the names of the Committee members.

Statement of Remuneration Policy Complied Refer Remuneration Committee report for the remuneration policy.

Aggregate remuneration paid to Executive Complied Aggregate remuneration paid to Executive and Non- Directors and Non-Executive Directors Executive Directors are disclosed in Note 13.1 to the financial statements. 7.10.6 Audit Committee a. Composition Audit Committee shall comprise of Non- Complied Audit Committee consists of five Non-Executive Executive Directors, a majority of who should be Directors out of which three are independent as of the independent. year end. Refer page 102 for details.

A Non-Executive Director shall be the Chairman Complied Chairman of the Audit Committee is an Independent of the committee. Non-Executive Director.

Chief Executive Officer and Chief Financial Officer Complied Group Chief Executive Officer / Executive Director, shall attend Audit Committee meetings Executive Director – Finance, General Manager (Finance and Planning) and DGM Internal Audit and Monitoring attended meetings by invitation.

The Chairman of the Audit Committee or one Complied Mrs. Hiroshini Fernando who is a member of the Audit member should be a member of professional Committee is a member of the Institute of Chartered accounting body. Accountants of Sri Lanka and a member of the Institute of Certified Management Accountants of Sri Lanka.

98 CSE Rule c. b.5 b.4 b.3 b.2 b.1 Committee carried outitsfunctions. Committee carried onthemannerinwhichAudit Report disclose thebasisfor suchdetermination.. Auditorsthe independenceofExternal and Audit Committee of a determination shallmake Committee. theAuditNames ofDirectors comprising Disclosure intheAnnual Report external auditors.external remuneration and Terms ofEngagementthe removal Euditors andto ofExternal approve the and to appointment,re-appointment pertaining To recommendations make to theBoard performance of the entity’s external auditors. oftheentity’s external performance Assessment oftheindependenceand Sri Lanka Auditing Standards. Lanka Sri are adequate, to meettherequirements ofthe Entity’s controls internal management andrisk theprocessesOverseeing to ensure thatthe laws and regulations. requirements oftheCompanies andother Act requirements,reporting information thecompliancewithfinancial Overseeing statements inaccordance withSLFRS/LKAS. ofdisclosures inthefinancial and adequacy ofthepreparationOverseeing presentation Functions Status Compliance Complied Complied Complied Complied Complied Complied Complied Complied 99 Details ofComplianceDetails functions carried out. carried functions Refer onpages102to 105for Audit Committee Report auditors areexternal independent. andconcludedthatthe obtained aconfirmation independence basedonsetguidelinesandalso The Audit auditor’s Committee assessedtheexternal in theAudit onpage102. Committee report Names oftheAudit Committee membersare disclosed line withprofessional standards. reappointments andremoval Auditors oftheExternal in recommendations ontheappointments, The Audit Committee isresponsible for making audit process. andtheeffectiveness ofthe independence, objectivity The Audit Auditor’s Committee assessedtheExternal controls. design andoperatingeffectiveness oftheinternal of allsignificant risks. Audit Committee reviewed the identification, recording, andmanagement evaluation The Audit Committee reviewed theprocesses for adoption ofbestaccountingpolicies. andalsorecommending to theBoard,country onthe in accordance withthelaws andregulations ofthe for overseeing thepreparation offinancialstatements The Audit Committee hastheoverall responsibility reviewed by theAudit Committee. relating anddisclosures to are financialreporting provisions andotherregulatory (SLFRSs &LKASs) Accounting Standards Lanka compliance withSri of financialstatements andprocesses by which judgementsandestimates usedinpreparationkey Appropriateness oftheaccountingpoliciesadopted, of theinformation provided to thestakeholder. process tofinancial reporting ensure thereliability The Audit Committee oversees theCompany’s PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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How We Govern

Status of compliance with the information required to be disclosed as per Companies Act No. 07 of 2007

Information required to be disclosed Reference to the Page Companies Act Reference The nature of the business of the Group and the Company together with any change thereof Section 168 (1) (a) 123 during the accounting period. Signed financial statements of the Group and the Company for the accounting period Section 168 (1) (b) 143 completed. Auditor’s Report on financial statements of the Group and the Company. Section 168 (1) (c) 137 to 141 Accounting policies and any changes therein. Section 168 (1) (d) 147 to 161 Particulars of the entries made in the interest register during the accounting period. Section 168 (1) (e) 127 Remuneration and other benefits paid to directors of the Company and its subsidiaries during Section 168 (1) (f) 165 the accounting period. Amount of donations made by the Company and its subsidiaries during the accounting Section 168 (1) (g) 125 period. Information on directorate of the Company and its subsidiaries during and at the end of the Section 168 (1) (h) 16 and 17 accounting period. Disclosure on amounts payable to the auditors as audit fees and fees for other services Section 168 (1) (i) 165 rendered during the accounting period by the Company and its subsidiaries. Auditor’s relationship or any interest with the Company and its subsidiaries – audit fee/non- Section 168 (1) (j) 165 audit fee. Acknowledgement of the contents of this report/signatures on behalf of the Board. Section 168 (1) (k) 127

Accordingly, we have complied with all listing regulations of Colombo Stock Exchange with regard to Corporate Governance, disclosure requirements of Companies Act No. 07 of 2007 and the Code of Best Practice on Corporate Governance 2017 issued by the Institute of Chartered Accountants of Sri Lanka except for sustainability reporting and internet of things and cyber security which we hope to comply in future.

Assurance The “Assurance” element is the supervisory role of the Corporate Governance framework, where a range of assurance mechanisms such as corrective actions being recommended and implemented, monitoring and assessing effectiveness and process controls at management level and internal assurance by the internal audit department, independent audit and compliance reviews.

There are clear processes for monitoring and following up on corrective actions on control weaknesses or failures reported. These audit findings together with the management comments are reviewed by the Audit Committee.

100 **** *** ** * Name ofDirector Director Name of Mr. Hiroyasu Inoue Mr. Chapman Stuart Prof. Ranasinghe Malik Mrs. Hiroshini Fernando Hiroshini Mrs. Mr. Ramesh YaseenRamesh Mr. Mr. Lafir Aashiq Mr. AnandaAtukorala Mr. Chanaka YatawaraChanaka Mr. Mr. SunilG. Wijesinha Wijesinha Mr. SunilG. Yatawara Mr. Chanaka Atukorala Mr. Ananada Lafir ** Mr. Aashiq Yaseen Mr. Ramesh Fernando Hiroshini Mrs. Ranasinghe Prof. Malik Chapman Mr. Stuart Inoue Mr. Hiroyasu year end ofBoard/Chairman Board SubCommittee atthe Attended by invitation Resigned w.e.f. 31March 2018 Appointed to the Sub-Committee w.e.f.Appointed to theSub-Committee 9November 2017 Ceased to beamemberandattended by invitation Capacity Director Non-Executive Chairman Director GCEO/ Executive Director Non-Executive Director Executive Director Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive independence Status of Independent Non Independent Non Independent Independent Non Independent Non Independent Non Independent Independent Independent companies (excluding UML) No ofBoard seats heldinlisted Executive capacity 1 1 ------Board meetings No ofmeetings Held Wijesinha Mr. Sunil.G. 17 17 17 17 17 17 17 17 17 Non-Executive Attended capacity 4 1 3 3 - - - - - 17 17 17 13 15 17 16 4 - meetings Audit Committee No ofmeetings Held Ranasinghe Ranasinghe Prof. Malik ***3 ***3 101 *7 *7 7 7 7 - - companies No ofBoard seats heldinunlisted Attended Executive capacity 4 4 1 ------7 7 6 7 7 3 3 - - meetings Committee Remuneration No ofmeetings Held Ranasinghe Prof. Malik ***1 *2 PLC Lanka Motors United 2 2 2 2 - - - Attended Non-Executive capacity 2 2 2 2 2 1 1 1 3 1 1 6 2 8 - - - - meetings Committee Nomination No ofmeetings Held Chapman Mr. Stuart *** 2* *** 2* 2 2 2 2 - - - Attended Annual Report 2017 Report Annual 2 2 2 2 2 2 - - - meetings Committee Review Transactions Related Party No ofmeetings Held Atukorala Mr. Ananda ****3 ****3 ****3 ***2 5 5 - - - Attended | 2018 3 3 5 3 5 2 - - -

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Audit Committee Report

Charter of the Committee Composition of the Committee The Charter of the Committee approved by the Board defines the Terms of The Audit Committee appointed by and responsible to the Board of Directors comprises three Independent Non-Executive Directors (IND/NED) and two Non- Reference of the Committee and is Independent Non-Executive Directors (NIND/NED). annually reviewed to ensure that new developments relating to the The Committee consists of following members as at 31 March 2018, whose profiles Committee’s functions are addressed. The are given on pages 28 to 31. Charter was last reviewed and approved in March 2018. Prof. Malik Ranasinghe - (IND/NED) - Chairman Mr. Sunil G. Wijesinha - (NIND/NED) The Committee assists the Board in Mr. Ananda Atukorala - (IND/NED) discharging its responsibilities and Mrs. Hiroshini Fernando - (NIND/NED) exercises oversight over financial Mr. Stuart Chapman - (IND/NED) reporting, internal audit, external audit, internal controls, risks and compliance. As per the requirements of the Code of Best Practice on Corporate Governance 2017, issued by the Institute of Chartered Accountants of Sri Lanka and the Listing Rules on Corporate Governance under Rules of the Colombo Stock Exchange, the majority of the members including the Listing Rules of the Colombo Stock Chairman should be independent. Subsequent to the acquisition of 30% stake in Exchange and Code of Best Practice United Motors Lanka by R I L Property PLC, the Audit Committee was reconstituted on Corporate Governance 2017 w.e.f. 9 November 2017. Accordingly, Prof. Malik Ranasinghe was appointed as the issued by the Institute of Chartered Chairman of the Audit Committee while Mrs. Hiroshini Fernando continues to be Accountants of Sri Lanka further regulate a member of the Audit Committee. Mr. Stuart Chapman was also appointed as a the composition, authority, role and member of Committee with effect from 9 November 2017. functions of the Committee. Mrs. Hiroshini Fernando, a Non- Executive Director is a member of the Institute The Committee is empowered by the of Chartered Accountants of Sri Lanka and a member of the Institute of Certified Board to; Management Accountants of Sri Lanka. • Ensure that financial reporting systems in place are effective and well Attendees by invitation; managed in order to provide accurate, Group Chief Executive Officer / Executive Director, Executive Director – Finance appropriate and timely information to General Manager (Finance and Planning), Deputy General Manager (Internal Audit the Board, Regulatory Authorities, the and Monitoring). Management and other Stakeholders. The Board Secretary functions as secretary to the Committee. • Review the appropriateness of accounting policies and Meetings their adherence and assess the reasonableness of the underlying The Committee held seven meetings during the financial year ended 31 March 2018. assumptions for estimates and judgements made in preparing the Name Attendance financial statements. Prof. Malik Ranasinghe 3/3 • Review the interim and annual Mr. Sunil G. Wijesinha 7/7 financial statements in order to Mr. Ananda Atukorala 6/7 monitor the integrity of such financial Mrs. Hiroshini Fernando 7/7 statements prepared for publication Mr. Stuart Chapman 3/3 prior to submission to the Board of Directors. The Committee also invited members of the Senior Management to participate in the meetings as and when required.

102 accurately reported. that theassetsare safeguarded andthefinancialpositioniswell monitored and andproceduresreporting were inplaceto provide reasonable assuranceto theeffect Committee anditexpressed thatadequate theview controls are inplaceover financial The prevailing controls, internal systems andprocedures were assessedby the onthefinancialstatements. impact material the adoptionofthisAccounting Standard for financialyear does not have thenext a accounting treatment withtherequirements ofSLFRS15,itwasestablishedthat became effective to theCompany thecurrent from 2018.After comparing 1April Accounting Standard from –SLFRS15(Revenue withCustomers) Lanka Contracts Sri isappropriatewhether thedisclosures andfair. madeunderthefinancialreporting themostappropriatedetermine accountingpoliciesare applied. The Committee assessed, place to ensure reliabilityoftheinformation provided andtheaccountingpoliciesto The Committee alsoreviewed theeffectiveness Systems oftheFinancial in Reporting judgments andestimates usedinpreparationkey offinancialstatements. provisionsand otherregulatory relating andrequired to financialreporting disclosures, Accounting Standards Lanka The ofcompliancewiththeSri review includedtheextent to financialstatements theirrelease. prior annual andthequarterly behalf oftheBoard ofDirectors, hasreviewed anddiscussedwiththemanagement, the The ofitsresponsibility to process Committee, oversee on thefinancialreporting aspart Financial reporting forActivities theyear underreview • • • • functions of internal and external auditors. andexternal ofinternal functions recommendations. and Assess theindependenceandmonitor theperformance andfollow auditreports upontheirfindingsand andexternal internal Review andinthebestinterestpractices ofallstakeholders. Governance practices, conforming to highestethicalstandards andgoodindustry Ensure thattheCompany hasadopted andadhered to highstandards ofCorporate andreviewing thecompliancewithlawsMonitoring andregulations. environment. safeguarded andthosesteps are to continuouslyimprove beingtaken thecontrol andtomitigate provide risks reasonable assurancethattheCompany’s assetsare measures, controls internal andgovernance processes inplaceto identify, avoid and Examine theadequacy, design andoperatingeffectiveness management oftherisk 103 PLC Lanka Motors United Governance 2017. Practices onCorporate line withtheCode ofBest updated to ensure itisin wasCommittee Charter Annual Report 2017 Report Annual | 2018

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Audit Committee Report

Internal controls and risk management A risk-based audit approach is adopted and the effectiveness of the internal control procedures in place to identify and manage all significant risks are being reviewed by the Committee.

The Committee assessed the effectiveness of the Company’s internal controls by reviewing the reports submitted by the internal and external auditors.

The Committee also reviewed the processes for identification, recording, evaluation and management of all significant risks. Required assurances were obtained from the divisional Heads on the mitigating actions taken in respect of the identified risks.

Directors’ Statement on Internal Controls is given on pages 121 and 122.

Statutory and regulatory compliance The Committee reviewed the procedures established by management for compliance with the requirements of regulatory authorities. Monthly reports were submitted on the extent to which the Company was in compliance with the statutory and regulatory requirements.

The Internal Audit Division has been mandated to conduct independent test checks covering all statutory and regulatory compliance requirements, as a further monitoring measure.

Internal audit During the year, the Committee continued to fulfill its mandate to monitor and review the scope, extent and effectiveness of the activities of the Internal Audit Division. The annual audit plan for the year was prepared on risk based planning methodology and was approved by the Committee at the beginning of the year.

During the year under review, the Internal Audit Department carried out comprehensive audits covering all aspects of the business. The areas covered and the regularity of audits was dependent on the risk boundary for each process, with higher risk areas subject to more frequent audits. The Committee reviewed the management’s responses to the issues raised and recommendations to overcome the issues and the implementation plans.

External audit Keeping with best corporate governance practices, the Committee recommended to the Board to rotate External Auditors, Messrs. KPMG, who had been the External Auditors for more than twenty five years was changed in the previous year and PricewaterhouseCoopers was appointed as the External Auditors after shareholder’s approval. The Committee ensured the smooth transition of the External Auditors.

Prior to commencement of the annual audit, the Committee discussed with the External Auditors their audit plan, audit approach and procedures and matters relating to the scope of audit. The fees of the External Auditors were approved by the Committee. The audit findings were discussed at the conclusion of the audit, where the Committee reviewed and recommended the annual consolidated financial statements to the Board for their approval.

The External Auditors were given adequate access by the Committee to ensure they had no cause to compromise their independence and objectivity. The Committee reviewed the non-audit services provided by the External Auditors with the aim of assessing the independence and objectivity of the External Auditors. Having reviewed these, the Committee is satisfied that the non-audit service provided by the External Auditors does not impair their independence.

104 accounting policiesandthefinancialstatements are reliable. position oftheCompany isregularly monitored andthattheCompany hasadopted appropriate continuously improve thecontrol environment. The Committee is also satisfiedthatthefinancial reasonable assurance thattheCompany’s assetsare safeguarded andthatsteps areto beingtaken and procedures inplaceare adequately designed andhave beenoperatingeffectively to provide information received thedeliberations, during theCommittee controls issatisfiedthattheinternal Auditors andInternal andthe submitted by theExternal Based onthereview ofreports Conclusion wassatisfactory. wasconcludedthatitsperformance It oftheeffectiveness theyearAn evaluation outduring underreview. oftheCommittee wascarried Evaluation oftheCommittee under thesaidpolicy. This procedure monitored continuesto by bestrictly theCommittee. confidential, iskept Eventhe personraisingconcern anonymous complaintsare investigated Audit raisedare Concerns andMonitoring). investigated (Internal of Manager andtheidentity General oftheCommittee to thenoticeofChairman suchconcern ortheDeputy bring potential “wrong doing”, by any personwithintheCompany to voluntarily, comeforward and Framework. allows anyThis employee, policy whohasalegitimate onanexistingor concern The Whistleblowing Policy continuedasacomponentoftheCorporate Fraud Management Risk The Committee continuouslyemphasized onupholdingethicalvaluesby thestaffmembers. Lanka. Practice Accountants onCorporate ofChartered ofSri Governance 2017,issuedby theInstitute 7.10 oftheListingRulesColombo Stock Exchange andCompliance withtheCode ofBest The Committee reviewed thelevel ofcompliancewithCorporate Governance rulesas per Section Corporate governance Meeting. to theapprovalMarch 2019subject by theshareholders AnnualGeneral attheforthcoming auditors for thefinancial year Accountants asstatutory ending31 Chartered bere-appointed The Committee hasrecommended to theBoard, PricewaterhouseCoopers Messrs (PwC), year withthemanagement’s were actions responses taken. thereto andnecessary The Committee Auditor’s alsoreviewed theExternal managementletter for theprevious financial the Company whichmay have ontheirindependence. abearing Companies No. Act donothave thatthey 07of2007,confirming any relationship orinterests in The Committee hasalsoreceived Auditors adeclarationfrom theExternal asrequired by the 14 May 2018 14 May Chairman –AuditCommittee Prof. Ranasinghe Malik 105 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Remuneration Committee Report

Policy Composition The remuneration policy of the Company is designed to attract, The Remuneration Committee appointed by and responsible motivate and retain staff with the appropriate professional, to the Board of Directors comprises three Independent managerial and operational expertise to achieve the objectives Non-Executive Directors (IND/NED) and two of the Company in a competitive environment. Non-Independent Non-Executive Directors (NIND/NED).

Scope and responsibility Members of the Committee as at 31 March 2018 were: The scope and the responsibility of the Remuneration Committee include: Prof. Malik Ranasinghe (IND/NED) Chairman • To consider internal as well as external remuneration factors Mr. Sunil G. Wijesinha (NIND/NED) and to ensure that the remuneration policy of the Company Mr. Ananda Atukorala (IND/NED) recognises and addresses the short and long term needs of Mrs. Hiroshini Fernando NIND/NED) the organisation in relation to performance, talent retention Mr. Stuart Chapman (IND/NED) and rewards. • To formulate on behalf of the Board, formal and transparent As per the requirements of the Code of Best Practice on procedures for developing policy on remuneration for Group Corporate Governance 2017, issued by the Institute of CEO, other Executive Directors and Corporate Management Chartered Accountants of Sri Lanka and the Listing Rules of Team. the Colombo Stock Exchange, the majority of the members • To recommend to the Board a competitive remuneration and including the Chairman should be independent. Subsequent rewards structure that is linked to performance. to the acquisition of 30% stake in United Motors Lanka PLC by R I L Property PLC, the Remuneration Committee • To decide on the remuneration packages of Group CEO other was reconstituted w.e.f. 9 November 2017. Accordingly, Executive Directors and Key Management Personnel. Prof. Malik Ranasinghe was appointed as the Chairman of • To evaluate the performance of Group CEO, management the Remuneration Committee while Mr. Sunil G.Wijesinha development plans and succession planning. continues to be a member of the Remuneration Committee. • To approve annual salary increments, bonuses, changes in Mr. Stuart Chapman was also appointed as a member of perquisites and incentives. Committee on the same day.

The profiles of the members are given on pages 28 to 31. Professional advice The Committee, when necessary obtains external independent Group Chief Executive Officer/ Executive Director (GCEO/ED) professional advice on matters within the purview of the attends the meetings by invitation. Committee and invite professional advisors with relevant experience to assist in carrying out various duties. The Company Secretary functions as the secretary of the Remuneration Committee. Remuneration package Remuneration is one of the key tools that help the Company to motivate the employees to achieve corporate goals. The Committee remains committed to link remuneration to the achievement of United Motors Lanka PLC’s (UML) strategic objectives.

106 the Company performance. and staff atalllevels whichisbasedonindividualperformance The Company bonus scheme for hasimplemented avariable appraisals. annual performance reviewed for increments annuallybasedontheratingsat isthefixed componentoftheremuneration andis Basic salary component. a variable The Employee remuneration consistsofafixed componentand targets. (KPI) inadvanceandare evaluated againstsuchpre-agreed indicators Staff membersare performance informed ofthekey three to fouron comparablecompaniesinevery years. conducted surveys average andthefindingsofmarket industry experience, responsibility, suchasskills, factors performance, Total remuneration ofemployees are influenced by numberof Employees decisions whenreviewing thesalaries. position,enablingtheCommittee informed to make the market andbenefitsstructure withintheCompany and prevailing salary inorder are periodically to conducted assessthe Surveys initiatives andtheprogress againstsuchpre-agreed targets. ofotherbusiness results, interms sustainability performance financial returns, of thecommittee alsoconsidersthequality Acknowledging thatsuccessisnotonlymeasured by delivering achievable. structured sothatthetarget levels ofreward are challenging but Performance measures are Key on annualperformance. focuses payThe based remuneration onvariable package shareholder value. ourbusinessstrategy andtheongoingenhancementof support strategies. measures have toThe performance beenselected the Company’s visionandtheimplementationofbusiness The remuneration atUMLare arrangements designed to support used Methodology 107 business strategies vision andtheimplementation ofthe theCompany’sare designed to support The remuneration arrangements at UML the Board ofDirectors. The proceedings ofthe meetings are to regularly reported andfees.package are compensation madeinrespectoftheirown performance, CommitteeRemuneration meetingswhendeterminations in Neither theGCEO/EDnorany otherDirectors participated discussed theareas to beconsidered for theensuingyear. agreedED againstthepre- targets/various parameters and oftheGCEO/ members alsoevaluated theperformance annual increments for theGroup were discussed. The bonusanditsquantum, At thesemeetings, theperformance her own remuneration. indecisionsrelatingCommittee to his/ doesnotparticipate to theBoard ofDirectors. AmemberoftheRemuneration The proceedings ofthemeetingsare regularly reported *Appointed w.e.f 9November 2017 The Committee theyear. meetings during heldtwo Meetings Name Mr. Chapman* Stuart Fernando Hiroshini Mrs. Mr. AnandaAtukorala Mr. SunilG. Wijesinha Prof. Ranasinghe Malik PLC Lanka Motors United Annual Report 2017 Report Annual Attendance 1/1 2/2 2/2 2/2 2/2 | 2018

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Remuneration Committee Report

Board of Directors The remuneration packages of Executive Directors comprise a mix of performance related and non-performance related remuneration designed to motivate them towards the achievement of corporate goals.

To ensure that remuneration arrangements fully support the sustainability agenda, the performance goals for the Executive Directors include sustainability targets.

The remuneration for Non-Executive Directors reflects the time, commitment and responsibilities of their role and is based on industry and market surveys. They do not receive any performance or incentive payments.

The aggregate remuneration paid to the Executive Directors and the fees paid to the Non-Executive Directors for serving on the Board and attending Board and Board Sub Committee Meetings are disclosed in Note 13.1 to the financial statements.

Share options for Directors The Company does not have a share options scheme for Directors.

Personal loans to Directors None of the Directors have taken loans from the Company.

Remuneration Committee evaluation The annual evaluation of the Committee was conducted by the members of the Remuneration Committee during the year and concluded that its performance was effective.

Prof. Malik Ranasinghe Chairman - Remuneration Committee. 14 May 2018

108 Nomination Report Committee • • • • • • responsibilities: following indischarging objectives its The Committee focuses onthe decisions.take recommendations, enablingtheBoard to backto theBoardreport ofDirectors with and discuss theissuesunderitspurview toThe Committee hastheauthority training needsoftheBoard members. successionand retirement, re-election, the Board inrelation to nominations, established for ofadvising thepurpose The Nomination Committee was Committee Terms ofreference oftheNomination Directors. matters referred to itby theBoard of recommendations onany other To look into andmake to theBoard onany suchappointment. provide adviceandrecommendations made by and theDirector concerned andcontribution the performance intocurrent Directors, account taking of recommend) the re-appointment To considerandrecommend (or not management personnel. there isasuccession planfor allkey andensureChief Executive that Officer To considerthesuccessionplanfor the arises. vacancy incasea appointment ofaChairman To and considertheselection and Board Sub-committees. Directors for appointmentto theBoard To identifyandrecommend suitable regard to any changes. recommendations to theBoard with oftheBoard the experience) andmake and knowledge (including theskills, size, compositionandcompetencies To regularly review thestructure, Mr. Chapman Stuart oftheCommittee(NIND/NED). Members asat31March 2018were: / Executive Non-Executive Director (GCEO/ED) Non-Independent Directors andtwo Non-ExecutiveIndependent Directors (IND/NED),theGroup ChiefExecutive Officer The Nomination Committee appointed by theBoard three ofDirectors comprises Composition oftheNomination Committee Mr. SunilG. Wijesinha Mr. Chanaka YatawaraChanaka Mr. Mr. AnandaAtukorala Mrs. Hiroshini Fernando Hiroshini Mrs. Prof. Ranasinghe Malik The Nomination Committee met twice during theyear.The NominationCommittee during mettwice Meetings oftheNominationCommittee. asthesecretary acts The Company Secretary profilesBrief ofthemembersare given onpages28to 31. with effect from 9November 2017. Committee. Prof. wasalsoappointed asamemberofCommittee Ranasinghe Malik while Mr. SunilG.Wijesinha continuesto beamemberoftheNomination Mr. oftheNominationCommittee Chapmanwasappointed astheChairman Stuart the NominationCommittee wasreconstituted w.e.f. 9November 2017.Accordingly, PLC inUnited Lanka to Motors theacquisition of30%stake by PLC, RILProperty of theColombo Stock Subsequent Exchange, shouldbeIndependent. theChairman andtheListingRules Accountants Lanka ofChartered ofSri issued by theInstitute As pertherequirements ofCode ofBestPractice onCorporate Governance 2017, her own re- appointment/re-election. her own re- indecisionsrelating tomember ofnominationcommittee his/ doesnotparticipate The proceedings ofthe meetingsare to regularly theBoard reported ofDirectors. A *Attended by invitation Name Prof. Ranasinghe* Malik Fernando Hiroshini Mrs. Mr. AnandaAtukorala YatawaraChanaka Mr. Mr. SunilG. Wijesinha Mr. Chapman* Stuart 109 ------(IND/NED) Chairman (NIND/NED) (GCEO/ED) (IND/NED) (NIND/NED) (IND/NED) PLC Lanka Motors United Annual Report 2017 Report Annual Attendance 2/2 2/2 2/2 2/2 2/2 2/2 | 2018

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Nomination Committee Report

Professional advice During the year, the The committee seeks external professional advice on matters within its purview Committee recommended whenever required. the re-election of Directors Performance and the appointment of The members of the Nomination Committee continued to work closely with the members to the Board Sub Board of Directors in reviewing the structure, size, composition and skills required Committees taking into for a steadfast, strong and successful organisation and reported back to the Board of Directors with its recommendations. account the performance and contribution made by Activities them towards the overall During the year, the Committee recommended the re-election of Directors and the discharge of the Board’s appointment of members to the Board Sub-committees taking into account the responsibilities performance and contribution made by them towards the overall discharge of the Board’s responsibilities.

Stuart Chapman Chairman-Nomination Committee

14 May 2018

110 within its purview from timeto time. within itspurview professionalexternal adviceonmatters toThe Committee seek hastheauthority Professional advice with related parties. interests intransacting thatmay arise the Committee to avoid of any conflicts steps have by beentaken Necessary • • • • • • includes thefollowing: derived from theCode andtheRules The responsibilities oftheCommittee, andresponsibilitiesRoles (the “Rules”). Exchange the ListingRulesofColombo Stock (the Lanka Sri ‘Code’) 9of andSection andExchange CommissionSecurities of Related Party Transactions, issuedby the to adopttheCode ofBest Practice on Committee hasbeenformedReview The Related Party Transactions (RPT) Purpose oftheCommittee Related Transactions Party Review Committee Report by theRules. RPTs asrequired intheannualreport To includeappropriate disclosures on Rules. on applicableRPTs asrequired by the To disclosures immediate market make non-recurrent. review theRPTs thatare recurrent and Establish aprocedure to identifyand basis. Company onaquarterly ofthe transactions the related party To update theBoard ofDirectors on to ensure compliancewiththeRules. To review inadvanceallproposed RPTs with theRules. To ensure thattheCompany complies Mr. AnandaAtukorala The members oftheCommittee asat31March 2018were; Non-ExecutiveIndependent Directors. The Committee consistsofthree Non-Executive Directors are ofwhomtwo Composition oftheCommittee Mrs. Hiroshini Fernando Hiroshini Mrs. Prof. Ranasinghe Malik year. The Related Party Transactions Committee heldfive the Review meetingsduring Meetings to theCommittee. asthesecretary functions The Company Secretary The profiles ofthemembersare given onpages28to 31. Committee andMr. Sunil G. Wijesinha ceasedto beamemberfrom the sameday. from 9November 2017.Prof. wasappointed as amemberofthe Ranasinghe Malik Accordingly, Mr. Chanaka Yatawara andMr. Lafirceasedto Aashiq bemembers Transactions Committee wasreconstituted Review w.e.f. 9November 2017. PLC inUnited Lanka Motors 30% stake by PLC, RILProperty theRelated Party ofthemembersbeindependent.Subsequentto theacquisitionof majority Further, theCode requires allmembersto beNon-Executive Directors andthe Rules oftheColombo Stock Exchange, shouldbeindependent. theChairman andtheListing Accountants Lanka ofChartered ofSri 2017, issuedby theInstitute As pertherequirements oftheCode ofBestPractice onCorporate Governance The proceedings ofthemeetingsare to regularly theBoard reported ofDirectors. to theBoard ofDirectors.and hascommunicated thecomments/observations theyear during The Committee transactions hasreviewed therelated party *Resigned w.e.f 9November 2017. Name Prof. Ranasinghe Malik Fernando Hiroshini Mrs. Mr. Lafir* Aashiq Yatawara*Chanaka Mr. Mr. SunilG. Wijesinha * Mr. AnandaAtukorala 111 - - - (IND/NED) Chairman (NIND/NED) (IND/NED) PLC Lanka Motors United Annual Report 2017 Report Annual Attendance 2/2 5/5 3/3 3/3 3/3 5/5 | 2018

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Related Party Transactions Review Committee Report

Activities during the year All recurrent and non- • All recurrent and non-recurrent related party transactions that had taken place during the year ended 31 March 2018 were reviewed by the Committee and communicated recurrent related party to the Board where necessary. transactions that had • In addition, the Board of Directors was updated on the RPTs of the Group on a taken place during the quarterly basis. year ended 31 March 2018 were reviewed Declaration by the Committee and A declaration by the Board of Directors as per Section 9.3.2 (d) of the Listing Rules of the Colombo Stock Exchange is included on page 127 of this Annual Report. communicated to the Board where necessary Appreciation The Committee wishes to thank Mr. Sunil G. Wijesinha, Mr. Chanaka Yatawara and Mr. Aashiq Lafir for their valuable contributions over the years.

Conclusion The related party transactions in terms of LKAS 24 – ‘Related Party Disclosures’, are given in Note 40 to the financial statements.

Recurrent related party transactions There were no recurrent related party transactions which in aggregate value exceeded 10% of the gross revenue of the Company as per audited financial statements of 31 March 2018 which required additional disclosure in this Annual Report.

Non-recurrent related party transactions On 28 March 2018, United Motors Lanka PLC, disposed its entire shareholding in the joint venture TVS Lanka (Pvt) Limited, amounting to 17,500,000 shares to its joint venture partner, TV Sundram Iyengar & Sons (Pvt) Limited, India for a total consideration of Rs. 1 billion. Details of this transaction is given under Note 40 to the financial statements.

There were no other non-recurrent related party transactions which aggregate value exceeded 10% of the equity or 5% of the total assets whichever is lower of the Company as per audited financial statements of 31 March 2018 which required additional disclosures in this annual report.

Ananda Atukorala Chairman – Related Party Transactions Review Committee

14 May 2018

112 risks. oftheidentified solutions to minimisetheprobability ofoccurrence and/ortheimpact to identify,and practices analyse, evaluate followed andmonitor risk by identifying managementprocessvalue. policies, Risk looksatimplementingvarious procedures to buildstakeholder and enhances thecapacity andassociated risks with uncertainties enablesmanagementto managementframework identifyandeffectivelyOur risk deal process. isthefundamentaltoterm thestrategic planninganddecisionmaking thatmay affect mediumandinthelong risk thevaluecreation process intheshort, business decisionscontainanelementofrisk. Therefore understandingandmanaging withintheCompany’s andto managerisks that affect the entity appetite. risk Almostall entire organisation instrategy setting, whichisdesigned to identifypotential events managementisanongoingprocess risk thathasbeenadoptedEnterprise across the Overview Enterprise Risk Management the context Establish

the risks Identify Monitor, andDocumentation Review Communication andConsultation the risks Analyse 113 Evaluate the risks PLC Lanka Motors United build stakeholdervalue. toenhances thecapacity associated and risks and with uncertainties and effectively deal management to identify framework enables management risk Our Prevention Correction Annual Report 2017 Report Annual Detection the risks Monitor

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Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Enterprise Risk Management

Risk governance Risk identification and evaluation Risk management structure Each risk is reviewed in terms of likelihood of occurrence and business impact of event/ The Board is primarily responsible for events: overseeing that risks are identified • Likelihood of occurrence is assessed on the basis of past experience, industry and appropriately managed and also conditions and the mitigating controls that are in place. A rating of 1-5 has been to identify risks that do not match the assigned for high, medium-high, medium, low medium and low for likelihood of risk appetite. The Audit Committee, to occurrence. which this function has been delegated, • The impact of the event is assessed by determining the estimated loss it would cause reviews the effectiveness of the risk and the extent of the business impact. A rating of 1-5 has been assigned for high, management process, including the medium high, medium, medium-low and low for impact for each risk. systems established to identify, assess, manage and monitor risks and the Upon assessment of the likelihood of occurrence and the extent of the business impact Internal Audit function, being a part of of each risk, it is subjected to the following matrix in order to derive the nature and the Audit Committee, plays a key role in extent of actions required. A ranking of high, moderate, low is assigned based on the this process. final score.

The Corporate Management Committee Risk Mapping takes the lead in identifying risks. The Impact Corporate Management Committee 1 2 3 4 5 examines processes and events, uncertainties and changes in the environment that might expose to Low 1 1 2 3 4 5 Risk Rating 1-5 situations that could seriously reduce Risk future earnings impair its asset value or create legal, regulatory or reputational 2 2 4 6 8 10 risks. They also evaluate options available to eliminate or mitigate risks. Monitoring Moderate 3 3 6 9 12 15 Risk Risk Rating 6-15

and reporting of risk management Likelihood measures is a responsibility that rests with the Corporate Management 4 4 8 12 16 20 Committee. 5 High 5 10 15 20 25 Risk Rating 16-25 Risk management process Risk The risk management process identifies risks, evaluates them by mapping them against the likelihood of occurrence and assessing the potential impact and identifies mitigating actions following a rigorous review and monitoring process.

114 Likelihood Heat -Group Map 5 1 4 2 3 Financial 0 Capital 1 Relationship Capital Social and Social Risk 12 Risk Business Partners 2 Shareholders Impact and Monitoring Risk 2 Risk Risk 16 Risk Reporting Reporting Risk 4 Risk Risk 15 Risk 3 Risk 1 Risk Risk 5 Risk Business Value Creation vs Risk Continuous Management Risk Natural Increase inCorporate Value Capital Risk 14 Risk Risk 13 Risk Stakeholder Value Governance Risk 11 Risk Periodic Community 4 Review Employees 115 Risk 10 Risk Risk 9 Risk Risk 6 Risk Capitals Risk 8 Risk Risk 3 Risk Risk 7 Risk Human Capital 5 Systems, Measures and Controls PLC Lanka Motors United Regulators Customers Intellectual Intellectual Capital Annual Report 2017 Report Annual Manufactured Manufactured Capital | 2018

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Enterprise Risk Management

Risks and Challenges A description of the main risks faced and controls implemented to eliminate/ mitigate/ manage such risks are given below;

Impacted Risk Risk Risk Management Actions Change in Risk Profile Capital Ref. 2017/18 2016/17 Financial capital 1. Credit risk Credit risk arises from credit Wherever applicable, prior to approving credit, a Moderate Moderate exposure to customers on customer is subject to a process of evaluation to unsecured debts. establish credit worthiness. Credit limits are initially set based on the Company’s credit policy and thereafter, revise the credit limits when required based on annual turnover and settlement patterns to minimise the risk of default. All trade debts are monitored by the Divisional Heads at the monthly meetings, with divisional staff. At these meetings overdue debts are discussed and corrective actions are taken to follow up and collect overdue debts. The monthly reports submitted to the Board of Directors include an age analysis of debtors. Credit is suspended on overdue accounts and legal action is taken to recover long overdue receivables. 2. Interest rate risk Unfavourable interest rate Proper working capital management is Moderate Moderate movements impacts negatively done to ensure that borrowing needs and on the cost of funding and investment opportunities are foreseen. Market interest income. interest rates are monitored closely to forecast future movements to ensure borrowings and investments are at the best rate for the Company.

Gearing is kept at an optimal level. 3. Exchange rate risk Negative changes in exchange Wherever favourable, variable interest rates are Moderate Moderate rates causing potential losses negotiated for investments and borrowings. on assets and liabilities and Import bills are negotiated at the most favourable transactions denominated in time. Hedging through forward contracts is used foreign currency. where desirable.

116 Capital Impacted Financial capital(contd.) Ref. Risk 4. 6. 5. Risk operations. oftheday-to-day functioning arethey dueto ensure smooth to settleduesasandwhen ofsufficientfunds Unavailability risk Liquidity moving. being obsolete due to slow of items runtherisk Inventory stock holding High Obsolescence ofInventory/ securities. of future valuesoftheequity from arising uncertainties risks price susceptible to market are securities Listed equity price risk Equity Risk Management Actions Management Risk months. cash needsfor atleastfor oftwelve aperiod notice. Facilities are inplaceto cover forecasted that urgent borrowing needsare metatshort relationships have beenbuiltwithbanksto ensure is well aware offuture cashneeds. Strong Preparation ofcashflow ensures thatCompany damaged items. are to disposeagedand and actions taken physical verification identified during inventory ordering. Obsolete anddamageditems are Purchasing Committee isinplacefor vehicle to increase salesandto reduce levels. inventory ageanalysisandstrategiesinventory are taken for obsolescence. Periodicopportunity review of reduce thestock levels andthereby reduce the Orders are placedinlinewiththedemand to decisions are to maximize taken profits. company performance. Timely purchase andexit analysis aswell asresearch on theinvestee reports andmacroeconomics analysisofindustry in-depth speculation anddecisionsare basedon taken are basedonfundamentalsratherthan investmentbusiness sectors. Equity decisions diversification ofinvestment to different portfolio ismanagedthrough risk price Equity 117 PLC Lanka Motors United Change in Risk ProfileChange inRisk Moderate Moderate Moderate 2017/18 Annual Report 2017 Report Annual Moderate 2016/17 Low Low | 2018

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Enterprise Risk Management

Impacted Risk Risk Risk Management Actions Change in Risk Profile Capital Ref. 2017/18 2016/17 7. Business environment The negative impact to the As vehicle sales are subject to regular policy High High business due to changes in changes, we have reduced the dependency government policies and on new vehicle sales segment, by gradually legislation. strengthening the other business segments such as workshop services, spare parts, lubricant sales and assembly operation.

Looking for opportunities to diversify into non related business segments. Natural capital 8. Risk of natural disasters Damages from fire and floods Safety measures are taken to minimise possible Moderate Low have been identified as key damages to people and property in case of fire disaster related risks that the or floods. Adequate and appropriate insurance Group is exposed to. covers are in place to cover if a disaster occurs to minimise the financial losses. Human capital 9. Human resource risk Failure to recruit and retain The Company invests in training and Moderate Moderate appropriately skilled employees. development. A balanced fixed and variable performance based incentives are offered to employees.

Structured employee satisfaction surveys are carried out every year.

Salary surveys are conducted to benchmark with the industry. Social and relationship capital 10. Relationship with principals Performance being adversely The group has focused on developing a mutually Moderate Moderate impacted as a result of beneficial relationship with principals in order disruptions to relationship with to minimise the risk. Regular meetings are held Principals. with the principals to explain future vision of the Company and to obtain their plans for future to build up a sound business relationship.

Agreements with well-defined duties and responsibilities are in place with all principals and being renewed where required.

Market and product performance statistics are regularly shared with the principals.

118 Capital Impacted Social andrelationshipSocial capital(contd.) Ref. Risk 11. 13. 12. Risk Company. ofthe and future performance negatively forimpact current Loss will ofcustomer satisfaction levels Drop inCustomer satisfaction impact ontheCompany.impact regulations canhave anegative withlaws and Non-compliance risk Regulatory operations. the environment dueto its The on negative impact Environmental risk Risk Management Actions Management Risk out to levels. assess thecustomer satisfaction are carried independentcustomerRegular surveys levels.satisfaction ofincreasingwith theobjective customer have beenincludedintheemployees’ evaluations Customer care index andcustomer satisfaction out to improve skills. soft Continuous trainingoncustomer care iscarried initiatives/ processes. implement andmonitor customer satisfaction A cross team isinplaceto functional plan, statutes attheendofeachyear. Consultants onthecompliancewithtax Tax outby the complianceauditiscarried Tax requirements.to complywiththestatutory Employees are beingeducated ontheneed when necessary. with hasbeenidentifiedandupdated asand All relevant statutes thatthe Group hasto comply monthlyandmonitoredreported by theBoard. compliancesandnon-are Statutory our businessoperations. Allrequiredmaking. approvals are obtainedfor Environmental are factors considered indecision theenvironment.preserve emphasising theCompany’s commitmentto outgreenteam initiatives isappointed to carry vehicles. Dedicated ofeco-friendly Introduction 119 PLC Lanka Motors United Change in Risk ProfileChange inRisk Moderate Moderate 2017/18 Annual Report 2017 Report Annual Low Moderate Moderate 2016/17 Low | 2018

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Enterprise Risk Management

Impacted Risk Risk Risk Management Actions Change in Risk Profile Capital Ref. 2017/18 2016/17 14. Reputation risk Non-acceptance of the Comply with Corporate Governance Best Practices. Low Low Company as a responsible corporate citizen can lead The group engages in various community related to loss of confidence on the activities/ CSR activities for the betterment of the Company and consequently loss general public. of business opportunities in the short–term, as well as depletion of the Company’s image. Intellectual capital 15. Information Technology risk Loss of confidential data through The IT security policy comprehensively addresses Moderate Moderate security breaches, disaster or a risks associated with the Company’s information breakdown causing loss of vital systems. data or lack of access to critical IT systems. The review of effectiveness of information security procedures and access controls adopted by the Company against threats from the internal and external environment and corruption or loss of information are part of the audit programme of the internal auditors. Recommendations made by the auditors are discussed by the Audit Committee and progress on corrective action is regularly reviewed.

Adequate connectivity ensures uninterrupted data transfer between the head office and all branches and workshops. Backup of the ERP data is kept at a remote location as part of the Company disaster recovery procedure. 16. Risk of technological obsolescence Ordering of new vehicles takes into account the Low Low Technological obsolescence technologies used in the vehicle to be imported. will impact on the inability to compete in the market which The group makes regular investment in new will reduce the customer technology through purchase of latest diagnostic satisfaction. tools for after sales service.

Staff are constantly exposed to new technology and trained to use them. The group is backed by world renowned brands, some of whom are technology leaders. Therefore, technology is leveraged to compete with others.

Purchase of IT related equipment takes into consideration technology used in those products.

120 • • of thesystem controls of internal includethefollowing: processes andintegrity The thathave key beenestablishedinreviewing theadequacy Key internal control processes requirements.accordance withrelevant andregulatory accounting principles andthatthepreparation offinancialstatements isin reporting for purposes external adequate to provide areasonable assuranceregarding thereliability offinancial The Board thatthesystem isoftheview controls ofinternal inplace, issoundand control theserisks. designing, controls ofsuitableinternal implementingandmonitoring to mitigate and procedures andcontrols onrisks faced, by identifyingandassessingtherisks andin The managementassiststheBoard intheimplementationofBoard’s policiesand responsibilities. theAudit Committee to auditdivisionsupports internal dischargeand inturn its guidelines. The Audit Committee assiststheBoard indischarging theseresponsibilities controlsinternal asand whenthere are changesto businessenvironment orregulatory thesignificant facedandthisprocess risks includesenhancingthesystemreporting of The Board hasestablishedanongoingprocess for identifying, evaluating, managing and information andrecords againstfinanciallossesorfraud. not absolute misstatement assuranceagainstmaterial ofmanagementandfinancial policies. Accordingly, thesystem controls ofinternal canonlyprovide areasonable but profile, ratherthanto offailure eliminate therisk to and achieve thebusinessobjectives such asystem areas isdesigned withinanacceptablerisk to ofrisk managethekey PLC’sUnited Lanka Motors system controls. ofinternal anditssubsidiaries However, The Board ofDirectors (“Board”) isresponsible andeffectiveness for of theadequacy Accountants Lanka. Chartered ofSri of Code ofBestPractice onCorporate of Governance 2017issuedby theInstitute The Board ofDirectors controls oninternal presents asperrequirements thisreport Responsibility StatementDirectors’ Internal on Controls submitted to theAudit Committee for meetings. review attheir periodic processes ofthecompaniesinGroup. The auditsare findingsof internal ofthesebusiness onoperationalandmanagementactivities report objective by assessedby thelevel auditto theinternal ofrisk provide anindependentand audit planapproved by theAudit Committee. ofwhichisdetermined The frequency business processes ofthecompaniesinGroup inaccordance withtheannual significant findingsinrespect ofany Audits non-compliance. were outonall carried procedures andeffectiveness control oftheinternal systems andhighlights provides oncompliancewithpoliciesand The auditfunction internal comfort the Board. budget aswell as the policiesandbusinessdirections thathave beenapproved by operations are inaccordance objectives, withcorporate strategies andtheannual the effectiveness ofthe operations ofthecompaniesinGroup andthatthe oftheBoard areThe Sub-Committees establishedto assisttheBoard inensuring 121 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Directors’ Statement on Internal Controls

• The Audit Committee reviewed internal control issues identified by the internal audit Division, the external auditors and the management evaluated the adequacy and effectiveness of the risk management and internal control systems. They also reviewed the internal audit functions with particular emphasis on the scope of audits. The minutes of the Audit Committee meetings are tabled for information of the Board on a periodic basis. Details of the activities undertaken by the Audit Committee of the Company are set out in the Audit Committee Report on pages 102 to 105.

In assessing the internal control system, the divisional heads of the Company assessed all procedures and controls. These in turn were observed and checked by the internal audit division for suitability of design and effectiveness on an ongoing basis. The assessment included subsidiaries as well.

The recommendations made by the external auditors in connection with the internal control system in previous years were reviewed during the year and appropriate steps have been taken to implement them.

The Board identified significant risks on an ongoing basis and took necessary steps for implementation of appropriate procedures to evaluate and manage identified risks and the updated risk maps were reviewed during the year.

Confirmation Based on the above processes, the Board confirms that the financial reporting system of the Company has been designed to provide a reasonable assurance regarding the reliability of financial reporting. The preparation of financial statements for external purposes has been done in accordance with Sri Lanka Accounting Standards (SLFRS/ LKAS) and regulatory requirements.

By Order of the Board

Prof. Malik Ranasinghe Chairman - Audit Committee

Chanaka Yatawara Sunil. G. Wijesinha Group Chief Executive Officer/ Executive Director Chairman

14 May 2018

122 adhere to it. andEthicsareConduct required to given copiesoftheCode ofBusiness standards atalltimes. Employees are maintaining thehighestlevel ofethical oftheCompanyactivities are conducted are given onpage04. The business The Company’s visionandmission 2.1. 2. oftheBoard ofDirectors. Report ofthisAnnual on page100form part Companies No. Act 07of2007appearing required 168ofthe by Section The information tableondisclosures stipulated time. Standards Board Monitoring withinthe Accounting andAuditing Lanka the Sri will besubmitted to theCSEandto number ofcopiestheAnnualReport Directors 2018. on 14May The required of Directors was adopted by theBoard of oftheBoard including theAnnualReport oftheCompany The AnnualReport governance. oncorporate best practices Exchange (CSE) andtherecommended 2007, ListingRulesoftheColombo Stock required by theCompanies No.07 Act of providesThis report theinformation as requirements.relevant statutory financial statements conforming to all 2018 andtheAuditors’ onthose Report Company for theyear ended31March financial statements oftheGroup andthe Company together withtheaudited ofyour ninthannualreport the twenty The Directors have pleasure inpresenting 1. General Annual Report of the Board of Directors Conduct Conduct Vision, andCorporate Mission Review ofBusiness significant impact ontheCompany’ssignificant impact state ofaffairs. Company, the financial year during under review that may itssubsidiaries have There were noother significant ofthe changes inthenature activities ofprincipal PLC.United Lanka Motors (Pvt)Limited ceasedto beajointventurewith effect from Lanka of 28March 2018, TVS (Pvt)Limited, for &Sons Iyengar India atotal considerationofRs. 1billion.Accordingly, (Pvt)Limited,joint venture, amountingto 17,500,000shares Lanka to TVS T V Sundram PLCOn 28March 2018,United Lanka Motors disposeditsentire shareholding inthe ofCompanies, 394(3)oftheCompaniesGeneral No. Act underSection 07of2007. (Pvt)Limited& Distributors wasstruckofffrom theregister maintainedby theRegistrar 2017,aspertheapplicationssubmittedOn 6May intheprevious year, UMLAgencies China. equipment from concrete Novabeans, andLiuGong mixingequipmentfrom India 3Dprinting andistribute theyearDuring theCompany to import secured theagency products from UK. The Company continuesto market Valvoline Lubricants from USAandSimonizcarcare to itscustomers atColombo andfrom itsbranchnetwork. sales services Fuso vehicles, genuinespares ofbrandsrepresented by theGroup andprovides after PLCUnited Lanka Motors and for continuesasthedistributor Mitsubishi brandnew PLCUnited Motors Lanka 2.2. Subsidiary companies Subsidiary Limited EquipmentUML Heavy LimitedDevelopments UML Property Limited Company Motor Orient Limited Unimo Enterprises Principal oftheCompany Business Activities andtheGroup 123 from India. moving equipmentandpower generators JCB earth The Company of anddistribution isinvolved inimport PLC. ofUnited Lanka Motors fully owned subsidiary This Company on8July2017asa wasincorporated PLC.leased itto United Lanka Motors This Company awarehouse hasconstructed andhas motor vehicles. ofDFSKtrucksfrom of distribution Chinaandhiring and This Company isengagedintheimport &Z100vehicles from China. ofDFSKGlory marketing The Company isalsoengagedintheassemblyand Yokohama tyres from Japan. (MG)carsfrom Garages China. Morris Thailand and vansandJMCcommercialBrilliance vehicles from ofPeroduadistribution vehicles from Malaysia, and The Company isengagedintheimport PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Annual Report of the Board of Directors

2.3. Review on Operation of the Company and the Group The “Chairman’s Report” and the “Group Chief Executive Officer’s Review of Operations” which form an integral part of this report provides an overall assessment on the financial performance and financial position of the Company, its subsidiaries and describes in detail its affairs and important events for the year. A detailed analysis of the operations and financial results is contained in the ‘Management Discussion and Analysis’.

2.4. Directors’ Responsibility for Financial Reporting The Directors are responsible for the preparation of the financial statements of the Company and to present a true and fair view of its state of affairs. The Directors are of the view that these financial statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, (SLFRSs and LKASs), Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 and the Listing Rules of the Colombo Stock Exchange.

The Statement of Directors’ Responsibility for financial reporting is given on pages 134 and 135, forms an integral part of the Annual Report of the Board of Directors.

Details of responsibilities of the Board and the manner in which those responsibilities were discharged during the year are disclosed in the Corporate Governance section on pages 84 to 101.

3. Future Developments An overview of the future developments of the Company is given in the “Chairman’s Report”, the “Group Chief Executive Officer’s Review” and the ‘Management Discussion and Analysis’’.

4. Financial Statements The financial statements of the Company and of the Group, prepared as per the regulatory requirements duly certified by the General Manager (Finance and Planning), approved by the Board of Directors and signed by two members of the Board of Directors including the Chairman are given on page 143 of the Annual Report.

5. Auditors’ Report The Company’s auditors, Messrs PricewaterhouseCoopers performed the audit on the consolidated financial statements for the year ended 31 March 2018. The Auditors’ Report on the financial statements is given on pages 137 to 141 of the Annual Report.

6. Significant Accounting Policies The Company/Group prepared the financial statements in accordance with Sri Lanka Accounting Standards (LKAS/SLFRS). The significant accounting policies adopted in the preparation of the financial statements of the Company and the Group are given on pages 147 to 161 of the Annual Report. The changes in accounting policies during the year under review are given under Note 19 to financial statement.

7. Going Concern The Directors are satisfied that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future, to justify adoption of the going concern basis.

8. Revenue The Company achieved a revenue of Rs. 9.04 billion during the year ended 31 March 2018. The details of the revenue by segment are given in - Note 9 to financial statements.

124 table below:- oftheprofitsDetails relating to theCompany andtheappropriations are given inthe Profits andappropriations 9. in Note 15to thefinancialstatements. Provision for taxationhasbeencomputed attheprescribed rates anddetailsare given 10. page 145. areRs. shown on ofreserves inthestatement 4,243 million.Details ofchangesinequity oftheCompanymillion andthecapitalreserves asat31March 2018amounted to The total revenue oftheCompany reserves asat31March 2018amounted to Rs. 6,141 Reserves proposed finaldividend. dividend andwould test ensure thepayment after ofthe complianceofsolvency Auditors from theExternal ofsolvency inrespect oftheinterim obtained thecertificate The Board ofDirectors provided Auditors to thestatement theExternal and ofsolvency payment on 06July2018. dividend ofRs. 1.50pershare hasbeenrecommended by theBoard ofDirectors for dividendofRs.An interim 3.50 pershare waspaidon29March 2018andafinal Dividends For theyear ended31March Profit for theyear before taxation Income taxexpenses Income Profit for theyear taxation after from previous year Unappropriated profit brought forward comprehensive income Other Profit available for appropriation Unappropriated profit forward to becarried 17/18 –Rs. 3.50pershare (Interim) 16/17 –Rs. 2.50pershare (secondinterim) 16/17 –Rs. 2.50pershare (firstinterim) 15/16 –Rs. 2.00pershare (final) Dividend paid Appropriations Dividends andReserves Dividends Provision forProvision Taxation 1,668,212 1,456,697 4,578,426 6,027,486 5,674,334 (211,515) (353,152) Rs.’000 (7,637) 2018 125 - - - 1,287,680 1,066,811 4,213,584 5,284,729 4,578,426 (220,869) (252,251) (252,251) (201,801) Restated Rs.’000 4,334 2017 PLC Lanka Motors United 42 to thefinancialstatements. other thantheitems disclosedinNote financial year andthedate ofthisreport theend of the between the period of anunusualnature during hasarisen orany events othermaterial transactions theopinionofDirectors,In no 13. to thefinancialstatements. revaluation oflandare given inNote 18 the financialstatements. of Details are givenproperties inNote 19to offairvaluesinvestmentDetails method. are accounted usingthefairvalue statements. The investment properties valuers andbrought into financial revalued by professionally independent All freehold landoftheGroup were equipment andinvestment property value ofproperty,Market plant, in Note 19 to thefinancialstatements. of investment areDetails given properties statements. are shown inNote 18.2to thefinancial and thedepreciation charge for theyear theyear during and disposalofproperty locations,including theextent, additions ofsuchinvestmentmillion. Details equipment amounted to Rs. 336.9 Investments inproperty, plantand 12. Rs. 135,000). amounted to Rs. 85,000(2016/17– Government approved charities made by theCompany/Group to aforementioned sum,thedonations in 2016/17)to charities. Outofthe the valueofRs. 477,500(Rs. 415,000 The Company madedonationsto 11. Post Balance Sheet Events Investment properties Property, Plant, Equipment and Corporate Donations Annual Report 2017 Report Annual | 2018

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Annual Report of the Board of Directors

14. Stated Capital 17. Corporate Governance The stated capital of the Company as Directors declarations at 31 March 2018 was Rs.336,335,420 The Directors declare that: comprising of 100,900,626 ordinary (a) The Company complied with all applicable laws and regulations in conducting its shares. business and has not engaged in any activity contravening the relevant laws and regulations. There has been no change in the stated (b) The Directors have declared all materials interests in contracts involving the capital during the year. Company and refrained from voting on matters in which they were materially interested. (c) The business is a going concern with supporting assumptions as necessary and the 15. Share Information Board of Directors has reviewed the Company’s and its Subsidiaries’ business plans There were 3,907 registered shareholders and is satisfied that the Company and its Subsidiaries have adequate resources as at the balance sheet date. to continue its operations in the foreseeable future. Accordingly, the financial statements of the Company and its Subsidiaries are prepared based on the going Distribution schedule of shareholdings concern assumption; and Information on the distribution of (d) They have conducted a review of internal controls covering financial, operational compliance controls, risk management and have obtained a reasonable assurance shareholding and the respective of their effectiveness and proper adherence. percentages are given in the section on ‘Share Information’ on pages 211 to 214. The Company has compiled with the Code of Best Practice on Corporate Governance 2017, issued by Institute of Charted Accountants of Sri Lanka, and also the Listing Rules Dividends, earnings, ratios, net assets, of the Colombo Stock Exchange. The level of conformance is given in the section on market values and the trading of the ‘How we govern’ on pages 97 to 99. shares Information relating to dividends, The Company maintains and practices high principles of good corporate governance. earnings, ratios, net assets, market values A separate report on “Corporate Governance” is given on pages 84 to 101 in the Annual and the trading of the shares are given Report. on page 213. 18. Board of Directors Names of the Directors who held office during the financial year are given in the The movement in the number of shares following table: represented by the stated capital of the Company is given in the section on Name of Director Classification Remarks ‘Investor Information’ on page 217. Mr. Sunil G. Wijesinha NED/NIND Director/Chairman since July 2013. Mr. Chanaka Yatawara GCEO/ED Non-Executive Director since June 2004; Substantial shareholdings Appointed as an Executive Director since The details of top twenty shareholders November 2004. and the percentage holding of the public Mr. Ananda Atukorala NED/IND Director since November 2005. are given under “Share Information” on Mr. Aashiq Lafir ED Executive Director since May 2006 and pages 211 to 214. resigned w.e.f 31 March 2018.

16. Equitable Treatments to Mr. Ramesh Yaseen ED Executive Director since June 2008. Shareholders Mrs. Hiroshini Fernando NED/NIND Director since July 2013. Prof. Malik Ranasinghe NED/IND Director since July 2014. The Company at all times ensures that all Mr. Stuart Chapman NED/IND Director since September 2016. shareholders are treated equitably. Mr. Hiroyasu Inoue NED/IND Director since January 2017.

IND - Independent Director NIND - Non Independent Director NED - Non Executive Director ED - Executive Director

126 committees andtheBoard. The Board is upon matters relating to theBoard Sub- bringing hisindependentjudgement independent mannerover theyears inan hasacted Ananda Atukorala The Board recognises thatMr. in November 2014. years inoffice asNon-Executive Director Mr. completed nine Ananda Atukorala Report. intheAnnual basis ofitsdetermination notmetandthe and specifythecriteria Director isnevertheless ‘independent’ circumstances, isoftheopinionthat into accountallthe the Board taking the date ofthefirst appointment,unless the Board for ofnineyears aperiod from on independent ifhe/shehasserved Director shall notbeconsidered Exchange specifythataNon-Executive The ListingRulesoftheColombo Stock Directors ofNon-ExecutiveIndependence Board ofDirectors. Board NominationCommittee andthe unanimous recommendation ofthe onthe offer themselves for re-election retires by rotation andbeingeligible G. Wijesinha andProf. Ranasinghe Malik of Association oftheCompany, Mr. Sunil 83oftheArticles oftheArticle terms In andretirement ofDirectors Re-election retirement from theCompany. from 31March 2018,following his Director (Finance) resigned witheffect the year. Mr. Lafir, Aashiq Executive There were appointmentsduring nonew Directors New appointments andresignations of Structure’ onpages16and17. of theCompany are given inthe ‘Group Names oftheDirectors ofsubsidiaries List ofDirectors ofsubsidiaries or proposed withtheCompany. contracts declarations oftheirinterest incontracts the Company have made necessary interests register andtheDirectors of The Company maintainstheDirectors’ proposed contracts withtheCompany Directors’ interests incontracts or theyearduring underreview. The Directors have any loans nottaken Note 13.1to thefinancialstatements. financial year underreview isgiven in Group andtheCompany the during other benefitspaidinrespect ofthe ofDirectors'Details emolumentsand benefits Directors’ remuneration andother information” onpage214. March 2018have beendisclosedin “share year andtheirshareholding asat31 in shares oftheCompany the during disclosure inrespectofDirectors’ dealings Directors’ shareholding 2017, asat1April company Directors’ dealingsinshares ofthe Annual Report. meetings are given onpage101ofthe the attendance of Directors atthese Transactions Committee and Review Nomination Committee, Related Party Committee, Committee, Remuneration Committee meetingsofAudit of Board andBoard Meetings Sub Directors’ meetingswhichcomprise Directors’ meetings the Company. Non-Executive‘Independent Director’ of Mr. continuesasan AnandaAtukorala aspects, theBoard that determined intoHaving accountallrelevant taken manner dueto histenure inoffice. Director hasbeenimpaired inany believe thathisstatusas ‘Independent’. of theopinionthatthere isnoreason to 127 PLC Lanka Motors United party transactions. party Colombo Stock Exchange onrelated requirements oftheListingRules The Company hascompliedwiththe to transactions. recurrent related party or 10%ofthegross revenue inrelation transactions non-recurrent related party assets, whichever islower inrelation to or5%ofthetotal of 10%theequity whichexceedtransactions thethreshold There were nootherrelated party total consideration ofRs.1 billion. (Pvt)Limited, for &Sons Iyengar India, a the jointventure partner, T V Sundram amounting to 17,500,000 shares to (Pvt)Limited,the jointventure, Lanka TVS PLC disposeditsentire shareholding in On 28March 2018,United Lanka Motors in Note 40 to thefinancialstatements. Disclosures’,‘Related Party andare given 24– ofLKAS interm transactions party if any, thatcouldbeclassifiedasrelated The Directors have disclosedtransactions, transactions Related party by shareholders.inspection The interests register isavailable for register theyear during underreview. wereentries madeintheinterests maintains aninterests register. Allrelated the Companies No. Act 07of2007, The Company, incompliancewith Entries intheinterests register were interested. from voting onmatters inwhichthey As Directors apractice, have refrained other thanthosedisclosed. proposed withtheCompany contracts interest or inany othercontracts Directors have nodirectorindirect Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Annual Report of the Board of Directors

Board Sub-committees the Remuneration Committee was 21. Statutory Payments The Board while assuming the overall reviewed during the year by circulating a The Directors, to the best of their responsibility and accountability in the questionnaire among the Directors. knowledge and belief, are satisfied management of the Company has also that all statutory payments due to the appointed Board Sub Committees to 19. Risk Management and Internal government, other regulatory institutions ensure oversight and control over certain Controls and related to the employees have been affairs of the Company. They are Audit The Directors periodically review and made or provided for during the year Committee, Remuneration Committee, evaluate the risks that are faced by the under review. Related Party Transactions Review Company. The various exposures to risk Committee and Nomination Committee. by the Company and specific steps taken 22. Outstanding Litigations While the first three committees are by the Company in managing the risks In the opinion of the Directors and in required by the Listing Rules of the are detailed under the ‘Enterprise Risk consultation with the Company’s lawyers, Colombo Stock Exchange, functioning of Management’ on pages 113 to 120 of the litigations which are currently pending all four committees are recommended by Annual Report. against the Group and the Company the Code of Best Practice on Corporate will not have a material impact on the Governance – 2017 issued by the The Board of Directors, through reported financial results and future Institute of Chartered Accountants of Sri the involvement of internal audit operations. Lanka. and monitoring division, has taken steps to ensure and have obtained 23. Responsible Corporate Behavior The Board Sub-committees play a reasonable assurance that an effective The Board is committed to and considers critical role in order to ensure that the and comprehensive system of internal it a key priority to act responsibly activities of the Company at all times controls are in place covering financial, towards its stakeholders and to manage are conducted with the highest ethical operational and compliance controls economic, environmental and social standards and in the best interest required to carry on the business in an impacts during value creation activities, of all its stakeholders. The terms of orderly manner, safeguard the Company’s efficiently and effectively. reference of each Committee is set by assets and to secure as far as possible the the Board. The terms of reference of accuracy and reliability of the financial 24. Environmental Protection these Sub-committees conform to the records. recommendations made by various The Company has made its best endeavors to comply with the relevant regulatory bodies such as the Securities The Board is satisfied with the environment laws and regulations. The and Exchange Commission of Sri Lanka effectiveness of the system of internal Company has not engaged in any activity and the Colombo Stock Exchange. controls that were in place during the that is harmful or hazardous to the year under review and up to the date environment and has taken all possible The composition of the Board Sub of approval of the annual report and steps that are necessary to safeguard Committees as at 31 March 2018 and the financial statements. The Directors’ the environment from any pollution that details of the attendance by Directors at Statement on the Internal Controls is could arise in the course of carrying out meetings are given on page 101, while given on pages 121 and 122. the reports of these Sub-committees are its sales and service operations. given on pages 102 to 112. 20. Compliance with Laws and Specific measures taken to protect the Regulations environment is given in the section on Review of performance of the board To the best of the knowledge and belief ‘Environment’ in the Sustainability Report and board committees of the Directors, the Company has not on pages 65 and 66. The performance of the Board has engaged in any activities contravening been appraised through a formalised the laws and regulations of the country. process, where each individual Director anonymously comments on the dynamics of the Board. The performance of the Board, Audit Committee and

128 auditors donothave any relationship as fartheDirectors are aware, the PricewaterhouseCoopersMessrs and Based onthedeclarationprovided by Auditors’ independence statements. are given inNote 13.1.1to thefinancial andnon-auditservices related services PricewaterhouseCoopers for audit,audit The fees paidto theauditors, Messrs Auditors’ remuneration 29. Auditors theyear.during employee share ownership/option plans The Company didnothave any 28. under review. relations oftheCompany theyear during to employees andemployeepertaining There have issues beennomaterial 27. theensuingfinancialyear.during towhich isexpected becompleted the SAPsuite of HANA (SOH)ERPsystem to investundertook Rs. 266million in to customers, deliver services superior toview improve theprocesses andto theyear,During theCompany, withthe 26. Technology to 78. onpages67 Report in theSustainability given on inthesection ‘Human Capital’ details ofhumanresources initiatives are was985(2016/2017-976). year-end The the Company, asatthe itssubsidiaries The number ofpersonsemployed by the achievement goals. ofitscorporate ensure towards optimumcontribution implement effective to HRpractices human resource development and The Company continuesto invest in 25. Employee Share Plans Ownership Relations Industrial Human Resources Chairman G. Wijesinha Sunil 14 May 2018. 14 May Company Secretary Hisham Rinoza Mrs. Chief Executive Executive Officer/ Director YatawaraChanaka Signed inaccordance witharesolution adopted by theBoard ofDirectors. thecontents ofthisAnnualReport. acknowledge As required by theCompanies No. Act 07of2007,theBoard ofDirectors doeshereby 32. PLC over anditsSubsidiaries theyears. 2006until31MarchMay 2018,for to United hisvaluablecontributions Lanka Motors The Board ofDirectors wishesto thankMr. ontheBoard from Lafirwhoserved Aashiq 31. Appreciation 219. 2018. relatingThe isgiven NoticeofMeeting to Meeting theAnnualGeneral onpage oftheCompany Meeting ninthAnnualGeneral willbeheldon28June The twenty 30. to beheldon28June2018. Meeting General Directors to theirremuneration determine willbeproposed Annual attheforthcoming auditors, PricewaterhouseCoopersappointment ofexternal the Messrs andauthorising accordance withtheCompaniesIn No. Act 07of2007,aresolution relating to the Appointment ofauditors Accountants Lanka. ofChartered ofSri issued by theInstitute their independence, withinthemeaningofCode ofProfessional andEthics Conduct or interests withtheCompany orinany thatmay have ofthesubsidiaries on abearing Acknowledgement oftheContents oftheReport Annual General Meeting 129 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business

Financial Information

Financial Calendar 133 Statement of Directors’ Responsibility 134 CEO and CFO’s Responsibility Statement 136 Independent Auditor’s Report 137 Statement of Profit or Loss and Other Comprehensive Income 142 Statement of Financial Position 143 Statement of Changes in Equity 144 Statement of Cash Flows 146 Notes to the Financial Statements 147 Financial Calendar

Financial Statements 2017/18 First quarter released on - 02 August 2017 Second quarter released on - 09 November 2017 Third quarter released on - 26 January 2018 Fourth quarter released on - 15 May 2018

Annual Report and Accounts 2016/2017 - 07 June 2017

Meetings Twenty eighth Annual General Meeting - 30 June 2017 Twenty ninth Annual General Meeting - 28 June 2018

Dividends First interim dividend 2017/18 - 29 March 2018 Final dividend 2017/18 - 06 July 2018 (Proposed subject to shareholder approval) (Recommended) United Motors Lanka PLC Annual Report 2017 | 2018

Statement of Directors’ Responsibility

The responsibilities of the Directors’ in relation to the financial or income and expenditure for the Company and the Group statements of the Company and the consolidated financial as at the balance sheet date. In keeping with this requirement, statements of the Company and its subsidiaries are set out in this the Company has maintained proper books of account and the statement. The responsibilities of the external auditors in relation financial reporting system is reviewed at regular intervals. to the financial statements are set out in “Auditors’ Report” appearing on pages 137 to 141. Following a review of the Company’s financial and related information including cash flows and borrowing facilities, the As per the provisions of the Companies Act No. 07 of 2007, the Directors are satisfied that the Company and its subsidiaries have Directors are required to prepare for each financial year and adequate resources to continue in business for the foreseeable place before a general meeting financial statements which future. Accordingly, the financial statements have been comprise of; prepared on the basis of a going concern and the Board accepts yy the state of affairs of the Company and the Group as at the responsibility for the integrity and objectivity of the financial balance sheet date; and statements presented. yy income statement and the statement of comprehensive income which presents a true and fair view of the profit or The Directors have provided the Company’s auditors, Messrs loss or income and expenditure of the Company and the PricewaterhouseCoopers with every opportunity to take Group as at the balance sheet date which complies with the whatever steps that are necessary and appropriate inspections requirements of the Companies Act No. 07 of 2007. for the purpose of enabling them to express their opinion. Accordingly, Messrs PricewaterhouseCoopers has examined the yy statement of changes in equity, Statement of Cash Flows for financial statements made available by the Board of Directors the year then ended and notes thereto. together with all the financial records, related information, minutes of board meetings etc., in order to express their opinion The Directors have ensured that in preparing these financial on financial statements are given on page 137. statements; yy appropriate accounting policies have been used and applied The Directors are aware of the responsibility to take whatever in a consistent manner; steps that are reasonable to safeguard the assets of the yy all applicable accounting standards as relevant have been Company and that of the Group and in that contexts to have applied where relevant; appropriate internal control systems to prevent and detect fraud yy prudent judgement and reasonable estimates have been and other irregularities. The Directors have accordingly instituted made so that the form and substance of transactions are comprehensive internal control mechanisms to ensure that as properly reflected; far as it is practically possible, the Company’s business is carried out in an orderly manner, that its assets are safe guarded and yy compliance with the Companies Act No. 07 of 2007, Listing that the records of the Company are accurate and reliable. The Rules of Colombo Stock Exchange: and existence of such internal controls are regularly monitored by yy requirements of Sri Lanka Accounting and Auditing the internal audit division. Standards Act No.15 of 1995 have been followed. Accordingly, the Directors confirm that the financial statements The Board of Directors also wishes to confirm that, as required of the Company and the Group give a true and fair view of; by section 166(1) and 167(1) of the Companies Act No. 07 of yy the state of affairs and the financial position of the Company 2007, the annual report has been prepared and the Directors and the Group as at 31 March 2018 and have ensured that a copy is sent to every shareholder of the yy the profit or loss or income and expenditure for the financial Company. year then ended. The Board of Directors provided the Statement of Solvency to Under section 150 of the Companies Act No. 07 of 2007, the auditors and obtained Certificates of Solvency from the the Directors of the Company are responsible for ensuring auditors in respect of each dividend payment in terms of Section that proper books of account are maintained to record all 56(2) of the Companies Act No. 07 of 2007. transactions of the Company and its subsidiaries and that financial statements are prepared for each financial year to give a true and fair view of the state of affairs and of the profit or loss

134 14 May 2018 14 May Company Secretary Ms. H Rinoza OrderBy oftheBoard. responsibilities assetoutinthisstatement. The Directors are have thatthey oftheview discharged their review. provided for atthefinancialresults for inarriving theyear under employees, asatthebalancesheetdate, have beenpaidor Companies withintheGroup onbehalfofandinrespect ofits Company taxes andallcontributions payable andlevies by the and belief, duespayable by the alltaxes andothersstatutory The thatto Directors thebestoftheirknowledge confirm Compliance Report Rules oftheColombo Stock Exchange, where applicable. 07onContinuing ListingRequirements oftheListing Section Company hascompliedwiththerequirements underthe Further, theBoard ofDirectors thatthe wishesto confirm 07 of2007immediately thepayment after dividends. ofinterim Solvency Test 56(3)oftheCompanies No. Act of section interms The Board ofDirectors alsofulfilledtherequirement ofthe isham 135 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

CEO and CFO’s Responsibility Statement

The financial statements of United Motors Lanka PLC and effectiveness of the Company’s internal controls and procedures the Group are prepared in compliance with the Sri Lanka and are satisfied that the controls and procedures were effective Accounting Standards issued by the Institute of Chartered as of the end of the period covered by this annual report. We Accountants of Sri Lanka (SLFRS / LKAS), the requirements of the confirm, based on our evaluations that there were no significant Companies Act No. 07 of 2007, the Sri Lanka Accounting and deficiencies and material weaknesses in the design or operation Auditing Standards Act No. 15 of 1995 and the listing rules of the of internal controls. No fraud that involved management or Colombo Stock Exchange applicable to the Company. other employees was reported in the year under review.

The accounting policies used in the preparation of the financial Our internal audit division has conducted periodic audits to statements are appropriate and are consistently applied, provide reasonable assurance that the established policies except where otherwise stated in the notes accompanying and procedures of the Company were consistently followed. the financial statements. There are no departures from the However, there are inherent limitations that should be prescribed Accounting Standards in their adoption. Comparative recognised in weighing the assurances provided by any system information has been reclassified wherever necessary to comply of internal controls and accounting. with the current presentation. There are no departures from the prescribed Accounting Standards in their adoption. Comparative The financial statements were audited by information has been reclassified whenever necessary to comply PricewaterhouseCoopers, Chartered Accountants, the with the current presentation. The significant Accounting independent auditors. Policies and estimates that involved a high degree of judgement and complexity were discussed with the Audit Committee. The Audit Committee of your Company meets periodically with the independent auditors to review the manner in which the The significant accounting policies adopted in the preparation auditors are performing their responsibilities, and to discuss of the financial statements of the Group and the Company are auditing, internal control and financial reporting issues. To ensure given on pages 147 to 161 of the annual report. complete independence, the independent auditors and the internal auditors have full and free access to the members of the We confirm, that to the best of our knowledge, the financial audit committee to discuss any matter of substance. statements and other financial information included in this annual report, fairly present in all material aspects, the financial It is also declared and confirmed that the Company has position, results of the operations and cash flows of the complied with and ensured compliance with the guidelines for Company and the Group as of and for the periods presented in the listed companies where mandatory compliance is required. this annual report. It is further confirmed that the Company has complied with all applicable laws, regulations and other guidelines and that The Board of Directors and the management of your Company there are no known material litigations and claims against the accepts responsibility for the integrity and objectivity of these Company other than those arising out of the normal course of financial statements. The estimates and judgements relating business. to the financial statements were made on a prudent and reasonable basis, in order that the financial statements reflect a true and fair manner, the form and substance of transactions and reasonably present the Company’s state of affairs. It is confirmed that the Company has adequate resources to continue its Thushara Jayasekara operation in the foreseeable future. Therefore, the Company General Manager - Finance & Planning will continue to adopt the “going concern” basis in preparing these financial statements. We are responsible for establishing and maintaining internal controls and procedures and have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure Chanaka Yatawara that material information relating to the Company is made Group Chief Executive Officer / Executive Director known to us and for safeguarding the Company’s assets and preventing and detecting fraud and error. We have evaluated the 14 May 2018

136 Independent Auditor’sIndependent Report in forming ouropinionthereon, and we donotprovide aseparate opiniononthesematters. statements ofthecurrent period. These matters were addressed ofourauditthefinancial statements asawhole, inthecontext and auditmatters areKey thosematters that,inourprofessional judgment, were ofmostsignificance inourauditofthefinancial Key auditmatters our otherethicalresponsibilities inaccordance with theCode ofEthics. We are independentoftheGroup (Code inaccordance ofEthics),andwe have withtheCode Lanka ofEthicsissuedby fulfilled CASri Independence weevidence have obtainedissufficientandappropriate to provide abasisfor ouropinion. in the Auditor’s described ResponsibilitiesfortheAuditofFinancial further ofourreport. section Statements We believe thattheaudit AuditingWe Standards (SLAuSs). ourauditinaccordance Lanka conducted Ourresponsibilities withSri underthosestandards are Basis foropinion y y y y y The financialstatements oftheCompany andtheconsolidated financialstatements of theGroup comprise: W Standards. andcashflows forAccounting theyear31 March 2018,andoftheirfinancialperformance thenendedinaccordance Lanka withSri the Company Group”) (“the anditssubsidiaries give ofthefinancialpositionCompany atrueandfairview andtheGroup asat PLC andtheconsolidated ouropinion,thefinancialstatements financialstatements ofUnited of Lanka Motors In Company”) (“the opinion Our ontheauditoffinancialstatements Report T o the Shareholders of United Motors Lanka PLCo theShareholders ofUnited MotorsLanka y y y y y hat we have audited the notes to the financial statements, which include a summary ofsignificant the notes to accountingpolicies. thefinancialstatements, whichincludeasummary the statement of cashflows for theyear thenended;and for the statement of changesinequity theyear thenended; the statement of profit orlossandothercomprehensive incomefor theyear thenended; the statement of financialpositionasat31March 2018; 137 PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Independent Auditor’s Report Contd.

The Company:

Key Audit Matter How our audit addressed the Key Audit Matter Valuation of the Company’s land Our audit approach mainly included substantive procedures (Refer note 18.2 to 18.4 in the financial statements) which covered the following;

The Company owns a portfolio of land at Colombo 02, yy verified the completeness and accuracy of the information Orugodawatta, Ratmalana and Jaffna, the cost of which amounts provided to the valuer; to Rs. 821,496,000 as at 31 March 2018. yy evaluated the appropriateness of the valuation methodology by comparing with the methods used in general industry The Company engaged an independent valuer to value its practices; portfolio of land and the ensuing surplus from the valuation for yy evaluated the relevance and reasonableness of significant the year ended 31 March 2018 amounted to Rs.1,320,533,000. assumptions used in the valuation [i.e. price ranges at which nearby land are transacted, consideration of other factors The valuation of land is an area of significant judgement and such as access to main roads, size of the land extent in one includes a number of assumptions, including market prices plot]; of comparable properties in close proximity after adjusting yy verified the land values considered by the valuer by for differences in key attributes such as property size, site performing third party searches; and improvements and access to public roads. yy assessed the competence and independence of the external valuer.

Based on our work performed, we found the surplus recorded from revaluation of land for the year ended 31 March 2018 to be appropriate. Change in accounting policy for measurement of the Our audit approach mainly included substantive procedures Company’s investment property which covered the following; (Refer note 19 in the financial statements) yy verified the completeness and accuracy of the information The Company’s investment property comprised of land and provided to the valuer; buildings situated at Colombo 2 and is carried at fair value of yy evaluated the appropriateness of the valuation methodology Rs. 468,500,000 as at 31 March 2018. by comparing with the methods used in general industry practices; During the year, the Company changed its accounting policy yy evaluated the relevance and reasonableness of significant in respect of investment property from cost model to fair value assumptions used in the valuation [i.e. price ranges at which model to be in line with the policies of the parent entity. The nearby land are transacted, consideration of other factors Company engaged an independent valuer to determine the fair such as access to main roads, size of the land extent in one value of its investment property at each balance sheet date for plot, physical state of the buildings, replacement cost per sq retrospective accounting to conform with LKAS 8 - Accounting ft]; Policies, Changes in Accounting Estimates and Errors. yy verified the land values considered by the valuer by performing third party searches; and The valuation of land and buildings is an area of significant yy assessed the competence and independence of the external judgement, and includes a number of assumptions, including valuer. market prices of comparable properties in close proximity after adjusting for differences in key attributes such as property size Based on our work performed, we found the fair values of and the physical state of buildings. investment property for the year ended 31 March 2018 to be appropriate and the adjustments for retrospective application of fair values and related disclosures are adequate.

138 The Group: Those charged withgovernance are responsible for overseeing theCompany’s andtheGroup’s process. financialreporting but to doso. accounting unlessmanagement eitherintends to liquidate theCompany/ Group orto cease operations, orhasnorealistic alternative disclosing,to continueasagoingconcern, asapplicable, matters related basisof andusingthe goingconcern to goingconcern preparing theseparate/ consolidatedIn financialstatements, managementisresponsible for assessingtheCompany’s/ Group’s ability statements thatare free from misstatement, material whetherdueto fraudorerror. Accounting Standards to andfor enablethepreparation offinancial control suchinternal isnecessary asmanagementdetermines isresponsibleManagement for thepreparation offinancialstatements thatgive inaccordance atrueandfairview Lanka withSri Responsibilities ofmanagementandthosecharged withgovernance forthefinancialstatements inthisregard.report conclude thatthere misstatement isamaterial ofthisotherinformation, we are required thatfact. to report We have nomatters to If, ontheotherinformation we basedonthework thatweto have thedate obtainedprior ofthisauditor’s performed we report, appearsto misstated. bematerially in theaudit,orotherwise doing so, considerwhetherthe otherinformation obtained inconsistent ismaterially withthefinancialstatements orourknowledge withourauditofthefinancialstatements, connection ourresponsibility isto readIn theotherinformation identifiedabove and, in assurance conclusionthereon. Our opiniononthefinancialstatements doesnotcover theotherinformation andwe donotandwillexpress any form of but doesnotincludethefinancialstatements andourauditor’s thereon. report isresponsibleManagement for theother information. The otherinformation theinformation comprises includedintheAnnualReport information Other delivery ofgoods. delivery dueto timingdifferencesperiod invoicing between arising and end, couldberecorded astransactions financial intheincorrect statements closeto related theyear occurring to transactions We considerthere ofmisstatement to ofthefinancial bearisk orders to thecustomer.on completionofservice ofvehicles, productsor andlubricant tyres,delivery spare parts different revenue streams where revenue recognition occurson driverofbusinessperformance. isakey Revenue The group has (Refer note 10inthegroup financialstatements) Revenue recognition Key Audit Matter 139 is appropriately recorded period. reporting inthecorrect we are performed, Based onourwork satisfiedthattherevenue y y y y covered thefollowing; understanding controls related to therevenue process, which Our auditapproach includedsubstantive procedures and How ourauditaddressed theKey Audit Matter y y y y 2018. focusing themonthsofMarch andApril onpostingsduring for entries journal material examined andobtainedsupport oftheseonpreimpact year endrevenue. reviewed thepostyear endsalesreturns andassessedthe revenue period. isrecognised reporting inthecorrect year endandagreed to evidence to support underlying theinvoices selected raised withinproximity ofthe financial of salestransactions; controlseffectiveness focused ofthekey ontimelyrecording We obtainedanunderstandingandtested theoperating PLC Lanka Motors United Annual Report 2017 Report Annual | 2018

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Independent Auditor’s Report Contd.

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

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

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

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

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

140 14 May2018 Colombo AccountantsChartered responsible for membershipnumberoftheengagementpartner signing thisindependentauditor’s is1795. Lanka CA Sri report required for theauditand, asfarappearsfrom ourexamination,proper accountingrecords have by the Company. beenkept As required 163(2)oftheCompanies No. by Act, section 07of2007,we have obtainedalltheinformation andexplanationsthatwere requirements onotherlegalandregulatory Report 141 Annual Report 2017 Report PLC Annual Lanka Motors United | 2018

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Statement of Profit or Loss and Other Comprehensive Income

Group Company For the year ended 31 March 2018 2017 2018 2017 Note Rs.’000 Rs.’000 Rs.’000 Rs.’000 Re-stated

Revenue 10 14,716,147 17,925,373 9,035,974 9,637,973 Cost of sales (11,693,030) (14,568,945) (6,586,427) (7,216,966) Gross profit 3,023,117 3,356,428 2,449,547 2,421,007 Other income 11 182,693 100,022 909,445 117,381 Distribution expenses (389,179) (436,336) (229,677) (226,625) Administrative expenses (1,645,990) (1,409,491) (1,470,839) (1,257,854) Other expenses 12 (93,294) (50,791) (50,598) (29,538) Profit from operations 13 1,077,347 1,559,832 1,607,878 1,024,371 Finance income 14.1 58,699 97,868 159,560 204,488 Finance cost 14.1 (407,200) (295,125) (99,226) (52,199) Net finance (cost) / income (348,501) (197,257) 60,334 152,289 Change in fair value of investment property 19 - - - 111,020 Share of profit of equity accounted investee (net of income tax) 22.1 137,612 76,027 - - Profit before income tax expenses 866,458 1,438,602 1,668,212 1,287,680 Income tax expense 15 (197,558) (312,495) (211,515) (220,869) Profit for the year 668,900 1,126,107 1,456,697 1,066,811

Other comprehensive income Items that will never be reclassified to profit or loss Employee benefit plan actuarial gains / (losses) 32.6 (11,645) 7,691 (10,260) 5,596 Gain from revaluation of land 18.3 1,633,673 - 1,320,533 - Deferred tax on actuarial gains / (losses) on defined benefit obligation 33.3 3,008 (1,880) 2,623 (1,262) Equity accounted investee - share of other comprehensive income 22.1 (2,157) 2,420 - -

Items that are or may be reclassified to profit or loss Net change in fair value of available for sale financial assets 14.2 19,131 2,219 11,424 (808)

Total other comprehensive income for the year 1,642,010 10,450 1,324,320 3,526

Total comprehensive income for the year 2,310,910 1,136,557 2,781,017 1,070,337

Profit attributable to: Equity holders of the parent 668,900 1,126,107 1,456,697 1,066,811 Profit for the year 668,900 1,126,107 1,456,697 1,066,811

Total comprehensive income attributable to: Equity holders of the parent 2,310,910 1,136,557 2,781,017 1,070,337 Total comprehensive income for the year 2,310,910 1,136,557 2,781,017 1,070,337

Earnings per share (Rs.) 16 6.63 11.16 14.44 10.57 Dividend per share (Rs.) 17 - - 3.50 7.00

Notes from pages 147 to 210 form an integral part of these financial statements. Figures in brackets indicate deductions.

142 Statement ofFinancial Position 14 May 2018 14 May Colombo Chairman G. Sunil Approved andsigned for andonbehalfoftheBoard ofDirectors. the Board ofDirectors 2018. on14May The Board ofDirectors isresponsible for the preparation andpresentation ofthesefinancialstatements. These financialstatements were approved by General Manager-Finance &Planning T assets Intangible Investment property Property, plantandequipment assets Non-current Assets Note As at 31March Trade andotherreceivables Inventories 25 Current assets T Deferred taxassets benefitplan Defined investments Other accounted investeeInvestments inequity Investments insubsidiaries Interest bearing borrowingsInterest bearing Current liabilities T Deferred taxliabilities Employee benefits liabilities Non-current T earnings Retained components ofequity Other Capital reserve Stated capital E E T T Cash andcashequivalents investments Other Current taxreceivables Amounts duefrom related parties I certify thatthesefinancialstatements are incompliancewiththerequirementsI certify ofCompanies No. Act 07of2007. Notes from pages147to ofthesefinancialstatements. 210form anintegral part Net assetspershare (Rs.) T T T Bank overdrafts Current taxliabilities Amounts dueto related parties Trade andotherpayables otal non-current assets otal non-current liabilities otal non-current holdersoftheparent attributableto theequity otal equity otal assets otal current assets otal equity andliabilities otal equity otal liabilities otal current liabilities hushara Jayasekara quity andliabilities quity W ijesinha

Group CEO/Executive Director Y Chanaka 20 19 18 26 33.1 32.2 24 22 21 31 33.2 32.1 30 29 28 24 36.2 27 28 36.1 35 34

12,700,127 10,742,36911,695,5809,267,7158,903,681 16,890,500 16,922,74613,044,45612,224,49510,653,318 16,890,500 16,922,74613,044,45612,224,49510,653,318 atawara 7,497,571 6,762,1937,497,8646,383,1385,899,599 9,392,929 10,160,553 4,190,373 6,180,3771,348,8762,956,7801,749,637 3,937,583 5,967,5121,110,9282,768,2981,595,419 143 7,034,395 5,174,0826,420,8894,916,1694,482,016 1,657,783 1,990,190 6,485,929 7,475,7043,456,0374,210,4772,349,153 2,718,432 3,965,092 6,392,067 6,053,0675,674,3344,578,4264,213,584 1,415,716 1,396,5851,442,0421,430,6181,431,426 4,556,009 2,956,3824,242,8692,922,336 1,156,160 566,106 1,016,933 1,693,473 252,790 212,865237,948188,482154,218 356,309 672,573274,163554,191614,655 203,713 174,435186,845161,671154,070 336,335 114,433 118,171110,458101,895167,460 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 10,729 11,980 12,057 8,729 84,081 94,39880,52291,10198,582 49,077 38,43051,10326,811 87,203 119,673 125.87 106.46115.9191.8588.24 87,785 190,776 5,854 5,193 2018 2017 - - 800,431 - - 3,687 - Group Company U nited M nited otors L otors 5,546,592 5,841,3574,753,719 1,045,707 464,495320,957 468,500 357,480 247,400 172,400 917,215 1,015,144 862,150 1,153,8971,012,017 40,430 31,56817,998 87,203 49,796 42,64129,280 88,524 110,000386,662 6,390 7,232 anka PLC A anka - 173,545 - - - 1,359,865 Re-stated 119,673 1,282,125 nnual R nnual 2017 01.04.2016 eport 2017eport Re-stated 783,486 | 2018 921 148 -

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Statement of Changes in Equity

Stated Capital Other Components of Equity Retained Total Capital Reserve Development Property, General Available earnings equity Reserve Plant and Reserves for Sale Equipment Reserve Replacement Reserve Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Group Balance as at 01.04.2016 336,335 2,956,382 785,400 308,900 466,250 (166,184) 5,625,032 10,312,115

Total comprehensive income for the year Profit for the year 1,126,107 1,126,107 Other comprehensive income Employee benefit plan actuarial gains 7,691 7,691 Deferred tax on actuarial losses on defined benefit obligation (1,880) (1,880) Net change in fair value of available for sale financial assets 2,219 - 2,219 Equity accounted investee - share of OCI 2,420 2,420 Total comprehensive income for the year - - - - - 2,219 1,134,338 1,136,557

Transactions with owners, recognised directly in equity Distribution to owners of the Company Final dividend paid 2015 / 2016 (201,801) (201,801) First interim dividend paid 2016 / 2017 (252,251) (252,251) Second interim dividend paid 2016 / 2017 (252,251) (252,251) Balance as at 31.03.2017 336,335 2,956,382 785,400 308,900 466,250 (163,965) 6,053,067 10,742,369

Total comprehensive income for the year Profit for the year 668,900 668,900 Other comprehensive income Employee benefit plan actuarial losses (11,645) (11,645) Deferred tax on actuarial gains on defined benefit obligation 3,008 3,008 Net change in fair value of available for sale financial assets 19,131 - 19,131 Transfer of revaluation reserve on disposal of land (34,046) 34,046 - Gain from revaluation of land 1,633,673 1,633,673 Equity accounted investee - share of OCI (2,157) (2,157) Total comprehensive income for the year - 1,599,627 - - - 19,131 692,152 2,310,910

Transactions with owners, recognised directly in equity Distribution to owners of the Company First interim dividend paid 2017 / 2018 (353,152) (353,152) Balance as at 31.03.2018 336,335 4,556,009 785,400 308,900 466,250 (144,834) 6,392,067 12,700,127

144

Figures indicate deductions. inthebrackets Notes from pages147to ofthesefinancialstatements. 210form anintegral part investments are derecognised orimpaired. Available thecumulative for comprises netchangeinthefairvalueofavailable for salereserve salefinancialassetsuntilthe are to profits reserves fundfutureGeneral heldinthereserve needsofthebusinesswhichhave notbeenspecified. represents reserve Development profits thathave to fundfuture beenheldinreserve development projectsoftheCompany. that have eithercompleted theireconomic life orwhosetechnologies are andthus, out-dated require replacement. Property, represents plantandequipmentreplacement reserve by profits theCompany reserved for thereplacement of capitalassets PLC. outoftherevaluationarising oflandsowned by United Lanka Motors onproperty, whichincludesrevaluation plantandequipmentrepresents reserve Capital reserve theunutilisedrevaluation surplus Balance asat 01.04.2016-restated Impact Balance asat 01.04.2016aspreviously (note 19.2) reported Company 336,335 of changes in accounting policy Net changeinfairvalueofavailable for salefinancialassets gainsondefinedbenefit obligation Deferred taxonactuarial Employee O Profit T benefit for plan the actuarial year gains T T Gain Net changeinfairvalueofavailable for salefinancialassets gainsondefinedbenefit obligation Deferred taxonactuarial Employee from O Profit T benefit revaluation for plan of the actuarial land year losses Balance Second as First at Final toDistribution owners oftheCompany 31.03.2017 T interim interim dividend dividend dividend paid paid paid 2015 2016 2016 / / / 2016 2017 2017 Balance asat 31.03.2018 First toDistribution owners oftheCompany T interim dividend paid 2017 / 2018 otal comprehensive income for theyear otal comprehensive income for theyear otal comprehensive income for theyear otal comprehensive income for theyear ransactions withowners,ransactions recognised inequity directly ransactions withowners,ransactions recognised inequity directly ther comprehensive income ther comprehensive income Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

E

336,335

336,335 336,335 Capital Stated - -

2,922,336 1,320,533 2,922,336 785,400308,900466,250 4,242,869 785,400308,900466,250 2,922,336 785,400308,900466,250 1,320,533 Development Reserve 145 Capital -

785,400 Reserve - - O Replacement ther Components ofE quipment Plant U 308,900 Property, Reserve nited M nited and - -

otors L otors 466,250 Reserves General anka PLC A anka quity - - (129,124) (129,932) (118,508) (129,124) e arnings e Available Reserve 11,424 for 11,424 (808) (808) Sale nnual R nnual 4,213,584 4,578,426 1,071,145 5,674,334 1,449,060 4,008,500 1,066,811 1,456,697 (252,251) (252,251) (201,801) (353,152) Retained 205,084 (10,260) (1,262) 5,596 2,623 eport 2017eport - -

11,695,580 8,903,681 9,267,715 1,070,337 2,781,017 8,698,597 1,066,811 1,456,697 1,320,533 (252,251) (252,251) (201,801) (353,152) 205,084 (10,260) 11,424 (1,262) 5,596 2,623 | 2018 quity T (808) otal

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Statement of Cash Flows

Group Company For the year ended 31 March 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Re-stated

Cash generated from / (used in) operating activities (note 37. 1) 1,790,348 (457,371) 1,487,613 (812,019) Interest paid (410,785) (288,317) (100,640) (47,303) Income tax paid (290,883) (513,883) (206,076) (472,130) Contribution paid and received from investment plan (net) (1,706) (768) (116) (297) Net cash generated from / (used in) operating activities 1,086,974 (1,260,339) 1,180,781 (1,331,749)

Cash flows from investing activities Proceeds from disposal of shares 386,124 65,055 339,919 57,709 Proceeds from disposal of unit trust investments - 1,170,140 - 1,170,140 Proceeds from disposal of equity accounted investee 1,000,000 - 1,000,000 - Acquisitions of property, plant and equipment and intangible assets (411,589) (571,546) (336,906) (535,768) Proceeds from disposal of property, plant and equipment 80,480 9,097 32,973 1,610 Investment in subsidiary - - (75,000) - Interest received 13,535 48,609 35,268 45,674 Dividend received from equity accounted investee 15,750 25,988 15,750 25,988 Dividend received 18,152 36,302 90,874 123,944 Net cash generated from investing activities 1,102,452 783,645 1,102,878 889,297

Cash flows from financing activities Dividend paid (353,152) (706,303) (353,152) (706,303) Loans obtained 48,077,602 18,166,142 19,276,195 9,135,259 Loans paid (49,320,084) (16,840,253) (20,634,053) (7,777,401) Net cash (used in) / generated from financing activities (1,595,634) 619,586 (1,711,010) 651,555 Net increase in cash and cash equivalents 593,792 142,892 572,649 209,103 Cash and cash equivalents at the beginning of the year 447,935 305,043 362,600 153,497 Cash and cash equivalents at end of the year (note 28) 1,041,727 447,935 935,249 362,600

Notes from pages 147 to 210 form an integral part of these financial statements. Figures in the brackets indicate deductions.

146 Notes to theFinancial Statements venture are given below. oftheCompany, activities The principal andjoint subsidiaries 1.3 accounting policies. to acommon financialyear ending31March usinguniform The financialstatements oftheGroup entitiesare prepared companies, Lanka. anddomiciledinSri incorporated All theGroup entitiesandjointventure are limited liability to thedate ofdivestment, 28March 2018. as “Group Entities”) andtheGroup’s interests injointventure up (together referredsubsidiaries to asthe “Group” andindividually the year theCompany ended31March 2018comprise andits The consolidated financialstatements oftheGroup asatandfor 1.2 holds 51%oftheissuedshares oftheCompany. The ultimate parent oftheCompany PLC isRILProperty which 02. the Company are located atNo. Park 100,Hyde Corner, Colombo Lanka. The registered placeofbusiness officeandtheprincipal company 1989anddomiciledinSri on9May incorporated PLCUnited Lanka Motors (the isapublicquoted “Company”), 1.1 1. (Pvt) Ltd Automotives TVS (Pvt)Ltd Lanka TVS Joint venture LtdDevelopments UML Property Equipment Ltd UML Heavy Company Ltd Motor Orient Ltd Unimo Enterprises Subsidiaries PLCLanka United Motors Company Name of Principal activities andnaturePrincipal activities ofoperations Consolidated financialstatements Corporate information entity Reporting tyres and andsaleoflubricants Importation related services bikes, three and wheelers, spare parts ofmotor anddistribution Importation ofpremisesRenting equipment ofheavy anddistribution Importation vehicles of andsalehiring Importation vehicles andtyres andassembling of parts andsaleofvehicles, spare Importation related services and lubricants, salesservices after parts, andFusoMitsubishi vehicles, spare andsaleofbrandnew Importation Principal activities 147 Colombo Stock Exchange (CSE). appropriate disclosures asrequired by theListingRulesof requirements oftheCompanies No. Act 07of2007andprovide andincompliancewiththe Lanka), (CA Sri Lanka of Sri Accountants laiddown ofChartered by theInstitute (“IFRIC”) Committee Interpretation Financial and International Reporting Committee oftheStandingInterpretation Interpretations (“SIC”) Accounting Standards relevant (LKAS) Lanka (SLFRS) andSri Standards Financial Lanka Reporting Sri which comprise prepared Accounting Standards, inaccordance Lanka withSri separate financial statements oftheCompany have been The consolidated financial statements oftheGroup andthe 2.1 2. in more detailintheGroup Structure. financial year underreview. oftheGroup Activities are described oftheGroup activities andtheCompanyprincipal the during There were noothersignificant changesinthenature ofthe on28March 2018. Limited andSons India, SundramIyengar TV Agreement (SPA) entered into theCompany between (UML)and (Pvt)Ltd,venture, pursuantto Lanka theShare Purchase TVS PLCUnited Lanka Motors divested itsentire investment injoint and thecommercial operationscommencedinSeptember 2017. EquipmentUML Heavy Limited on7July2017 wasincorporated authorised forauthorised issueby theBoard ofDirectors 2018. on14May The financialstatements for theyear ended31March 2018were 2.3 this annualreport. position onpages123to 129,134to 135and143respectively of for Financial Statements” on the financial andthecertification the Board ofDirectors”, “Statement ofDirectors’ Responsibilities the financialstatements, assetoutinthe “Annual of Report The Board theirresponsibility for ofDirectors acknowledges 2.2 Statement ofcompliance Basis ofpreparation Approval offinancialstatements forResponsibilities thefinancialstatements U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements

2.4 basis of measurement that affect the application of accounting policies and the The consolidated financial statements have been prepared on reported amounts of assets, liabilities, income and expenses and an accrual basis except for cash flow information and under the disclosure of contingent liabilities. Judgements and estimates historical cost convention except for following financial assets are based on historical experience and other factors, including and liabilities which are measured at fair value; expectations that are believed to be reasonable under the yy Financial instruments at fair value through profit or loss circumstances. Hence, actual results may differ from these yy Available for sale financial assets estimates. yy Defined benefit obligation is measured after actuarially valuing and the present value of the defined benefit Estimates and underlying assumptions are reviewed on an obligation is recorded ongoing basis. Revisions to accounting estimates are recognised yy Defined benefit asset in the year in which the estimates are revised and in any future yy Freehold land year affected. yy Investment property More information on significant areas of estimates, uncertainty 2.5 Functional and presentation currency and critical judgements in applying accounting policies that Items included in the financial statements are measured using have the most significant effects on the amounts recognised in the currency of the primary economic environment in which the these financial statements are included in the following: entity operates. Accounting Accounting judgements, Note The financial statements of the Company and the Group are Policies estimates and assumptions presented in Sri Lankan Rupees, which is the Group’s functional Impairment of Judgement regarding 3.3.1.4 and presentational currency. Foreign exchange gains and losses financial assets amount and timing of future are presented in the income statement within “net finance cash flows. income/cost ”. All financial information presented in Sri Lankan Useful lives of Judgement is exercised 3.4.1 Rupees has been rounded to the nearest thousand. property, plant and in estimating the residual equipment value, rates and method of 2.6 Materiality and aggregation depreciation. Each material class of similar items is presented separately in the financial statements. Items of dissimilar nature or function are Investment Judgement regarding market 3.4.2 presented separately, unless they are immaterial as permitted by properties based evidence of fair value the Sri Lanka Accounting Standards. of investment property. Impairment of Judgement regarding 3.4.7 2.7 offsetting non-financial impairment indicators, Assets and liabilities and income and expenses in the financial assets estimate of future cash flows statements are not offset unless required or permitted by Sri and discount rates. Lanka Accounting Standards. Employee benefits Key actuarial assumptions 3.5.3 about discount rates, 2.8 Comparative information expected rates of return on Comparative information including quantitative, narrative and assets, future salary increases descriptive information is disclosed in respect of the previous and mortality rates. year in the financial statements in order to enhance the Provision for Estimate of ongoing legal 3.5.4 understanding of the current year’s financial statements and to contingent disputes and litigations enhance the inter period comparability. The presentation and liabilities classification of the financial statements of the previous year Current tax and Judgement regarding 3.6.10 are amended, where relevant for better presentation and to be deferred tax deferred tax asset (the likely comparable with those of the current year. timing and level of future taxable profits) and provision 2.9 Critical accounting judgements, estimates and for uncertain tax positions. assumptions The preparation of financial statements in conformity with The Directors have made an assessment of the entities ability Sri Lanka Accounting Standards (SLFRS / LKAS) requires to continue as a going concern in the foreseeable future, and management to make judgements, estimates and assumptions

148 financial statements. A listoftheGroup’s issetoutinnote 21to subsidiaries the commences untilthedate thatcontrol ceases. consolidated financialstatements from thedate thatcontrol The are financialstatements ofsubsidiaries includedinthe govern the financialandoperatingpoliciesover theinvestee. to affect thosereturnshas theability through itspower to to, returns from variable itsinvolvement withtheinvestee and Control existswhentheCompany isexposedto, orhasrights areSubsidiaries investees thatare controlled by theCompany. 3.1.2 Subsidiaries securities. as incurred, except ifrelated to theissueofdebtorequity in profit orlossimmediately. Transaction costsare expensed date ofdisposal. Any gainsonabargain purchase isrecognised accounted investeeequity disposedwillbe includedupto the whileresults and of acquisition,orincorporation ofsubsidiaries accounted investeeequity have beenincludedfrom thedate is transferred to theparent. The results and ofsubsidiaries for usingthepurchase methodofaccountingwhen thecontrol Acquisitions andjointventures ofsubsidiaries are accounted 3.1.1 upto thedateArrangements ofdivestment. its share ofnetassetsinjointventure ofSLFRS11–Joint interms SLFRS 10–Consolidated andSeparate Financial Statements and financial statements oftheCompany, of interms itssubsidiaries The Group’s consolidationofthe financialstatements comprise b asis ofconsolidation 3.1 consistent withthoseusedintheprevious year. accounting policiesadopted by thecompaniesinGroup are financial statements andby theentitiesinGroup. The consistently presented to allperiods intheseconsolidated The accountingpoliciessetoutbelow have beenapplied 3. appropriate assumptions inputsare notavailable, are they observable estimated basedon similar financialinstrumentsorusingmodels. Where market datainrespect of fair valuesare estimated from observable bydetermined usingvaluationtechniques. thesecases, the In available areexists orwhere are quoted prices nototherwise The fair valuesoffinancialinstrumentswhere market noactive 2.10 continue to beprepared basis. onagoingconcern of entitiesintheGroup. Accordingly, thefinancialstatements donotintendthey to inany liquidate orceasetradingactivities Significant accounting policies Fair value offinancialinstruments Acquisitions anddivestments 149 date onwhichjointcontrol ceases. the profit accounted investee orlossand OCIofequity untilthe consolidated financialstatements includetheGroup’s share of costs.transactions Subsequentto initialrecognition, the method. They are recognised initiallyatcost,whichincludes Interest injointventure isaccounted for usingtheequity its liabilities. to itsassetsandobligationsfor ratherthanrights arrangement control, whereby theGroup to thenetassetsof hasrights A jointventure inwhichtheGroup isanarrangement has joint interest inajointventure. The Group’s interest accounted investee inequity comprises 3.1.6 level ofinfluenceretained. for financialinstrumentsdependingonthe accounting policy accounted investeean equity orinaccordance withtheGroup’s the date the control islost.Subsequently, itisaccounted for as former subsidiary, thensuchinterest ismeasured atfairvalue theGroupin theincomestatement. retains If any interest inthe Any onthelossofcontrol gainsorlosses arising isrecognised relatedand theothercomponentsofequity to thesubsidiary. and liabilitiesofthesubsidiary, any interests non-controlling Upon thelossofcontrol, theGroup derecognises theassets 3.1.5 of impairment. unrealised thatthere gainsbutonlyto theextent isnoevidence the investee. Unrealised lossesare eliminated inthe sameway as investee are eliminated oftheGroup’s to theextent interest in accounted Unrealised from withequity gainsarising transactions are eliminated inpreparing consolidated financialstatements. fromincome andexpensesarising transactions, intra-group balancesandtransactions, andany unrealisedIntra-group t 3.1.4 PLC. Lanka Motors controlling interests are asallsubsidiaries fullyowned by United The Group doesnothave any withsignificant subsidiaries non- non-controlling interests 3.1.3 dividend orrepayment ofloansandadvances. to transfer fundsto theCompany (theParent) intheform ofcash There are ofsubsidiaries nosignificant ontheability restrictions Interests inequity-accounted investee Loss ofcontrol ransactions eliminatedransactions onconsolidation U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.2 Foreign currency transactions and balances 3.3.1.2 Classification and subsequent measurement Transactions in foreign currencies are translated to Sri Lanka At inception, a financial asset is classified into one of the Rupees at the exchange rate prevailing at the dates of the following categories; transactions. yy At fair value through profit or loss yy Loans and receivables Monetary assets and liabilities denominated in foreign yy Available-for-sale currencies are translated to Sri Lanka Rupees at the exchange yy Held to maturity investments rate prevailing as at the reporting date. The foreign currency gains or losses on monetary items is the difference between The subsequent measurement of financial assets depends on amortised cost in the functional currency at the beginning of their classification as follows; the year, adjusted for effective interest and payments during the year and the amortised cost in foreign currency translated at the Financial assets at fair value through profit or loss exchange rate at the end of the year. Financial asset at fair value through profit or loss include financial assets classified as held for trading or financial assets Non-monetary assets and liabilities which are measured at designated upon initial recognition at fair value through historical cost denominated in foreign currencies are translated profit or loss. Financial assets are classified as held for trading to Sri Lanka Rupees at the exchange rate prevailing at the dates if such investments are acquired for the purpose of selling or of the transactions. Non-monetary assets and liabilities that are repurchasing in the near term. Financial assets at fair value measured at fair value denominated in foreign currencies are through profit or loss are carried in the Statement of Financial translated to Sri Lanka Rupees at the exchange rate prevailing Position at fair value with changes in fair value recognised at the dates that the fair values were determined. Foreign in finance income or finance costs in the Statement of exchange differences arising on translation are recognised in the Comprehensive Income. Statement of Comprehensive Income. Investments in unit trust and equity securities acquired for the 3.3 Financial instruments purpose of trading are classified as financial assets at fair value 3.3.1 non derivative financial assets through profit or loss. 3.3.1.1 Initial recognition and measurement Financial assets are recognised when and only when the Loans and receivables Company becomes a party to the contractual provisions Loans and receivables are financial assets with fixed or of the financial instruments. The Company determines the determinable payments that are not quoted in an active market. classification of its financial assets at initial recognition. The Such assets are recognised initially at fair value plus any directly classification depends on the purpose for which the financial attributable transaction costs. Subsequent to initial recognition assets were acquired. Management determines the classification loans and receivables are measured at amortised cost using the of its financial assets at initial recognition and re-evaluates this effective interest method (EIR), less any impairment losses. The designation at every reporting date. losses arising from impairment are recognised in the Statement of Comprehensive Income as impairment losses on loans and All financial instruments are measured initially at their fair value receivables. plus transaction costs that are directly attributable to acquisition or issue of such financial instruments, except in the case of Loans and receivables comprises of cash and cash equivalents, financial assets and financial liabilities held at fair value through trade and other receivables and receivables from related profit or loss according to Sri Lanka Accounting Standard - LKAS companies. 39 on “Financial Instruments: Recognition and Measurement”. Transaction costs in relation to financial assets and financial Available-for-sale financial assets liabilities at fair value through profit or loss are dealt with Available-for-sale financial assets are non-derivative financial through the Statement of Profit or Loss. assets that are designated as available for sale or are not classified in any of the above categories of financial assets. The financial assets include cash and cash equivalents, short According to LKAS 39 investment in long term equity securities term deposits, investments in unit trusts, treasury bills, equity are classified as available for sale financial assets. Available-for- shares and trade and other receivables. sale financial assets are recognised at fair value, subsequently

150 flows ofthatassetcanbeestimated reliably. loss event hadanegative effect ontheestimated future cash occurred theinitialrecognition after oftheasset,andthat impaired indicates evidence thatalossevent ifobjective has thatitisimpaired. evidence is objective Afinancialassetis date to whetherthere determine is assessedateachreporting atfairvaluethrough profitA financialassetnotcarried orloss 3.3.1.4 liability. retained by theGroup isrecognised asaseparate assetor Any interest intransferred financialassetsthatiscreated or and rewards ofownership ofthefinancialassetare transferred. inwhichsubstantiallyalltherisks financial assetinatransaction transfers to receive therights cashflows onthe thecontractual to thecashflows rights fromcontractual theassetexpire, orit The Company andGroup derecognise afinancialassetwhenthe 3.3.1.3 Derecognition date.reporting There were asatthe noassetsclassifiedasheldto maturity Comprehensive underfinancecosts. Income from arearising impairment recognised intheStatement of income intheStatement ofComprehensive Income. The losses Interest Rates). isincludedinfinance The EIRAmortisation and fees of theEIR(Effective orcoststhatare anintegral part into accountany discountorpremiumby taking onacquisition costiscalculatedmethod, lessany losses. impairment Amortised costusingtheeffectiveare interest measured atamortised costs. After investments initialmeasurement, held-to maturity recognised atfairvalueplusany transaction directly attributable them to maturity. investments Heldto are maturity initially when theGroup hasthepositive to intention hold andability payments andfixed are maturities classifiedasheld-to maturity financialassetswithfixed ordeterminable Non-derivative investmentsHeld to maturity securities. equity term Available for investments salefinancialassetscomprises inlong or loss. cumulative lossesrecognised to intheOCIwillberecycled profit lossesshallberecognised intheprofitImpairment orlossand decline infairvalue, suchdeclineisidentifiedasimpairment. the available there for issignificant If salereserve. andprolong Comprehensive (OCI) andpresented in Income withinequity measured atfairvalue, withchangesrecognised inOther Impairment offinancialasset 151 recognised inothercomprehensive income. in thefairvalueofanimpaired is available for security saleequity is recognised inprofit orloss. However, any subsequent recovery in profit orloss, loss isreversed, thentheimpairment thereversal losswasrecognised theimpairment after to anevent occurring sale assetincreases and the increase canberelated objectively in asubsequentperiod, thefairvalueofanimpaired available for the effective interest methodare reflected ininterest income. If, to applicationof in cumulative lossesattributable impairment lossrecognisedimpairment previously inprofit orloss. Changes andthecurrent fairvalue,lessanyrepayment andAmortisation the difference theacquisitioncost,netofany between principal lossthatisreclassifiedimpairment from to profit equity orloss is inequity,the fairvaluereserve to profit orloss. The cumulative recognised inothercomprehensive incomeandpresented in recognised by reclassifying accumulated lossesthathasbeen lossesonavailable-for-sale financialassetsare Impairment offinancialassets–available-for-sale Impairment relevant amountsare off. written that there isnorealistic process oftheasset, the ofrecovery is reversed through profit orloss. When thecompany considers lossto decrease,impairment thedecrease loss inimpairment event (e.g. repayment by adebtor) causestheamountof allowance accountagainstloansandreceivables. asubsequent If Losses are recognised inprofit orlossandreflected inan rate. cash flows discounted attheasset’s original effective interest amountandthepresent valueoftheestimated future carrying costiscalculated asthedifferenceat amortised its between lossinrespect ofafinancialassetmeasuredAn impairment or lessthansuggested by trends. historical conditions are lossesare to begreater suchthattheactual likely judgements asto whethercurrent economicandcredit and theamountoflossincurred, adjusted for management’s trends oftheprobability ofdefault,thetimingrecoveries theCompany impairment assessingcollective useshistorical In together receivables characteristics. withsimilarrisk significant are assessedfor collectively by grouping impairment yet identified. Loans andreceivables thatare notindividually assessed for any thathasbeenincurred butnot impairment Those found notto bespecificallyimpaired are thencollectively significant receivables are assessedfor specificimpairment. level.at bothspecificassetandcollective Allindividually The Company for ofimpairment considersevidence receivables cost at amortised offinancialassetscarried Impairment U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.3.2 non derivative financial liabilities reliably. Purchased software that is integral to the functionality 3.3.2.1 Initial recognition and measurement of the related equipment is capitalised as part of computer Financial liabilities within the scope of SLFRS / LKAS are equipment. recognised when and only when the Company becomes a party to the contractual provisions of the financial instrument. Measurement Financial liabilities are recognised initially at fair value plus An item of property, plant and equipment that qualifies transaction cost that are directly attributable to the issue of the for recognition as an asset is initially measured at its cost. financial liability, which are not at fair value through profit or Cost includes expenditure that is directly attributable to the loss. Financial liabilities can be classified in to two categories as acquisition of the asset and subsequent costs. The cost of financial liabilities at fair value through profit or loss and other self-constructed assets includes the cost of materials and direct financial liabilities. The Company has classified its financial labour, any other costs directly attributable to bringing the asset liabilities into other financial liability category. to a working condition for their intended use and the costs of dismantling and removing the items and restoring the site on 3.3.2.2 Subsequent measurement which they are located. The Group classifies non derivative financial liability into the other financial liabilities category. Such financial liabilities are Cost model recognised initially at fair value plus any directly attributable The Group applies cost model to property, plant and equipment transaction costs. Subsequent to initial recognition, these except for freehold land and records at cost of purchase or financial liabilities are measured at amortised cost using the construction together with any incidental expenses thereon less effective interest method. Such financial liabilities measured accumulated depreciation and any accumulated impairment at amortised cost includes trade and other payables, interest losses. bearing borrowings, overdrafts, amounts due to related companies etc. Revaluation model Freehold land is stated at cost at the time of acquisition and 3.3.2.3 Derecognition subsequently measured at fair value at the next valuation. A financial liability is derecognised when the obligation Freehold land of the Group is revalued every five years unless under the liability is discharged, cancelled or expired. When carrying value do not differ materially from the fair value at the an existing financial liability is replaced by another from the reporting date same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or On revaluation of an asset, any increase in the carrying amount modification is treated as a derecognition of the original liability is recognised in other comprehensive income and accumulated and the recognition of a new liability, and the difference in the in equity under the heading of revaluation surplus or used respective carrying amounts is recognised in the Statement of to reverse a previous revaluation decrease relating to the Comprehensive Income. same asset, which was charged to the profit or loss. In this circumstance, the increase is recognised as income to the extent 3.3.3 offsetting of financial instruments of the previous write down. Financial assets and financial liabilities are offset and the net amount is presented in the Statement of Financial Position when Any decrease in the carrying amount is recognised as an and only when, the Company has a legal right to offset the expense in comprehensive income or is recognised in other amounts and intends either to settle on a net basis or to realize comprehensive income to the extent of any credit balance the asset and settle the liability simultaneously. existing in the revaluation reserve in respect of that asset. Upon disposal or retirement, any balance remaining in the revaluation 3.4 non financial assets and basis of measurement reserve in respect of an asset is transferred directly to retained 3.4.1 Property, plant and equipment earnings. Property, plant and equipment are tangible items that are held for servicing, or for administrative purposes and are expected to Subsequent costs be used during more than one period. The cost of replacing significant parts of an item of property, plant and equipment is recognised in the carrying amount Basis of Recognition of the item if it is probable that the future economic benefits Property, plant and equipment are recognised if it is probable embodied within that part will flow to the Company and its cost that future economic benefits associated with the assets will can be measured reliably. The costs of day-to-day servicing of flow to the Company and cost of the asset can be measured property, plant and equipment are charged to the Statement of Comprehensive Income as incurred.

152 for sale)andthedate thattheassetisderecognised. for sale(or includedinadisposalgroup that isclassifiedasheld ofthedate thattheassetisclassified asheld ceases attheearlier manner intended by management. Depreciation ofanasset for itto becapableofoperatinginthe and conditionnecessary begins whenitisavailable for use, i.e. whenitisinthelocation date.reviewed ateachreporting Depreciation ofanasset Depreciation methods, usefullives andresidual valuesare period. at theendofeachreporting The assets’ usefullives are reviewed andadjusted ifappropriate The estimated usefullives are asfollows: is notdepreciated. obtain ownership by the endoftheleaseperiod. Freehold land thattheCompanyuseful lives unlessitisreasonably will certain assets are depreciated and oftheleaseterms over theshorter of thefuture economicbenefitsembodiedintheasset.Leased ofconsumption pattern this mostcloselyreflects theexpected useful lives ofeachitem ofproperty, plantandequipment,since Comprehensive onstraight-line basisover Income theestimated its residual value. Depreciation isrecognised intheStatement of is thecostofanassetorotheramountsubstituted for cost,less Depreciation iscalculated over thedepreciable amount,which Depreciation amountoftheprevious costisderecognised.carrying costs are capitalised. At eachsuchcapitalisation,theremaining isderecognised. amount ofthereplaced inspection part Major item ofproperty, plantandequipment,theremaining carrying replacement amountofan costsare recognised inthecarrying Comprehensive whentheitem isderecognised. Income When property, plantandequipmentisincludedinStatement of fromThe gains orlossesarising derecognition ofanitem of economic benefitsare from expected itsuseordisposal. equipment isderecognised ondisposalorwhennofuture amountofanitem ofproperty, plantand The carrying Derecognition Computers Reference books vehiclesMotor andtools Machinery andfittings fixtures Electrical equipment Office Furniture andfittings Buildings 5 years 10 years 4 years 4 –10years 4 –10years 4 years 5 –10years 40 years 153 y y intheconsolidated financialstatements. property LimitedDevelopments anddonotqualifyasaninvestment PLCin thebooksofUnited Lanka Motors andUMLProperty classifiedasinvestment Below mentioned properties properties canbemeasured reliably.property willflow to theCompanyproperty andcostoftheinvestment economic benefitsthatare associated withtheinvestment isrecognised ifitisprobableInvestment property thatfuture Basis ofrecognition orfor administrative purposes. goods orservices courseofbusiness, usedintheproduction orsupplyof ordinary income orfor capitalappreciation orbothbutnot for saleinthe rental heldeitherto are earn properties Investment properties 3.4.2 plant andequipment. theyearduring andinusehave beentransferred to property, progress, whilstthecapitalassetswhichhave beencompleted date arecompleted asat thereporting shown ascapitalwork-in- Capital theyear expensesincurred during whichare not Capital work-in-progress Comprehensive intheyear itisincurred. Income borrowing costsaresale. Other recognised intheStatement of oftimeto getreadysubstantial period for itsintended useor a cost oftheasset.Aqualifyingassetisanwhichtakes ofthe orproduction ofaqualifyingassetaspart construction borrowing coststhatare to theacquisition, directly attributable 23on As perLKAS “Borrowing costs”, theGroup capitalizes B estimated recoverable down amount,itiswritten immediately. amountofanassetisgreater thanits Where thecarrying oftheleaseorusefullifethe term whichever isshorter. Leasehold improvements are capitalisedanddepreciated over given innote 18. depreciation atthebeginning andattheendofyear are amountsandaccumulated the reconciliation ofcarrying All classesofproperty, plantandequipmenttogether with orrowing cost y y rented to the parent company, PLC. United Lanka Motors The Limited buildingheldby Developments is UMLProperty /affiliates.of thelandandbuildingto itssubsidiaries The parent company, PLC United Lanka Motors rented part Investment properties U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements

Measurement Basis of recognition An investment property is measured initially at its cost. The cost Intangible assets are recognised if it is probable that the future of a purchased investment property comprises its purchase economic benefits that are attributable to the asset will flow to price and any directly attributable expenditure. The cost of a the entity and the cost of the assets can be measured reliably. self-constructed investment property is its cost at the date when the construction or development is complete. Subsequent to Goodwill the acquisition of 51% of ordinary voting shares by R I L Property Goodwill represents the excess of the cost of an acquisition PLC of United Motors Lanka PLC (UML), UML decided to change over the fair value of the Group’s share of the net identifiable its accounting policy in respect of investment property from assets of the acquired subsidiary at the date of acquisition. If the cost model to fair value model to be in line with the accounting business combination is achieved in stages, the fair value of the policies of the parent entity. Accordingly, investment properties pre-existing equity interest in the acquiree less the net amount are stated at fair value as at the reporting date. of the fair value of the assets acquired and liabilities assumed is recognised. Goodwill is tested annually for impairment and The fair value of investment properties is determined by using carried at cost less accumulated impairment losses. Impairment valuation techniques. Further details of the judgements and losses on goodwill are not reversed. The negative goodwill is assumptions made are disclosed in Note 19. recognised immediately in the Statement of Comprehensive Income. Gains and losses on the disposal of an entity include the Derecognition carrying amount of goodwill relating to the entity sold net of Investment properties are derecognised when disposed, or disposal proceeds. permanently withdrawn from use because no future economic benefits are expected. Software All licensed computer software costs incurred by the Group, Reclassification of investment property which are not integrally related to associated hardware, which When the use of a property changes from owner-occupied can be clearly identified, reliably measured and is probable that to investment property, the transfers are recorded at carrying they will lead to future economic benefits, are included in the amount following the cost model as per LKAS 40. Statement of Financial Position under the category intangible assets and carried at cost less Amortisation and any accumulated 3.4.3 Leased assets impairment losses. Subsequent expenditure is capitalised only Finance leases when it increases the future economic benefits embodied in Leases in terms of which the Company assumes substantially the specific asset to which it relates. All other expenditure is all the risks and rewards of ownership are classified as finance recognised in profit or loss when incurred. leases. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present Useful economic lives and amortisation value of minimum lease payments. Subsequent to initial Computer software are amortised over their estimated useful recognition, the asset is accounted for in accordance with the economic life of 5 years on a straight-line basis. They are accounting policy applicable to that asset. assessed for impairment whenever there is an indication that the intangible asset may be impaired. Amortisation method, useful Operating leases lives and residual values are reviewed at each reporting date and Other leases are operating leases. Payments made under adjusted if required. operating leases are recognised in profit or loss on straight line basis over the term of the lease. Any prepayments are Derecognition recognised in the Consolidated Statement of Financial Position An intangible asset is derecognised on disposal or when as leasehold rights. no future economic benefits are expected from its use and subsequent disposal. Gains and losses arising from When an operating lease is terminated before the lease period Derecognition of an intangible asset are measured as the has expired, any payment required to be made to lessor by way difference between the net disposal proceeds and the carrying of penalty is recognised as an expense in the period in which amount of the asset and are recognised in profit or loss. termination takes place. 3.4.5 Investments in subsidiaries 3.4.4 Intangible assets Investments in subsidiaries are recorded at cost less impairment An intangible asset is an identifiable non-monetary asset in the financial statements of the Company. The net assets without physical substance held for use in the production or of each subsidiary are reviewed at each reporting date to supply of goods or services, or for administrative purpose. determine whether there is any indication of impairment. If

154 independent ofthecashinflows ofotherassetsorgroups generates cashinflows from continuingusethatare largely are grouped together into thesmallestgroup ofassetsthat testing,impairment assetsthatcannotbetested individually specificto theasset. For andtherisks of money of thepurpose assessmentsofthetimevalue rate thatreflects current market are discounted to discount theirpresent valueusingapre-tax assessingvalueinuse,sell. theestimated In future cashflows the greater ofifit’s valueinuseanditsfairlesscoststo The recoverable unitis amountofanassetorcash-generating toexpected benefitfrom thesynergies ofthecombination. combination isallocated to CGUs orgroups ofCGUs thatare of otherassetsorCGUs. from arising abusiness Goodwill continuing usethatare largely independentofthecashinflows smallest group ofassetsthatgenerates cashinflows from For testing, impairment assetsare grouped together into the the recoverable amountisestimated eachyear atthesametime. have indefinite usefullives orthatare notyet available for use, amount isestimated. For goodwill, andintangible assetsthat any suchindicationexists, If impairment. theasset’s recoverable date to whetherthere determine reporting isany indicationof than inventories, anddeferred taxassets, are reviewed ateach valueof theGroup’sThe carrying non-financialassets, other 3.4.7 to reflectthelowerinventory ofcostornetrealisable value. Provisions are madefor allnon-moving andobsolete items of stocks Other Work-in-progress Goods-in-transit vehiclesMotor inventories are accounted asfollows: of completionandsellingexpenses. Accordingly, thecostsof courseofbusinesslesstheestimated costs intheordinary price borrowing costs. Netrealisable valueistheestimated selling excludesthem to theirpresent locationandcondition.It purchasing theinventories andothercostsincurred inbringing formula. The costofinventories includesexpenditure incurred in cost andotherinventories are basedonweighted average cost recognised by usingspecificidentificationoftheirindividual value. The costofinventories thatare notinterchangeable are Inventories are measured atthelower ofcostandnetrealisable 3.4.6 ofitsnegativeto theextent netassets. investment lossisrecognised isestimated andtheimpairment any suchindicationexists, thentherecoverable amountofthe Impairment -nonfinancialassets Impairment Inventories - atpurchase costonafirstinoutbasis - atcost cost - atactual cost - atactual 155 accordance with the Sri Lanka Accounting Standard 10. LKAS accordance Lanka withtheSri in are period period disclosedunderEvents thereporting after Dividends for theyear thatare approved thereporting after of 2007. in accordance with theprovisions oftheCompanies No. Act 07 payable isrecognised whentheBoard approves suchdividend dividend isapproved by theshareholders. dividends Interim Provision for final dividendsisrecognised atthetime 3.5.2 on thepresent valueofthose cashflows. based amount isdetermined the present obligation, itscarrying a provision ismeasured usingthecashflows estimated to settle surrounding theobligationatthatdate. and uncertainties Where into date, accounttherisks obligation atthereporting taking estimate oftheconsideration required to settlethepresent and Contingent Assets. The amountrecognised isthebest accordance 37–Provisions, withLKAS Contingent Liabilities and theamountofprovision canbemeasured reliably in economic benefitswillberequired to settletheobligation a result ofapastevent andit isprobable thatanoutflow of when theCompany obligationas hasalegalorconstructive A provision isrecognised intheStatement ofFinancial Position 3.5.1 Provisions 3.5 impairment losshadbeenrecognised.impairment ifno netofdepreciationbeen determined oramortisation, amountthatwould have amount doesnotexceed thecarrying loss isreversed thattheasset’s onlyto theextent carrying used to therecoverable determine amount.Animpairment loss isreversed ifthere hasbeenachangeintheestimates that thelosshasdecrease ornolongerexists. Animpairment date are forperiods assessedateachreporting any indications respect ofotherassets, lossesrecognised impairment inprior lossinrespect ofgoodwillisnotreversed.An impairment In Comprehensive Income. lossesare recognisedamount. Impairment intheStatement of unitexceeds itsestimated recoverableor itscash-generating amountofasset lossisrecognisedAn impairment ifthecarrying purposes. reporting lowest level atwhichthatgoodwillismonitored for internal to anoperatingsegmentis subject ceilingtest andreflects the to benefitfrom thesynergies ofthecombination. This allocation combination isallocated to theGroup ofCGUs thatisexpected testing,goodwill impairment goodwillacquired inabusiness of assets(“cash-generating unitorCGU”) for of thepurposes Liabilities andprovisions Dividends payable U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.5.3 employee benefits the net interest expense on the net defined benefit liability for 3.5.3.1 Short term employee benefits the period by applying the discount rate used to measure the Short term employee benefit obligations are measured on an defined benefit obligation at the beginning of the annual period undiscounted basis and are expensed as the related service is to the net defined liability, taking in to account any changes in provided. A liability is recognised for the amount expected to be the net defined benefit liability during the period as a result of paid under short term cash bonus or profit sharing plans if the contributions and benefit payments. Net interest expense and Company has a present legal or constructive obligation to pay other expenses related to defined benefit plans are recognised this amount as a result of past service provided by the employee in profit or loss. and the obligation can be estimated reliably. The Company recognizes all actuarial gains and losses arising 3.5.3.2 Defined contribution plans from defined benefit plan immediately in other comprehensive A defined contribution plan is a post-employment plan under income and all expenses related to defined benefit plan in which an entity pays fixed contribution into a separate entity employee benefit expenses in profit or loss. and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution The Company’s liability arising on retirement benefits of plans are recognised as an employee benefit expense in the employees joined prior to 1992 / 93 is partly externally funded Statement of Comprehensive Income in the periods during through investment in NDB Mutual Funds. The gratuity liability of which services are rendered by employees. the employee joined after 1992 is externally funded and a policy agreement has been entered into with AIA Insurance which (a) Employees’ Provident Fund covers 788 employees of the Company as at 31 March 2018. The Company and employees contribute 12% and 10% respectively of the salary of each employee to the approved Subsidiaries and equity accounted investee Private Provident fund. Other companies of the Group and All the subsidiaries and equity accounted investees have their employees contribute at 12% and 8% respectively to the adopted actuarial valuation method in line with Group Employees’ Provident Fund managed by the Central Bank of Sri accounting policies. Lanka. The gratuity liability of subsidiaries and joint ventures is partly (b) Employees’ Trust Fund externally funded with AIA Insurance PLC. The Company contribute 3% of the salary of each employee to the Employees’ Trust Fund managed by Central Bank of Sri Lanka. 3.5.4 Capital commitments and contingencies Contingent liabilities are possible obligations whose existence Contributions to defined contribution plans are recognised as an will be confirmed only by uncertain future events or present expense in the Statement of Comprehensive Income as incurred. obligations where the transfer of economic benefits is not probable or cannot be measured reliably. Capital commitments 3.5.3.3 Defined benefit plans - retiring gratuity and contingent liabilities of the Group are disclosed in the A defined benefit plan is a post-employment benefit plan other respective notes to the Financial Statements. than a defined contribution plan. The Company is liable to pay retirement benefits under the Payment of Gratuity Act No. 12 of 3.5.5 events after the reporting date 1983. The liability for the gratuity payment to an employee arises The materiality of the events after the reporting date has been only on the completion of five years of continued service with considered and appropriate adjustments and provisions have the Company. The net obligation of the Company in respect of been made in the financial statements wherever necessary. defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their 3.6 Statement of comprehensive income service in the current and prior periods and discounted to 3.6.1 Revenue recognition determine its present value. Any unrecognised past service costs Revenue is recognised to the extent that it is probable that the and fair value of any plan assets are deducted. economic benefit will flow to the Company and the associated costs incurred or to be incurred can be reliably measured. The calculation of defined benefit obligation is performed Revenue is measured at the fair value of the consideration annually by a qualified actuary using the Projected Unit received or receivable, net of sales returns, trade discounts Credit (PUC) method. Re-measurement of the net defined and sales taxes. Group Revenue is shown after eliminating benefit liability, which comprises actuarial gains and losses, intercompany sales in full. The following specific criteria are used are recognised immediately in OCI. The Company determines for the purpose of recognition of revenue.

156 method. Interest expensesare recognised usingtheeffective interest losses onfinancialassetsatfairvalue through profit orloss. loans,such asterm overdrafts andfinanceleasesfairvalue Finance interest costscomprise payable onallfinancial liabilities 3.6.6 incomeona netbasis. andpresentedreported undersundry whichare areof similartransactions notmaterial aggregated, fromrevenue andthosearising agroup generatingactivities fromincidentalto themain andlossesarising activities Gains (d) the lease. isrecognisedactivities onastraight-line basisover of theterm incomereceivedRental orreceivable inthecourseofordinary (c) and therelated sellingexpenses. amountofsuchassets the proceeds ondisposal, thecarrying have from beenaccounted deducting underotherincomeafter /lossesonthedisposalofinvestmentsGains heldby theparent (b) rewards ofownership are transferred to thebuyer. This isrecognised intheyear inwhichsignificant and risks the proceeds ofdisposal, netofexpensesincurred ondisposal. of theproperty, plantandequipmentatthetimeofdisposal amount are onthe difference determined thecarrying between The gainsorlossesonthesaleofproperty, plantandequipment (a) o 3.6.5 atthepointofinvoicingIncome to thesupplier. Facilitation fee isrecognised intheStatement ofComprehensive 3.6.4 obligations have beenperformed. of Comprehensive oncesignificant performance Income rendered forRevenue isrecognised services intheStatement 3.6.3 rebates andsalestaxes. ismeasuredRevenue netofreturns, tradediscounts, volume the goods, andtheamountofrevenue canbemeasured reliably. reliably, there isnocontinuingmanagementinvolvement with associated costsandpossiblereturns ofgoodscanbeestimated the customer, oftheconsiderationisprobable, recovery the andrewardsrisks ofownership have beentransferred to fromRevenue saleofgoodsisrecognised whenthesignificant 3.6.2 Sundry Income Sundry Rental income /lossesonthedisposalofinvestmentsGains Profit orlossondisposalofproperty, plant andequipment Finance costs /income Facilitation fee rendered Services Sale ofgoods ther Income 157 Statement ofProfit orLoss attheprofit oftheyear. inarriving hasbeencharged toand equipmentinastate the ofefficiency All expenditure incurred inmaintaining theproperty, plant (b) expenditure. ofthebusinesshasbeen treated capacity ascapital earnings onthebusinessorfor ofincreasing thepurpose the to carry or improving nature assetsofapermanent by meansofwhich Expenditure incurred for ofacquiring, thepurpose expanding hencesuchpresentation methodisadopted.performance, expense methodpresent theelementsofenterprise’s fairly theDirectorsIncome, are of oftheopinionthatfunction ofpresentationthe purpose ofStatement ofComprehensive charged to revenue attheprofit for inarriving theyear. For maintaining theproperty, plantandequipmenthasbeen All expenditure incurred inrunningofthebusinessand (a) 3.6.8 Expenditure Comprehensive Income. agreementthe warranty are charged to theStatement of the Company. Any amountsthatare notreimbursed under agreement suppliersare principal between reimbursed to Costs incurred by theCompany ofthewarranty undertheterms w 3.6.7 position. foreign movements are currency inanetgainorloss either financeincomeorcostdependingonwhether Foreign gainsandlossesare separately as reported currency in thefinancialstatements usingeffective rate method. The interest componentoffinanceleasepayment isrecognised receive thepayment isestablished. Comprehensive onthedate thattheCompany’s Income to right Dividend incomeisrecognised intheStatement of interest methodintheStatement ofComprehensive Income. Interest incomeisrecognised asitaccruesusingtheeffective received orreceivable asaresult ofholdingfinancialasset. assets atfairvaluethrough profit orlossandallotherincome income, foreign exchange gains, fairvaluegainsonfinancial trusts, profit securities, dividend from disposalofmarketable Finance interest incomecomprises income, incomefrom unit Repairs andmaintenanceRepairs expenses Capital expenditure arranties U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements

(c) other expenses The amount of deferred tax provided is based on the expected Other expenses are recognised in the Statement of Profit or Loss manner of realization or settlement of the carrying amount of on the basis of a direct association between the cost incurred assets and liabilities using tax rates enacted or substantively and the earnings of specific items of income. Provisions in enacted at the reporting date. respect of other expenses are recognised when the Company has a present obligation (legal or constructive) as a result The principal temporary difference arise from depreciation on of a past event, it is probable that an outflow of resources property, plant and equipment, tax losses carried forward and embodying economic benefits will be required to settle the provision for defined benefit obligations. obligation and a reliable estimate can be made of the amount of the obligation. A deferred tax assets is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that 3.6.9 Income tax expense it is probable that the future taxable profits will be available Income tax on the profit for the year comprises current and against which they can be utilized. Deferred tax assets are deferred tax. Income tax is recognised directly in the Statement reviewed at each reporting date and are reduced to the extent of Comprehensive Income except to the extent that it relates that it is no longer probable that the related tax benefit will be to items recognised directly in equity or other comprehensive realised, based on the level of future taxable profit forecasts and income. tax planning strategies.

3.6.10 tax exposures Deferred tax assets and liabilities are offset if there is a legally In determining the amount of current and deferred tax, the enforceable right to offset current tax liabilities and assets, and Company considers the impact of tax exposures, including they relate to taxes levied by the same tax authority on the same whether additional taxes and interest may be due. This taxable entity, or on different tax entities, but they intend to assessment relies on estimates and assumptions and may settle current tax liabilities and assets on a net basis or their tax involve a series of judgements about future events. New assets and liabilities will be realised simultaneously. information may become available that causes the Company to change its judgement regarding the adequacy of existing 3.6.13 withholding Tax on dividends (WHT) tax liabilities. Such changes to tax liabilities would impact tax yy Withholding tax on dividends distributed by the subsidiaries expense in the period in which such a determination is made. and joint venture. Dividends received by the Company out of taxable profit of the 3.6.11 Current tax subsidiaries are subject to 10% deduction at source. Current tax is the expected tax payable on the taxable income yy Withholding tax on dividends distributed by the Company. for the year, using tax rates enacted at the reporting date, and any adjustment made to tax payable in respect of previous years. Withholding tax that arises from the distribution of dividends by the Company is recognised at the time the liability to pay the 3.6.12 Deferred tax related dividend is recognised. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for 3.6.14 value Added Tax (VAT) financial reporting purposes and the tax base of the assets and The Company and its subsidiaries are liable to pay Value Added liabilities as at the reporting date. Tax on taxable supplies at the specified rates where applicable.

Deferred tax is not recognised for; 3.6.15 economic Service Charge (ESC) yy temporary differences on the initial recognition of assets and The Company and its subsidiaries are liable to pay Economic liabilities in transactions that are not a business combination Service Charge at specified rates where applicable. and that affect either accounting or taxable profit or loss, yy temporary differences relating to investments in subsidiaries, 3.6.16 nations Building Tax (NBT) to the extent that the Company is able to control the The Company and its subsidiaries are liable to pay Nation timing of the reversal of the temporary differences and it is Building Tax (NBT) at specified rates where applicable. probable that they will not reverse in the foreseeable future; and yy taxable temporary differences arising on the initial recognition of goodwill.

158 below: The businesssegments oftheGroup are highlighted inthetable separately. assessmentfor eachsegment allocation andperformance reviewed by Group decisionsaboutresource CEO/EDto make requirethey different strategies. marketing Operatingresults are andaredifferent managedseparately as products andservices The segments. Group hassixreportable These segments offer those ofothersegments. andrewards to risks which issubject thatare different from economicenvironment (geographicalin aparticular segment) with (business segment) orinproviding products andservices that isengagedineitherproviding products orservices An operatingsegment isadistinguishablecomponentofGroup 6. the other, ischarged. irrespective ofwhetheraprice influence over thefinancialandoperatingpolicies/decisionsof to control hastheability orexercise significant which oneparty Disclosure in hasbeenmadeinrespect ofthetransactions 5. theyear.during sharesthat have outstanding changedthenumberofordinary theyearduring andtheprevious year are adjusted for events The weighted shares average outstanding numberofordinary theyear.outstanding during Company by theweighted shares average numberofordinary shareholdersthe profit ofthe to ordinary orlossattributable shares.for itsordinary The basicEPSiscalculated by dividing The financial statements present pershare basicearnings (EPS) 4. Heavy equipment Heavy services Lubricant andother Tyres andservices Repairs Vehicles Spare parts Segments Reportable Operating segments transactions Related party Basic earningspershare Sale of heavy equipment Sale ofheavy vehicles of andhiring Sale oflubricant Sale oftyres ofvehicles andservicing Repairs vehiclesspecial purpose vehicles, commercial vehicles, passenger Sale ofbrandnew Sale ofspare parts Operations 159 not provided. a geographical basis. Hence, disclosure by geographical region is andrewards to risk not subject thatare significantly different on the economicenvironment inwhichtheCompany operated is Consequently, oftheGroupThe activities are Lanka. withinSri onanarm’sInter-segment isdetermined pricing lengthbasis. year to acquire property, plantandequipment. Segment capitalexpenditure isthetotal the costincurred during head officeexpensesandincometaxassetsliabilities. revenue, loansandborrowings, related expenses, and corporate investments andrelated (other thaninvestment property) on areasonable basis. Unallocated mainly items comprise to asegmentattributable aswell asthosethatcanbeallocated Segment results, assetsandliabilitiesincludeitems directly be allocated onareasonable basis. toitems asegment directly attributable aswell asthosethat can Segment results thatare to theGroup reported CEO/EDinclude 2017. first timewitheffect from financialyear beginning on1April financial statements have beenadopted by theGroup for the Standards thatare relevant for thepreparation oftheGroup’s AccountingThe following Lanka amendmentsto theSri (a) 8. The Statements ofCash Flows are given onpage146. equivalents for ofthecashflow statement. thepurpose Bank overdrafts are includedasacomponent of cashand in note 28 Statement ofCash Flows ofthoseitems asexplained comprised changes invalue. Cash andcash equivalentsasreferred to inthe amountsofcashandare to aninsignificant of subject risk known highlyliquidinvestmentsterm, thatare readily to convertible ofcashbalances,Cash andcashequivalentscomprise short- Cash andcashequivalents Flows’. Accounting Standard 7on –LKAS Lanka Sri ‘Statement ofCash “indirect method” ofpreparing cashflows inaccordance withthe The Statements ofCash Flows hasbeenprepared by usingthe 7. adopted in2017/18. accountingstandards,New amendmentsandinterpretations New accounting standards issued Cash flow statement U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements

(i) Amendments to LKAS 7, ‘Statement of Cash Flows - The standard is effective for accounting periods beginning on or Disclosure Initiative’, introduce an additional disclosure on after 1 January 2018. Early adoption is permitted. The Group is changes in liabilities arising from financing activities. continuing to analyse the impact of these changes and expects (ii) Amendments made to LKAS 12, ‘Income Taxes - Recognition to be in a position to estimate the impact of SLFRS 9 early in the of Deferred Tax Assets for Unrealised Losses’, clarify the first quarter of the year commencing 1 April 2018. accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. (iii) Amendments to SLFRS 9, ‘Financial Instruments - Prepayment Features with Negative Compensation’, confirm that when a financial liability measured at amortised cost (b) New accounting standards, amendments and interpretations is modified without this resulting in Derecognition, a gain issued but not yet adopted. or loss should be recognised immediately in profit or loss. Given below new accounting standards, amendments and The gain or loss is calculated as the difference between the interpretations issued but not yet effective to the date of original contractual cash flows and the modified cash flows issuance of the Group’s financial statements. The Group intends discounted at the original effective interest rate. This means to adopt those standards when they become effective. that the difference cannot be spread over the remaining life of the instrument which may be a change in practice from (i) Amendments to LKAS 40, ‘Investment Property – Transfers LKAS 39. The amendment is effective for annual periods of Investment Property’, clarify that transfers to, or from, beginning on or after 1 January 2019. investment property can only be made if there has been a change in use that is supported by evidence. A change in (iv) SLFRS 15, ‘Revenue from Contracts with Customers’, replace use occurs when the property meets, or ceases to meet, the LKAS 18 which covers contracts for goods and services and definition of investment property. A change in intention LKAS 11 which covers construction contracts. alone is not sufficient to support a transfer. The amendments are effective for accounting periods beginning on or after The new standard is based on the principle that revenue is January 2018. recognised when control of a good or service transfers to a customer - so the notion of control replaces the existing notion (ii) SLFRS 9, ‘Financial Instruments’, replaces the multiple of risks and rewards. A new five-step process must be applied classification and measurement models in LKAS 39, before revenue can be recognised. ‘Financial instruments: Recognition and measurement’. The standard introduces new requirement for classification and Amendments to SLFRS 15, ‘Revenue from contracts with measurement, impairment and hedge accounting. customers’ comprise clarifications of the guidance on identifying performance obligations, accounting for licenses of intellectual The adoption of SLFRS 9 will have an immaterial impact on property and the Principal versus Agent Assessment (gross the classification and measurement of the Group’s and the versus net revenue presentation permitted). Company’s financial assets, financial liabilities and hedge accounting except the below. The standard and the amendment is effective for the annual periods beginning on or after 1 January 2018. yy The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) These accounting changes may have flow-on effects on the rather than only incurred credit losses as is the case under entity’s business practices regarding systems, processes and LKAS 39. It applies to financial assets classified at amortised controls, compensation and bonus plans, contracts, tax planning cost, debt instruments measured at FVOCI, contract assets and investor communications. under SLFRS 15 Revenue from Contracts with Customers together with loan commitments and certain financial The Company and the Group has elected to apply the modified guarantee contracts. retrospective approach for the initial adoption of SLFRS 15. Changes highlighted above will not have a material impact yy The new standard also introduces expanded disclosure on the Consolidated Income Statement and Consolidated requirements and changes in presentation. These are Statement of Financial Position after the Group adopts SLFRS 15 expected to change the nature and extent of the Group’s from 1 April 2018. disclosures about its financial instruments particularly in the year of the adoption of the new standard.

160 liability). consideration (theprepayment or deferred income/contract from arising theadvance assetor liability the non-monetary initiallyrecognisesshould bethedate onwhichtheentity For asinglepayment orreceipt, thedate ofthetransaction contracts. currency-denominated pays orreceivesentity consideration inadvancefor foreign recognition ofarelated asset,expenseorincomewhere an forof transaction theexchange rate to beusedoninitial The interpretation how to clarifies thedate determine (vi) from‘Revenue withCustomers’, Contracts isalsoapplied. ifSLFRS15, applicationpermitted 2019withearlier 1 January The standard iseffective for beginning annualperiods onorafter statements resulting from theapplicationofSLFRS16. onitsconsolidatedassessing thepotential financial impact for consideration. The Company andtheGroup entitiesare the useofanidentifiedassetfor oftimeinexchange aperiod contains, conveys to aleaseifthecontract control theright is,on thedefinitionofalease. Under SLFRS16,acontract or differencesSome asaresult may arise guidance ofthenew interest cancontinueto bepresented asoperatingcashflows. ofthepayments thatreflects financing activities. Onlythepart are oftheleaseliability classifiedwithin portion the principal Operating cashflows willbehigherascashpayments for EBITDA willchange. replaced withinterest like metrics anddepreciation, sokey lower inlater years. Additionally, operatingexpensewillbe years ofaleaseand higherintheearlier expense istypically The income statement willalsobeaffected because thetotal (v) Consideration’ IFRIC 22, ‘Foreign Currency Transactions andAdvance and low-value leases. lease toitem) pay andafinancialliability rentals all for virtually requires recognition ofanasset(the operatingandfinancingleases between distinction leases onbalancesheet. The standard removes thecurrent lessees andwillresult intherecognition ofalmostall SLFRS 16, ‘Leases’, theaccountingby willaffect primarily contracts. Anoptionalexemption existsfor short-term right to usetheleased right 161 or after 1 January 2019. 1January or after The amendmentiseffective for beginning theannualperiods on losses andcredits andtaxrates. taxable profit orloss, thetaxbasesofassets andliabilities, tax regarding thetreatment ofanitem,an uncertainty including ofincometaxaccountingwhereapplies to allaspects there is undertaxlaw.treatment isuncertain ifitsacceptability IFRIC23 tax a specificitem of incomeinataxreturn isanuncertain forto claima deduction aspecificexpenseornotto include will beaccepted by thetaxauthority. For example, adecision over whetherthattreatment where entity there isuncertainty taxtreatment isany taxtreatmentAn uncertain appliedby an (vii) 2018. 1January or after The amendment iseffective for beginning theannualperiods on y y y Entities canchooseto applytheinterpretation: or receipt. asabove shouldbedetermined of transaction for eachpayment there areIf multiplepayments orreceipts for oneitem, thedate y y y there is uncertainty over incometaxtreatments.there isuncertainty requirements 12 ofLKAS taxes’,‘Income are appliedwhere howThis therecognition IFRICclarifies andmeasurement IFRIC 23, over incometaxtreatments’‘Uncertainty presented ascomparative information. prospectively period from thebeginning reporting ofaprior the interpretation isfirstapplied, or inwhich period thebeginningon orafter ofthereporting prospectively to items inscopethatare initiallyrecognised retrospectively for presented eachperiod U nited M nited otors L otors anka PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements 2,219 (1,880) 50,791

otal T 3,008 (2,157) 2,420 93,294 19,131 (11,645) 7,691 897,706 797,835 411,589 571,546 169,874 134,056 182,693 100,022 137,612 76,027 866,458 1,438,602 443,513 618,163 728,846 1,362,575 668,900 1,126,107 (669,533) (570,641) (348,501) (197,257) (197,558) (312,495) 1,077,347 1,559,832 1,633,673 - 3,746,860 5,562,214 2,470,982 3,227,957 1,564,187 2,030,451 2,310,910 1,136,557 4,190,373 6,180,377 14,716,147 17,925,373 13,818,441 17,127,538 14,419,518 13,694,789 16,890,500 16,922,746 - 26,717 - services 22,962 Lubricants and other Lubricants - (2,800) 7,926 2,168 yres T - 2,214 2,386 1,803 9,477 6,267 5,781 7,688 6,267 9,237 7,676 26,846 6,267 9,237 7,676 26,846 23,026 33,634 82,738 141,044 206,714 241,113 820,979 837,920 206,714 241,113 820,979 837,920 220,078 239,228 861,866 687,538 220,078 239,228 861,866 687,538 ------497 1,203 43,020 43,020 94,251 94,251 - (13,719) - (153) 5,606 8,000 8,131 23,901 - 2,118 8,353 5,885 5,885 8,000 8,131 20,238 Repairs and services h eavy 30,784 128,917 723,604 749,596 723,604 749,596 524,939 399,644 524,939 399,644 23,054 ehicles V 53,232 174,102 48,239 315,524 456,950 130,225 107,177 372,287 444,332 11,281,388 14,331,295 11,107,286 14,283,056 10,946,665 10,039,129 10,946,665 10,039,129 - 28,522 56,290 13,203 129,748 equipment

- Spare partsSpare 2018 2017

27,804 45,881 18,936 43,267 43,267 129,748 372,287 444,332 630,592 654,979 810,766 1,071,877 1,640,442 1,765,449 1,640,442 1,765,449 1,771,719 2,329,250 1,771,719 2,329,250

parent

the activities of ordinary holders Segment results Segment from from equity investee (net of income tax) income cost of obligation (losses) finance (net assets benefit / investee financial defined gains sale on actuarial for losses available to - allocated - allocated otal revenue otal comprehensive income attributable income otal comprehensive otal liabilities otal assets T results Segment Unallocated income Unallocated and amortisationDepreciation Non cash expenses / (income) Equity accounted investee - share of OCI - Services / commission expenses of Unallocated share - investee accounted Equity Net change in fair value of T Revenue External - Sales In Rs.’000 Net finance cost finance Net 9. Group Profit before income tax expense tax land income expenses operations before from Profit of before tax revaluation Profit Income from Gain tax on actuarialDeferred gains / assets Segment T capital expenditure Segment Profit from operations from Profit benefit plan Employee liabilities T Unallocated Profit Profit assets Unallocated Share of profit of equity of profit accounted Share liabilities Segment

162 9. Segment results Group Spare parts Vehicles Repairs and services heavy Tyres Lubricants and other Total equipment services In Rs.’000 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017

Revenue External - Sales 1,640,442 1,765,44911,107,286 14,283,056 - - 43,020 - 206,714 241,113 820,979 837,92013,818,441 17,127,538 - Services / commission - - 174,102 48,239 723,604 749,596 ------897,706 797,835 Total revenue 1,640,442 1,765,44911,281,388 14,331,295 723,604 749,596 43,020 - 206,714 241,113 820,979 837,92014,716,147 17,925,373 Segment results 630,592 654,979 810,766 1,071,877 30,784 128,917 (13,719) - 23,026 33,634 82,738 141,0441,564,187 2,030,451 Unallocated income 182,693 100,022 Unallocated expenses (669,533) (570,641) Profit from operations before finance cost 1,077,347 1,559,832 Net finance cost (348,501) (197,257) Profit from operations 728,846 1,362,575 Share of profit of equity accounted investee (net of income tax) 137,612 76,027 Profit before income tax expense 866,458 1,438,602 Income tax expenses (197,558) (312,495) Profitfromordinary activities 668,900 1,126,107 Employee benefit plan actuarial gains / (losses) (11,645) 7,691 Gain from revaluation of land 1,633,673 - Deferred tax on actuarial gains / losses on defined benefit obligation 3,008 (1,880) Equity accounted investee - share of OCI (2,157) 2,420 Net change in fair value of available for sale financial assets 19,131 2,219 Total comprehensive income attributable to equityholders of the parent 2,310,910 1,136,557

Segment assets 1,771,719 2,329,25010,946,665 10,039,129 524,939 399,644 94,251 - 220,078 239,228 861,866 687,53814,419,518 13,694,789 Unallocated assets 2,470,982 3,227,957 Total assets 1,771,719 2,329,25010,946,665 10,039,129 524,939 399,644 94,251 - 220,078 239,228 861,866 687,53816,890,500 16,922,746

Segment liabilities 43,267 129,748 372,287 444,332 5,885 8,000 8,131 - 6,267 9,237 7,676 26,846 443,513 618,163 Unallocated liabilities 3,746,860 5,562,214 Total liabilities 43,267 129,748 372,287 444,332 5,885 8,000 8,131 - 6,267 9,237 7,676 26,8464,190,373 6,180,377

Segment capital expenditure - allocated 45,881 56,290 315,524 456,950 20,238 23,901 1,203 - 5,781 7,688 22,962 26,717 411,589 571,546 Depreciation and amortisation - allocated 18,936 13,203 130,225 107,177 8,353 5,606 497 - 2,386 1,803 9,477 6,267 169,874 134,056 Non cash expenses / (income) 27,804 28,522 53,232 23,054 2,118 (153) - - 2,214 (2,800) 7,926 2,168 93,294 50,791

Company Spare parts Vehicles Repairs and services Lubricants and other otal t services In Rs.’000 2018 2017 2018 2017 2018 2017 2018 2017 2018 2017 Re-stated

Revenue External - Sales 1,627,269 1,742,062 5,614,521 6,213,471 - - 822,728 842,689 8,064,518 8,798,222 - Services / commission - - 175,073 44,598 794,898 793,692 1,485 1,461 971,456 839,751 Total revenue 1,627,269 1,742,062 5,789,594 6,258,069794,898 793,692 824,213 844,1509,035,974 9,637,973 Segmentresults 627,621 651,548 615,595 548,120 102,081 173,01491,967 168,296 1,437,264 1,540,978 Unallocated income 909,445 117,381 Unallocated expenses (738,831) (633,988) Profit from operations before finance cost 1,607,878 1,024,371 Net finance income 60,334 152,289 Change in fair value of investment property - 111,020 Profit before income tax expense 1,668,212 1,287,680 Income tax expenses (211,515) (220,869) Profitfromordinary activities 1,456,697 1,066,811 Employee benefit plan actuarial (losses) / gains (10,260) 5,596 Gain from revaluation of land 1,320,533 - Deferred tax on actuarial gains / (losses) on defined benefit obligation 2,623 (1,262) Net change in fair value of available for sale financial assets 11,424 (808) 163 Total comprehensive income attributable to equity holders of the parent 2,781,017 1,070,337

Segment assets 2,031,728 1,539,371 7,042,724 6,861,696525,954 399,644 1,097,992 876,17310,698,398 9,676,884 Unallocated assets 2,346,058 2,547,611 Total assets 2,031,728 1,539,371 7,042,724 6,861,696 525,954 399,644 1,097,992 876,17313,044,456 12,224,495

Segment liabilities 42,205 99,573 299,807 388,168 5,885 8,000 7,676 26,846 355,573 522,587 U

Unallocated liabilities 993,303 2,434,193 M nited Total liabilities 42,205 99,573 299,807 388,168 5,885 8,000 7,676 26,8461,348,876 2,956,780

Segment capital expenditure - allocated 60,673 96,840 215,865 347,881 29,638 44,121 30,730 46,926 336,906 535,768 L otors Depreciation and amortisation - allocated 24,727 17,225 87,974 61,880 12,079 7,848 12,524 8,349 137,304 95,302

Non cash expenses / (income) 27,999 27,814 13,119 732 2,118 (153) 7,362 1,145 50,598 29,538 PLC A anka nnual R nnual eport 2017eport | 2018

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Notes to the Financial Statements

10. Revenue Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Brand new vehicles 11,107,286 14,283,056 5,614,521 6,213,471 Spare parts, repairs and services 2,364,046 2,515,045 2,422,167 2,535,754 Lubricants and car care products 820,979 837,920 822,728 842,689 Facilitation fee 9,674 4,999 9,674 4,999 Local charges 164,428 43,240 165,399 39,599 Equipment and machinery 43,020 - - - Hiring - - 1,485 1,461 Tyres 206,714 241,113 - - 14,716,147 17,925,373 9,035,974 9,637,973

10.1 The detailed segmental review is given under note 9 to the financial statements.

10.2 Free service arrangements - The Company and the Group do not defer revenue component applicable to free service arrangements and recognised full revenue at the point of invoicing. The Company / Group generally provide three labour free services. According to past records, the cost of labour of such free services is immaterial and the Company / Group is of the view that this does not have a material impact on the result of these financial statements.

10.3 Warranty obligation - A standard warranty period / Km is agreed with the principal for new vehicle sales. The cost incurred by the Company in respect of replacements within the warranty period, is reimbursed by the principal provided that the claims are within the terms agreed with the principal from the date of imports. The Company has no warranty liability in respect of past sales which can occur in future, as the cost is reimbursed by the principal other than in a situation where the Company gives warranty period commencing from the date of sale which is beyond the warranty period given by the principal. The Company estimates this future liability on the extended warranty period is insignificant based on the past records. Therefore revenue has not been deferred.

11. Other income Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Rent income 1,840 1,643 31,848 25,035 Profit on disposal of property, plant and equipment 71,206 6,016 23,699 1,608 Profit on disposal of investment in equity accounted investee (note 22.3) 82,078 - 826,455 - Award received from principal 9,911 10,223 9,911 10,223 Incentive received from principal 3,161 65,860 3,161 65,860 Staff loan interest 1,008 971 1,008 971 Commission on insurance 4,582 3,474 4,582 3,474 Income on legal services 419 26 419 26 Valuation fee 102 176 102 176 Sundry income (note 11.1) 8,386 11,633 8,260 10,008 182,693 100,022 909,445 117,381

164

Non auditservices andrelated services Audit services 13.1.1 Operating leaserentals Legal fees Donations Employee benefitexpense(note 13.1.2) Amortisation ofintangible assets(note 20.2) Amortisation Depreciation onproperty, plantandequipment(note 18) (reversals) offs /lossesandwrite Impairment onloansandreceivables Tax charges compliance/consultancy Provision for slow moving /obsolete inventories Auditors’ remuneration (note 13.1.1) 13.1 13. claims Losses onwarranty 12. sales Scrap 11.1 11. Directors’ emoluments Miscellaneous Profit from operations isstated charging after allexpensesincludingthefollowing: Profit from operations expenses Other income Sundry income contd.Other Auditors’ remuneration 165

104,600 95,763 964,184 852,676830,553732,313 167,891 132,503135,73093,957 113,554 117,067 93,294 50,79150,59829,538 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 12,715 (608) 64,094 50,66732,38426,681 16,485 732 4,553 3,9633,3162,888 8,386 11,633 3,994 3,8812,7572,806 1,805 2,3001,239892 1,983 1,5531,5741,345 1,133 1,050 4,553 3,9633,3162,888 5,784 7,015 2,602 4,6182,4762,993 2018 2017 2018 2017 2018 2017 2018 2017 559 82 478 415 U nited M nited Group Group Group Group otors L otors anka PLC A anka 156,628 143,582 91,036 93,652 8,260 10,008 9,768 2,125 8,446 732 nnual R nnual 559 82 704 622 Company Company Company Company eport 2017eport | 2018

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Notes to the Financial Statements

13.1.2 employee benefit expense Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Salaries and bonus 798,168 708,508 692,154 609,205 Contributions to defined contribution plan 90,550 78,636 74,036 66,832 Retirement benefit obligation 29,540 23,754 25,493 20,679 Others 45,926 41,778 38,870 35,597 964,184 852,676 830,553 732,313

Number of employees at the end of the year (full time) 985 976 788 773

14. Finance income and finance cost 14.1 Recognised in profit or loss Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Finance income Income from unimpaired financial assets: Interest on call deposits 4,789 7,363 2,869 3,677 Interest on amounts due from related parties - - 24,448 751 Income from unit trust investments 7,738 40,275 6,943 40,275 Foreign exchange gains 9,762 3,538 2,679 1,247 Net gains on disposal of Financial assets at fair value through profit or loss 1,917 4,353 1,917 4,353 Available for sale financial assets 13,038 6,037 10,777 4,253 Dividend income on Financial assets at the fair value through profit or loss 2,853 2,102 3,932 6,195 Available for sale financial assets 15,299 34,200 10,153 24,308 Net change in fair value of Financial assets at fair value through profit or loss 3,303 - 3,303 - Dividend income from investments in related parties - - 76,789 93,441 Dividend income from equity accounted investee - - 15,750 25,988 Total finance income 58,699 97,868 159,560 204,488

Finance cost Expenses on financial liabilities measured at amortised cost: Interest on bank borrowings (406,240) (291,530) (98,583) (49,054) Interest on overdrafts (367) (706) (50) (256) Net change in fair value of Financial assets at fair value through profit or loss - (2,865) - (2,865) Foreign exchange losses (593) (24) (593) (24) Total finance cost (407,200) (295,125) (99,226) (52,199) Net finance (cost) / income recognised in profit or loss (348,501) (197,257) 60,334 152,289

166 Company hasmaderequired provisions for theabove amountsinthesefinancial statements. 2016hasnowfor beenappealedagainstwith theyear ofassessment2010/2011, dated on21January Tax AppealsCommission. The (CGIR) Revenue oftheCommissionerdetermination Inland for General theyear ofassessment2009/2010. The ofCGIR determination Rs. 7,787,394andRs.18,317,599 respectively. On13November ofAppealagainstthe 2015,theCompany filedapetitioninCourt 2010 /11disallowing 2/3rd oftheNBTexpensesclaimedby theCompany. Additional assessment (excluding amountsto penalty) hasissuedincometaxassessmentsontheCompany Revenue for ofInland theyears ofassessment2009/10and The Department Charge ofdeferred theyear during (note 33.2) taxliability Deferred taxasset(charged) /reversed theyear during (note 33.1) Deferred taxexpense Adjustments years in respect ofprior Current taxexpense(note 15.1) 15. Net changeinfairvalueofavailable for salefinancialassets 14.2 Income taxexpenses Recognised inothercomprehensive income 167

197,558 312,495211,515220,869 187,231 283,434184,600195,468 205,799 374,730199,625286,978 (18,568) (91,296)(15,025)(91,510) Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 10,327 29,06126,91525,401 19,131 2,219 13,270 22,73826,91525,401 (2,943) 6,323 2018 2017 2018 2017 U nited M nited Group Group otors L otors anka PLC A anka 11,424 (808) nnual R nnual - Company Company eport 2017eport | 2018

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Notes to the Financial Statements

15.1 Reconciliation of the accounting profit to income tax expense: The tax on the results of the Group’s operations and the Company’s profits before tax differs from the theoretical amounts that would arise using the basic tax rates as follows.

Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Profit before income tax expense 866,458 1,438,602 1,668,212 1,287,680 Share of profit of equity accounted investee (137,612) (76,027) - - Profit on disposal of equity accounted investee (82,078) - (826,455) - Exempt dividend and other non business income (114,605) (220,849) (182,781) (315,867) 532,163 1,141,726 658,976 971,813 Add : Disallowable expenses 364,536 535,263 231,680 317,459 Deduct : Allowable expenses (224,987) (288,910) (208,922) (268,813) Profit from trade or business 671,712 1,388,079 681,734 1,020,459 Interest income and tax profit or loss on disposal of property plant and equipment 38,131 12,898 31,212 4,463 Total statutory income / assessable income 709,843 1,400,977 712,946 1,024,922 Tax losses set off against income tax (note 15.2b) (8,326) (258) - - Taxable income net of tax losses 701,517 1,400,719 712,946 1,024,922 Tax losses 117,930 14,379 - - Taxable income 819,447 1,415,098 712,946 1,024,922 Taxable income liable at standard rate 728,499 1,332,417 712,946 1,024,922 Taxable income liable at concessionary rate 90,948 82,681 - - 819,447 1,415,098 712,946 1,024,922 Income tax using the corporate tax rate At 28% 203,980 373,076 199,625 286,978 At 2% 1,819 1,654 - - Current tax 205,799 374,730 199,625 286,978

Effective tax rate 24% 26% 12% 22%

15.2 Income tax provisions (a) Current tax has been computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto. The taxable profit of the Company and subsidiaries are liable for income tax at 28% (2017-28%) except for the ‘taxable profit’ of UMPDL which is liable at 2% on turnover in accordance with an agreement entered in to with the Board of Investments of Sri Lanka under Section 17 of the BOI Act No. 4 of 1978 and will be liable at the said rate till the year 2022. (b ) The utilisation of tax losses brought forward is restricted to 35% of current year’s statutory income. However, as per the new Inland Revenue Act No. 24 of 2017, tax losses can be deducted in full and the remaining losses can be carried forward only up to six years. The tax losses carried forward by the Group entities as at 31 March 2018 amounts to Rs. 310,342,743 (Rs. 200,466,770 in 2017) Group 2018 2017 Rs.’000 Rs.’000

Tax losses at the beginning of the year 200,467 186,500 Tax losses for the year 118,220 14,637 Adjustment in respect of previous year (18) (412) Tax losses set off during the year (35% of statutory income) (8,326) (258) Tax losses at the end of the year 310,343 200,467

(c) Deferred tax has been computed using the current tax rate of 28% (2017 - 28%) for the Company and the Group . Further information about deferred tax is presented in note 33 Deferred tax assets / liabilities.

168 a certificate from theauditors,a certificate to distribution. prior test 57oftheCompanies inaccordance No. Act solvency withSection to recommending 07of2007,prior dividendandhasobtained As required 56(2)oftheCompanies No. Act by Section 07of2007,theBoard thattheCompany ofDirectors hasconfirmed satisfiesthe First dividendpaid2017/18 interim dividendpaid2016/17 interim Second First dividendpaid2016/17 interim Final dividendpaid2015/16 17. share pershare. isequalto thebasicearnings There were shares nopotentially outstandingatany diluted theyear ordinary timeduring /previous year. Hence, per diluted earnings pershareEarnings (Rs.) Weighted shares average (‘000s) numberofordinary Amount usedasdenominator Profit holdersoftheparent to equity company attributable (Rs.’000) Amount usedasnumerator weighted shares theyear average inissueduring asrequired numberofordinary 33 by LKAS pershare”.“Earnings The Company’s andtheGroup’s pershare earnings iscomputed holdersoftheparent onthenetprofit to equity andthe attributable 16. Dividend pershare Earnings pershare -BasicandDiluted 169

Dividend Per share 668,900 1,126,1071,456,6971,066,811 100,901 2018 2017 3.50 3.50 6.63 11.1614.4410.57 Rs. U - - - Rs. nited M nited 2018 Group Company otors L otors 353,152 353,152 - Rs.’000 anka PLC A anka - - - Per share nnual R nnual 7.00 706,303 2.50 252,251 2.50 252,251 2.00 201,801 Company 2017 eport 2017eport Rs.’000 | 2018

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Notes to the Financial Statements otal alue 27,853 84,711 Rs.’000 586,714 577,875 995,570 5,174,082 3,384,900 5,657,623 otal V T - - otal T 2018 2017 (6,982) - (95,903) (7,196) 167,891 132,503 782,312 657,005 410,787 561,920 854,300 782,312 (105,177) (10,277) 1,633,673 - 5,956,394 5,404,751 7,034,395 - 7,888,695 5,956,394 9,630 - - - - - 15,230 Rs.’000 143,574 380,559 927,234 3,308,109 4,784,336 88,503 88,503 T Capital work in work 173,933 Revaluation 150,679 (111,757) progress 28 - Cost (6,902) (7,405) 26,441 20,999 12,623 75,081 76,791 68,336 113,477 139,918 Rs.’000 118,851 443,140 197,316 873,287 Computers - - - 12,248 - - - - 7,337 107 107 107 107 139,850 150,679 books Land Reference 0.54 36.50 25.69 28.86 15.14 10.35 37.08 Perch (17) Motor (86,240) (86,844) 254,158 169,865 355,217 vehicles 101,059 200,302 237,936 - - - - 3 1 1 3 2 225 - (1,520) (9,162) 34,680 & tools Rood 115,510 287,780 172,270 167,747 145,776 Machinery E xtent 9,944 31,786 70,035 9,155 (3,655) (4,937) 64,270 13,159 53,125 64,213 69,631 fittings - - 117,395 1 9 7 1 fixture & 20 Acre lectrical E ffice (335) 4,510 32,662 43,785 11,123 11,098 36,707 47,805 133,844 313,523 438,238 equipment O & (183) (130) (928) (644) (194) (928) 825 3,979 6,608 6,011 - 35,595 56,396 20,801 19,007 45,999 65,006 fittings 9,475 3,494 89,262 81,794 Sq. / Ft Sq. Furniture Furniture 126,382 311,232 - - (5,056) 3 1 2 166,533 102,377 - 840,343 673,810 742,727 199,293 25 27 10 68 units B uildings - - 32,760 - - - - 4,356 3,243 4,214 land (3,000) uildings B Freehold 1,633,673 - 4,026,950 4,026,950 5,657,623 5,657,623 942,020 o. of building N o.

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

Property, plant and equipment plant Property, otal T Navatkuli, Jaffna Meetotamulla, Orugodawatte RatmalanaMaligawa Road, 143 and 145, Majeed Place, Orugodawatte 143 and 145, Majeed Place, 02 Colombo Street, Vauxhall Location / address Location 100 and 100A, Hyde Park Corner, Colombo 02 Colombo Corner, 100 and 100A, Hyde Park Carrying 2017 31 March as at amount Carrying 2018 31 March as at amount the end of year At adjustments - and Reclassifications Disposals year the for Charge Accumulated depreciation Accumulated of the year the beginning At year the of end the At - work-in-progress adjustments capital and from Reclassifications Transfer Gain from revaluation of land [note 18.3 (vi)] 18.3 [note land of revaluation from Gain Disposals Additions 18. amount or revalued Cost of the year the beginning At as follows: are the Group Details by of land and building owned 18.1 Group

170 18.2 Company Freehold Buildings Furniture O ffice Electrical Machinery Motor Reference Computers Capital Total Total land & equipment fixture & & tools vehicles books work in fittings fittings progress 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost or revalued amount At the beginning of the year 3,879,590 744,959 52,346 28,199 115,987 245,827 191,156 107 129,203 88,503 5,475,877 4,949,333 Additions - 4,356 2,479 4,013 13,160 34,423 121,037 - 6,285 150,421 336,174 528,112 Gain from revaluation of land [note 18.3 (vi)] 1,320,533 ------1,320,533 - Disposals - - (644) (194) (928) (9,162) (23,982) - (7,405) - (42,315) (1,568) Reclassifications and adjustments (3,000) (5,056) 798 - 275 - - - - - (6,983) - Transfer from capital work-in-progress - 102,378 - - 9,154 225 - - - (111,757) - - At the end of the year 5,197,123 846,637 54,979 32,018 137,648 271,313 288,211 107 128,083 127,167 7,083,286 5,475,877

Accumulated depreciation At the beginning of the year - 125,230 32,795 21,413 63,203 96,560 115,911 107 104,489 - 559,708 467,317 Charge for the year - 29,984 5,942 3,182 9,944 21,774 53,825 - 11,079 - 135,730 93,957 Disposals - - (183) (130) (928) (1,520) (23,378) - (6,902) - (33,041) (1,566) At the end of the year - 155,214 38,554 24,465 72,219 116,814 146,358 107 108,666 - 662,397 559,708

Carrying amount as at 31 March 2018 5,197,123 691,423 16,425 7,553 65,429 154,499 141,853 - 19,417 127,167 6,420,889 -

171 Carrying amount as at 31 March 2017 3,879,590 619,729 19,551 6,786 52,784 149,267 75,245 - 24,714 88,503 - 4,916,169

Details of land and building owned by the Company are as follows: Location / address Buildings Land No. of building Sq. / Ft Extent Cost Revaluation Total Value U

units Acre Rood Perch Rs.’000 Rs.’000 Rs.’000 M nited 100 and 100A, Hyde Park Corner, Colombo 02 9 71,524 1 2 3.70 25,000 2,899,400 2,924,400 otors L otors 143 and 145, Majeed Place, Orugodawatte 27 126,382 7 - 15.14 68,336 927,234 995,570

Vauxhall Street, Colombo 02 2 825 - 1 10.35 197,316 380,559 577,875 PLC A anka Meetotamulla, Orugodawatte 1 3,494 - 1 28.86 75,081 9,630 84,711 Maligawa Road, Ratmalana 25 89,262 9 3 36.50 443,140 143,574 586,714 Navatkuli, Jaffna 3 9,475 1 - 25.69 12,623 15,230 27,853 nnual R nnual Total 67 300,962 20 2 0.24 821,496 4,375,627 5,197,123 eport 2017eport | 2018

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Notes to the Financial Statements

18.3 Revaluation Company: (i) In March 1993, the Company’s land amounting to Rs. 93,335,951 was revalued by an independent Chartered valuer. The surplus arising out of such revaluation amounting Rs. 49,000,000 was fully utilised for issue of bonus shares. (ii) In December 1999, another revaluation has been carried out by an independent chartered valuer to reflect the market value. The total surplus arising out of this revaluation amounting to Rs. 141,853,649 has been fully utilised for the issue of bonus shares during 2002/2003. (iii) In March 2005, a revaluation was carried out by an independent Chartered valuer to reflect market value of land. The total surplus arising out of such revaluation amounting to Rs. 398,820,000 has been credited to the capital reserve on revaluation of land. (iv) In March 2010, a revaluation was carried out by J M S Bandara, a qualified independent valuer on the 31 March 2010 to reflect market value of land. The resultant surplus of Rs. 827,883,000 has been credited to the capital reserve on revaluation of land. (v) In March 2015, a revaluation was carried out by J M S Bandara, a qualified independent valuer on the 31 March 2015 to reflect market value of land. The resultant surplus of Rs. 1,733,106,312 has been credited to the capital reserve on revaluation of land. (vi) Although the land was previously revalued every five years, considering the significant increase in the fair value of land the Company revalued its land as at 8 November 2017. The revaluation was carried out by J M S Bandara, a qualified independent valuer. The resultant surplus of Rs. 1,320,532,901 has been credited to the capital reserve on revaluation of land in Company financials and the surplus of Rs. 1,633,672,901 in Group financials.

18.4 Measurement of fair value Measurement of fair value of land has been categorised as level 3 of the fair value hierarchy based on the inputs to the valuation technique used.

The following table shows the valuation technique used in measuring the fair value of land, as well as the significant unobservable inputs used.

Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Fair value of land is based on available The valuer has used a range of prices for The estimated fair value would increase / property market data, available facilities each land based on investigated prices in (decrease) if: and services, planning restrictions, title order to determine the market value. Market value per perch is higher / (lower). status, size/shape and other physical factors of the land.

172 T Reference books Computers Motor vehiclesMotor changes inAccounting Estimates andErrors. (note 19.2) the parent entity. changehaveThe beenappliedretrospectively effects ofsuchpolicy inaccordance 8-Accounting withLKAS Policies, from inrespect ofinvestment costmodelto fairvaluemodeltoto beinlinewiththepoliciesof property changeitsaccountingpolicy voting sharesSubsequent to by PLC theacquisitionof51%ordinary RILProperty PLC ofUnited Lanka Motors (UML),UML decided Machinery andtools Machinery At theendofyear Fair valueadjustmentdueto changeinaccountingpolicy Electrical fixture andfittings fixture Electrical At thebeginning oftheyear Office equipment Office

be implemented during theyearbe implemented during 2018/19. Nil) impaired, lostorgiven up. and equipmentwhichrequires aprovision date. for asatreporting impairment date. idleproperty,no temporarily plantandequipmentasatthereporting There fallinvalueofproperty, wasnopermanent plant 18.7 18.6 Furniture andfittings Buildings Cost offullydepreciated date assetswhichare isasfollows: stillinuseasatreporting 18.5 19. 18.10 18.9 18.8 otal There were theyear. nocapitalisedborrowing plantandequipmentduring costsrelated to theacquisitionofproperty (2017– There were nocompensationreceived/ receivable for from third items ofproperty, parties plantandequipmentthatwere There were for noitems ofproperty, liabilities. plantandequipmentpledgedassecurity existed onthetitleofproperty,No restrictions date, plantandequipmentoftheGroup asatthereporting andthere were Fully depreciated assets Investment property Capital work-in progress ofcurrent year includesexpensesincurred onERPsystem to (SAP)implementationwhichisexpected 173

Re-stated Re-stated

504,365 455,899274,059281,853 239,978 216,603 Rs.’000 Rs.’000 Rs.’000 Rs.’000 80,527 80,00572,97673,024 50,208 41,68840,77839,048 39,961 35,574 25,535 19,05519,87715,646 25,072 19,89020,31316,180 42,977 2018 2017 107 U

nited M nited Group Company otors L otors 468,500 357,480 468,500 357,480150,350 Rs.’000 Rs.’000 Rs.’000 2018 anka PLC A anka - 111,020207,130 37,070 59,297 2017 01.04.2016 nnual R nnual Company eport 2017eport | 2018

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Notes to the Financial Statements

Details of investment property are as follows: Location / Address Building Land Fair value of No. of Sq. / Ft Fair value Extent Fair value the property buildings Rs.’000 Acre Rood Perch Rs.’000 Rs.’000 100A, Hyde Park Corner, Colombo 02 1 10,270 8,000 - - 36.84 460,500 468,500

According to the valuation done by Mr J. M. S Bandara, a qualified independent valuer, the fair value of this property as at 8 November 2017 is Rs.468.5 Mn (March 2017 - Rs.468.5 Mn) and the management is of the view that fair value of the property remains unchanged between the valuation date and 31 March 2018.

The Company classified part of the land and building as investment property. UML has rented this property to its subsidiaries and affiliated Company (Unimo Enterprises Ltd and TVS Automotives (Pvt) Ltd).

The buildings owned by UML Property Developments Limited are rented to the parent company, United Motors Lanka PLC. Hence it does not qualify as an investment property in the consolidated financial statements and prior year adjustments are reflected only in the entity financial statements.

In determining the fair value, the current condition of the properties, future usability and market evidence of transaction prices for similar properties, with appropriate adjustments for size and location has been considered.

Rental income earned from investment property by the Company amounts to Rs. 6,838,102 (2017 – Rs. 6,216,456) and no direct operating expenses incurred by the Company for that generated rental income during this year (2017 – Rs. 53,775). No operating expense was incurred for investment property that did not generate rental income.

There is no restriction on the realisability of investment property or the remittance of rental income and proceeds on disposals.

19.1 Measurement of fair value Measurement of fair value of investment property has been categorised as level 3 of the fair value hierarchy based on the inputs to the valuation technique used. The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

Valuation technique Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value measurement Fair value of investment property is The valuer has used investigated prices The estimated fair value would increase / based on available property market data, in order to determine the market value of (decrease) if: available facilities and services, planning the investment property. Market value per perch is higher / (lower). restrictions, title status, size/shape, access to main roads, physical state of the building and replacement cost per square feet and other factors.

174 T T T Bank Current overdrafts tax liabilities Amounts dueto related parties Interest Current liabilities T Trade andotherpayables Deferred taxliabilities Employee liabilities Non-current benefits T Retained earnings componentsofequity Other Capital Stated reserve E E capital T T Cash andcashequivalents Other Other investments Amounts duefrom related parties Trade andotherreceivables Inventories Current assets T Deferred taxassets Defined Other benefit investments plan Investments in equity accounted investeeInvestments inequity Investments in subsidiaries Intangible Intangible Investment property assets Property, plantandequipment assets Non-current Assets Statement ofFinancial Position position andcomprehensive income. 19.2 otal equity andliabilities otal equity otal liabilities otal current liabilities otal non-current liabilities otal non-current otal equity attributableto the otal equity otal assets otal current assets otal noncurrent assets quity andliabilities quity equity holdersoftheparentequity The following table illustrates the impact of change in accounting policy on investment property oftheCompanyThe oninvestment following financial property ofchangeinaccountingpolicy tableillustrates theimpact bearing bearing borrowings As previously Impact ofchangeinaccounting Impact policy 11,905,831 11,905,831 8,951,260 2,954,571 2,768,298 1,359,865 - 1,153,897 4,261,971 1,430,618 2,922,336 5,841,357 1,015,144 4,210,477 6,064,474 4,916,169 reported 101,895 110,000 186,273 161,671 336,335 464,495 119,673 554,191 173,545 172,400 149,836 318,664468,500150,350207,130357,480 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 42,641 24,602 31,568 91,101 7,232 - 31.03.2017 01.04.2016 Adjustments Company 175 318,664 316,455 318,664 12,224,49510,448,086 316,455 4,578,4264,008,500 318,664 6,383,1385,694,367 2,209 2,956,7801,749,489 2,209 188,482154,070 2,209 - 2,768,2981,595,419 - 101,895167,460 - 110,000386,662 - - - 161,671154,070 - - 2,922,336 - 336,335 - 5,841,3574,753,719 - - - - - 4,210,4772,349,153 - 91,10198,582 - 554,191614,655 - - - 172,400 - - As restated 12,224,495 9,267,715 1,153,897 1,359,865 - 1,430,618 1,015,144 4,916,169 464,495 119,673 1,282,125 173,545 42,641 26,811 31,568 7,232 921 U nited M nited - As previously Impact ofchangeinaccounting Impact policy 10,448,086 otors L otors 8,698,597 1,012,017 1,431,426 4,482,016 reported 320,957 783,486 173,545 29,280 17,998 1,898 anka PLC A anka - Adjustments Company 205,232 205,084 205,232 10,653,318 205,084 4,213,584 205,232 5,899,599 nnual R nnual (1,898) 148 1,749,637 148 154,218 148 - 1,595,419 - 167,460 - 386,662 - - - 154,070 - - 2,922,336 - 336,335 - 4,753,719 - - 1,282,125 - - - 2,349,153 - 98,582 - 614,655 - - 172,400 - 921 - eport 2017eport As restated 10,653,318 8,903,681 1,012,017 1,431,426 4,482,016 320,957 783,486 173,545 29,280 17,998 | 2018 148 -

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Notes to the Financial Statements

Statement of Profit or Loss and Other Comprehensive Income Impact of change in accounting policy Impact of change in accounting policy Company Company 31.03.2017 01.04.2016 As previously Adjustments As restated As previously Adjustments As restated reported reported Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revenue 9,637,973 - 9,637,973 10,695,375 - 10,695,375 Cost of sales (7,216,966) - (7,216,966) (7,267,929) - (7,267,929) Gross profit 2,421,007 - 2,421,007 3,427,446 - 3,427,446 Other income 117,381 - 117,381 48,291 - 48,291 Distribution expenses (226,625) - (226,625) (239,079) - (239,079) Administrative expenses (1,258,368) 514 (1,257,854) (1,288,781) - (1,288,781) Other expenses (29,538) - (29,538) (43,758) - (43,758) Profit from operations 1,023,857 514 1,024,371 1,904,119 - 1,904,119 Finance income 204,488 - 204,488 220,367 - 220,367 Finance cost (52,199) - (52,199) (74,505) - (74,505) Net finance income 152,289 - 152,289 145,862 - 145,862 Change in fair value of investment property - 111,020 111,020 - 207,130 207,130 Profit before income tax expenses 1,176,146 111,534 1,287,680 2,049,981 207,130 2,257,111 Income tax expense (220,706) (163) (220,869) (592,855) (2,046) (594,901) Profit for the year 955,440 111,371 1,066,811 1,457,126 205,084 1,662,210 Employee benefit plan actuarial gains / (losses) 5,596 - 5,596 8,436 - 8,436 Deferred tax on actuarial gains on defined benefit obligation (1,262) - (1,262) (3,484) - (3,484) Net change in fair value of available for sale financial assets (808) - (808) (197,757) - (197,757) Total other comprehensive income / (loss) for the year 3,526 - 3,526 (192,805) - (192,805) Total comprehensive income for the year 958,966 111,371 1,070,337 1,264,321 205,084 1,469,405

20. Intangible assets Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Goodwill (note 20.1) 2,890 2,890 - - Computer software (note 20.2) 7,839 9,090 6,390 7,232 10,729 11,980 6,390 7,232

20.1 Goodwill Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the beginning of the year 2,890 2,890 - - At the end of the year 2,890 2,890 - -

176 Carrying amount at theendofyear Carrying At theendofyear Amortisation during theyear during Amortisation At thebeginning oftheyear Accumulated amortisation At theendofyear Orient Motor Company Motor Orient Ltd Holding Additions EquipmentUML Heavy Ltd LtdUnimo Enterprises Ltd Developments UML Property no items pledged as security forno items liabilities. pledged assecurity and Rs. 14.8million(2017-Rs. 14.8million)respectively. recognition were orbecausethey criteria acquired orgenerated before SLFRS3–Businesscombinationswaseffective. 21. 20.5 20.4 20.3 At the beginning oftheyear Cost 20.2 thatresults ofintangiblesNo conditionhasarisen inanimpairment thatrequires aprovision. 2002. on 3October asAssociatedacquisition ofbalance50%shares Ltd United inUnimoEnterprise (formerlyknown Limited) Motors whichwasacquired representsGoodwill thedifference thepurchase between considerationandthefairvalueofassetsacquired asaresult ofthe 20.1.(a) There were existed onthetitleofintangible norestrictions date. assetsoftheGroup asatthereporting Further, there were oftheGroup computer software andtheCompanyCost amountsto offully amortised Rs. 16.7million(2017-Rs. 16.7million) There were nosignificant intangible assetscontrolled butnotrecognised by theentity didnotmeet asassetsbecausethey Investments insubsidiaries Computer software Impairment ofgoodwill Impairment 177 100 100 100 100 %

31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 19,232 17,24916,75515,181 17,249 15,69615,18113,836 27,071 26,33923,14522,413 26,339 16,71922,41314,757 7,839 9,0906,3907,232 1,983 1,5531,5741,345 2018 2017 732 9,620 U - - - - - nited M nited Group Group otors L otors anka PLC A anka 247,400 172,400 50,000 75,000 - 47,400 75,000 nnual R nnual 732 7,656 Company Company eport 2017eport | 2018

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Notes to the Financial Statements

22. Investments in equity accounted investee Group Company % 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Holding Rs.’000 Rs.’000 Rs.’000 Rs.’000

TVS Lanka (Pvt) Ltd - (interest in joint venture) 50 - 800,431 - 173,545 - 800,431 - 173,545

Pursuant to the share purchase agreement entered into between UML and T V Sundram Iyenger & Sons (Pvt) Limited, India, on 28 March 2018, UML disposed its entire shareholding of 17,500,000 shares in TVS Lanka (Pvt) Ltd, representing 50% of the stated capital for a total consideration of Rs.1 billion.

22.1 Reconciliation of investments in equity accounted investee Reconciliation of the carrying amount of the equity accounted investee is as follows; Group 28.03.2018 31.03.2017 Rs.’000 Rs.’000

Balance at the beginning of the year 800,431 750,853 Share of profit of equity accounted investee 137,612 76,027 Dividend received (17,500) (28,875) Elimination of unrealised profit on downstream sales (354) 6 Other comprehensive income (2,157) 2,420 Group’s share of net assets of equity accounted investee as at the date of divestment/year end 918,032 800,431

22.2 Summary of financial information of equity accounted investee 28.03.2018 31.03.2017 Rs.’000 Rs.’000

Current assets 5,026,994 5,231,767 Non current assets 61,701 62,920 Current liabilities (3,242,881) (3,695,126) Non current liabilities (34,101) (23,789) Net assets (100%) 1,811,713 1,575,772

Group’s share of net assets (50%) 905,857 787,886 Elimination of unrealised profit (370) - Goodwill 12,545 12,545 Carrying amount of interest in equity accounted investee 918,032 800,431 Disposal of investment in equity accounted investee (note 22.3) (918,032) - Group’s share of net assets of equity accounted investee - 800,431

178 22.3

Non current financialliabilitiesincludedinnoncurrent liabilities Current financialliabilitiesincludedincurrent liabilities Cash and cashequivalentsincludedincurrent assets Revenue Profit accounted ondisposalofequity investee Remaining unrealisedRemaining profit onpurchase ofgoodsfrom accounted investee equity Group’s share ofnetassetsrecognised upto the date accounted investeeInvestment inequity Total considerationreceived Group’s share ofprofit andtotal comprehensive income Elimination ofunrealised profit Profit andothercomprehensive income(50%) Profit andothercomprehensive income (100%) comprehensive income Other Profit orlossfrom continuingoperations Interest Depreciation andamortisation Interest Compensation taxexpense Income Contingent Dividend Capital andothercommitments Profit accounted ondisposalofequity investee income expense received liabilities paid 179

U

nited M nited otors L otors anka PLC A anka

28.03.2018 31.03.2017 12,060,850 13,485,274 1,000,000 (918,032) - (325,565) (253,571) 270,941 156,889 135,455 78,448 135,471 78,444 275,255 152,049 (18,044) (26,289) (40,417) (68,997) 82,078 826,455 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Group Company 21,125 6,350 (4,314) 4,840 nnual R nnual 110 - (16) 3 28.03.2018 - 2,436,188 - 152,696 - - (173,545) - (25,648) - 1,504,000 - - eport 2017eport | 2018

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Notes to the Financial Statements

23. Financial instruments 23.1 Fair values of assets and liabilities Fair values Vs. carrying amounts The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.

Trade receivable includes the contractual amounts for settlement of trade and other obligations due to the Company. Trade and other payables and borrowings represent contract amounts and obligations due by the Company.

Group - 31 March 2018 Carrying amount Fair value Note Available- Fair Loans other total Level 1 Level 2 Level 3 total for-sale value and financial through receivables liabilities profit or loss Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Financial assets measured at fair value Equity shares 24 356,309 87,203 - - 443,512 443,512 - - 443,512 356,309 87,203 - - 443,512 443,512 - - 443,512

Financial assets not measured at fair value Trade and other receivables excluding prepayments 26 - - 1,393,624 - 1,393,624 Cash and cash equivalents 28 - - 1,156,160 - 1,156,160 - - 2,549,784 - 2,549,784

Financial liabilities not measured at fair value Interest bearing borrowings 31 - - - 2,718,432 2,718,432 Trade and other payables 34 - - - 1,016,933 1,016,933 Bank overdrafts 28 - - - 114,433 114,433 - - - 3,849,798 3,849,798

Group - 31 March 2017 Carrying amount Fair value Note Available- Fair Loans other total Level 1 Level 2 Level 3 total for-sale value and financial through receivables liabilities profit or loss Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Financial assets measured at fair value Equity shares 24 672,573 119,673 - - 792,246 792,246 - - 792,246 672,573 119,673 - - 792,246 792,246 - - 792,246

Financial assets not measured at fair value Trade and other receivables excluding prepayments 26 - - 1,570,804 - 1,570,804 Amounts due from related parties 27 - - 3,687 - 3,687 Cash and cash equivalents 28 - - 566,106 - 566,106 - - 2,140,597 - 2,140,597

Financial liabilities not measured at fair value Interest bearing borrowings 31 - - - 3,965,092 3,965,092 Trade and other payables 34 - - - 1,693,473 1,693,473 Bank overdrafts 28 - - - 118,171 118,171 - - - 5,776,736 5,776,736

180 Trade andotherreceivables Financial assetsnotmeasured at fairvalue Trade andotherreceivables Financial assetsnotmeasured at fairvalue Cash andcashequivalents Amounts duefrom related parties Cash andcashequivalents Amounts duefrom related parties Interest Financial liabilitiesnotmeasured at fairvalue bearing borrowings Equity Financial assetsmeasured at fairvalue shares Bank Amounts dueto related parties Trade andotherpayables Financial liabilitiesnotmeasured at fairvalue overdrafts Equity Financial assetsmeasured at fairvalue shares Company -31March 2018

Bank Amounts dueto related parties Trade andotherpayables overdrafts Company -31March 2017 excluding prepayments excluding prepayments Note Note 26 - 26 - 28 27 28 27 31 - 24 554,191119,673 28 - 35 34 24 274,163 28 - 35 34 - 554,191119,673 - 274,163 Rs.’000 Rs.’000 profit Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 profit Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

- - Available- Available- for-sale for-sale ------through receivables through receivables 87,203 87,203 orloss orloss value value Carrying amount Carrying Carrying amount Carrying Fair Fair ------

1,045,707 1,461,044 - 1,957,701 - 964,981 - 871,564 - 464,495 31,568 40,430 181 o Loans o Loans and financial and financial ------1,359,865 1,153,897 1,022,404 2,658,298 liabilities liabilities 862,150 110,458 101,895 49,796 42,641 t ther t ther - - - 673,864 - - - 361,366 - 673,864 - 361,366

1,045,707 1,461,044 1,957,701 1,359,865 1,153,897 1,022,404 2,658,298 964,981 871,564 464,495 862,150 110,458 101,895 U 31,568 40,430 49,796 42,641 nited M nited otal otal otors L otors Level 1 Level 1 anka PLC A anka Level 2 Level 2 Fair value Fair value - - - - nnual R nnual t Level 3 t Level 3 eport 2017eport - 673,864 - 361,366 - 673,864 - 361,366 | 2018 otal otal

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Notes to the Financial Statements

23.2 Financial assets by fair value hierarchy Fair value of financial instruments are based on a fair value hierarchy which is defined below.

Level 1 Inputs that are quoted market prices (unadjusted) in active market for identical instruments. The Company measures the fair value of an instrument using active quoted prices or dealer price quotations without any deductions for transaction cost. Market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions at arm’s length basis.

Level 2 Inputs other than quoted prices included within level one that are observable either directly or indirectly. This category includes instruments valued using; quoted market prices in an active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or valuation techniques in which whole significant inputs are directly or indirectly observable from market data.

Level 3 The input that are unobservable. This category includes all the instruments for which valuation techniques includes input not based on observable data and the unobservable inputs have a significant effect on the instruments valuation. This category includes instruments that are valued based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

23.3 overview of financial risk management The Group has exposure to the following risks arising from financial instruments: yy Credit risk yy Liquidity risk yy Market risk yy Operational risk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for identifying, analysing, evaluating and monitoring the risk and the management of capital of the Group. Further, quantitative disclosures are included throughout these consolidated financial statements.

Risk management framework The respective Board of Directors of each company has overall responsibility for the establishment and oversight of the respective company’s risk management framework.

Each company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk profile and controls, and to monitor risks and mitigate. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Audit Committee oversees how management monitors compliance with their risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by each company. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

The risk management has been further detailed in Enterprise Risk Management given in pages 113 to 120.

182 Private Sector Public Sector exposureMaximum to credit wiseare for risk asfollows: date tradereceivables by category atthereporting subcategories. The utilizationofcredit limitsisregularly monitored. factors. Sources ofcredit are risks identified, assessedandmonitored andtheGroup withinvarious haspoliciesto managetherisks The managementassessesthecredit ofthecustomer, quality andother into accounttheirfinancialposition,pastexperience taking t 23.4.2 Cash atbank Amount duefrom related parties Trade andotherreceivables excluding pre payments amount Carrying Note date was: reporting amountoffinancialassetsrepresents themaximumcreditThe exposure. carrying The maximumexposure to credit atthe risk exposure to credit risk 23.4.1 necessary. credit ratings(ifavailable)external information orhistorical aboutdefaultrates andchangethecredit limitsandpayment where terms The ofitscustomers Group /financialinstitutionsby ofcredit assessing doesanextensive andcontinuousevaluation worthiness including depositswithbanks, foreign exchange andotherfinancialinstruments. transaction The Group from isexposedto credit tradereceivables) from (primarily risk andfrom itsoperatingactivities itsfinancingactivities, leadingto afinancialloss.contract, obligationsunderfinancialinstrumentorcustomer willnotmeetitscontractual thatacustomerCredit orcounterparty isthe risk risk 23.4 Leasing companies anddistributors Dealers Corporate customers customers Individual Credit risk rade receivables 183 28 27 26

31.03.2018 31.03.2017 31.03.2018 31.03.2017 2,416,603 2,050,4251,836,7571,381,903 1,022,979 475,934924,763385,354 1,393,624 1,570,804 891,354 1,032,281 350,477 387,291144,793183,654 162,284 258,399123,831172,038 101,387 162,332 277,206 215,365235,909211,790 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 U - 8,894 - 3,687 nited M nited Group Group otors L otors anka PLC A anka 605,920 738,708 871,564 964,981 40,430 31,568 nnual R nnual - 8,894 Company Company eport 2017eport | 2018

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Notes to the Financial Statements

23.4.3 Impairment losses (a) Details of the impairment of trade receivables are given below. Group 31.03.2018 31.03.2017 Gross Impairment Gross Impairment Rs.’000 Rs.’000 Rs.’000 Rs.’000

Individual impairment Not past due 576,987 - 658,228 - Past due 37,232 37,232 32,653 32,653

Collective Impairment Not past due 276,717 397 353,923 664 Past due 54,645 16,598 31,380 10,586 945,581 54,227 1,076,184 43,903

Company 31.03.2018 31.03.2017 Gross Impairment Gross Impairment Rs.’000 Rs.’000 Rs.’000 Rs.’000

Individual Impairment Not past due 371,302 - 451,016 - Past due 36,103 36,103 31,430 31,430

Collective Impairment Not past due 210,591 246 272,802 141 Past due 33,419 9,146 19,801 4,770 651,415 45,495 775,049 36,341

(b) The movement in the allowance for impairment in respect of trade receivables during the year was as follows: Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the beginning of the year 43,903 48,460 36,341 35,352 Impairment loss recognised / (reversed) 10,324 (4,557) 9,154 989 At the end of the year 54,227 43,903 45,495 36,341

(c) Impairment loss of Rs. 37.2 million of the Group relates to individually significant customers and impairment test indicated that they are not expecting to be able to pay their outstanding balances, mainly due to economic circumstances. Hence the receivable balances are identified as impaired as at 31 March 2018. Except for the above, balance receivables are impaired collectively based on the collection pattern and historical default rate. (d) The Group believes that no impairment is necessary for equity securities categorised under ‘available for sale financial assets’ as the value changes are not permanent and significant. (e) When the Group ascertains that no recovery of the amount owing is possible, at that point the amounts are considered irrecoverable and are written off against the financial asset directly.

Credit risk relating to cash and cash equivalents The cash and cash equivalents are held with banks and financial institutions which are rated above ‘BBB-(lka).

184

amounts. analysiscouldoccursignificantly earlier, thatthecashflows isnotexpected includedinthe maturity It oratsignificantly different Bank Trade Interest Non- derivative financialliabilities overdrafts 31 March 2018-Group and bearing other borrowings payables netting agreements. The following offinancialliabilities, are maturities including estimated interest thecontractual payments andexcludingof theimpact relationships have beenbuiltwithbanksto ensure thaturgent notice. borrowing needsare metatshort isavailable money forensuring settlements. facilitiesare Adequate approved banking for andkept useasandwhennecessary. Strong outcashflow forecasts andidentifyingfuture byThe carrying Group risk cashneeds. managestheliquidity Investments are planned thattheGroup istherisk may risk nothaveLiquidity sufficientliquidfinancialresources to falldue. meetitsobligationswhenthey 23.5

Bank Trade overdrafts Interest Non- derivative financialliabilities 31 March 2017-Group and bearing other borrowings payables Bank Amounts dueto related parties Trade Non- derivative financialliabilities overdrafts 31 March 2018-Company and other payables

Bank Amounts dueto related parties Trade Interest overdrafts Non- derivative financialliabilities 31 March 2017-Company and bearing other borrowings payables

Liquidity risk Liquidity Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

118,171

3,849,798 5,776,736 1,022,404 2,658,298 1,016,933 2,718,432 1,693,473 3,965,092 1,153,897 1,359,865 Carrying 114,433 862,150 110,458 101,895 amount 49,796 42,641 185 Contractual 3,849,798 5,776,736 1,022,404 2,658,298 1,016,933 2,718,432 1,693,473 3,965,092 1,153,897 1,359,865 114,433 862,150 110,458 101,895 49,796 42,641 flows Cash 3,849,798 - 5,776,736 - 1,022,404 - 2,658,298 - 1,016,933 - 2,718,432 - 1,693,473 - 3,965,092 - 1,153,897 - 1,359,865 - 6 months Less than 114,433 - 862,150 - 110,458 - 101,895 - U 49,796 42,641 nited M nited otors L otors months years years 6- 12 anka PLC A anka - - - 1-2 - - - nnual R nnual eport 2017eport 2-5 - - - 5 years More | than 2018 - -

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Notes to the Financial Statements

23.6 Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risks; yy Foreign exchange risk yy Interest rate risk yy Equity price risk

(a) Foreign exchange risk Foreign currency risk arises when future commercial transactions are denominated in a currency that is not the entity’s functional currency. The Group is principally exposed to fluctuations in the value of the Japanese Yen (JPY) and US Dollar (USD) against the Sri Lankan Rupee (LKR). The Group’s functional currency is LKR in which most of the transactions are denominated, and all other currencies are considered foreign currencies for reporting purposes.

Changes in foreign currency exchange rates affect the Group’s cost of purchases. Based on anticipated exchange rate movements forward booking is considered as a method to minimise risk. Import bills are negotiated at the most favourable time for the Group.

The exposure to currency risk as at the reporting date are as follows: Group Company USD - ‘000 JPY - ‘000 USD - ‘000 JPY - ‘000 Trade receivables as at 31 March 2018 486 38,385 89 38,385 Trade payables as at 31 March 2018 400 174,370 178 174,370

Sensitivity analysis The following table demonstrates the sensitivity of Group / Company profits to a reasonable possible change in the US Dollar (USD) and Japanese Yen (JPY) exchange rate with all other variables held constant.

The impact on the profit before tax due to change in the fair value of monetary assets and liabilities denominated in foreign currency as at 31 March 2018 are as follows; Increase/decrease in Group effect on profit Company effect on profit exchange rate before tax before tax Rs.’000 Rs.’000 USD + 5 % 528 (721) - 5% (528) 721 JPY + 5 % (10,215) (10,215) - 5% 10,215 10,215

(b) Interest rate risk The Group’s interest rate risk arises mainly from the short term borrowings and investment of excess funds in financial instruments. Borrowings at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash / investments held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Company has cash and bank balances including deposits placed with Government and reputed financial institutions. All available opportunities are considered before making investment decisions.

Proper working capital management is done to ensure that borrowing needs and investment opportunities are foreseen. Market interest rates are monitored closely to ensure borrowings and investments are at the best rate for the Group.

186 follows: theinterest period rateAt the end ofthereporting profile oftheGroup /Company’s interest financialinstrumentswasas bearing

y y The Group’s managementpoliciesadopted by risk the Investment Committee equity are asfollows; through risk to diversification differentGroup price ofitsportfolio managestheequity businesssegments. offuture valuesoftheinvestment from arising uncertainties securities. risk are price securities susceptibletoListed equity equity The e (c) Financial V Financial

constant. The following to tabledemonstrates areasonable interest, thesensitivity possiblechangeinvariable held with allothervariables analysis Sensitivity There were nofixed rate instrumentsasatthebalancesheetdate 31 March 2018 variable rate31 March instruments 2018variable ariable rateariable instruments y y performance. andmacroeconomic analysisaswell asonresearch onthecompany industry are reports Decisions madebasedonin-depth investmentEquity decisions are basedonfundamentalsratherthanspeculation. quity price risk quity assets liabilities Increase/decrease in 187 variable rates

+5% -5% Group Effect onprofit U nited M nited otors L otors before tax (15,034) Rs. ’000 anka PLC A anka 15,034 2,718,432 - 2,718,432 - Rs’000 Rs’000 Group 2018 nnual R nnual Company Effect on profit before tax - eport 2017eport Company Rs. ’000 | 2018 - -

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Notes to the Financial Statements

The table below shows the diversification of equity investments; Investment shares Sector Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Market % Market % Market % Market % Value Value Value Value Rs.’000 Rs.’000 Rs.’000 Rs.’000 Banks, finance and insurance 218,919 61.4 312,143 46.4 169,410 61.79 268,842 48.51 Construction and 1,851 0.5 7,827 1.2 - - - - engineering Diversified holdings 18,299 5.1 260,177 38.7 16,374 5.97 223,826 40.39 Motor 51,085 14.3 61,523 9.1 51,085 18.64 61,523 11.10 Beverage, food and tobacco 13,979 4.0 16,112 2.4 - - - - Power and energy 5,078 1.4 4,020 0.6 - - - - Health care 540 0.2 554 0.1 - Manufacturing 46,558 13.1 10,217 1.5 37,294 13.60 - - Total 356,309 100.0 672,573 100.0 274,163 100.0 554,191 100.0

Trading shares Sector Group / Company 31.03.2018 31.03.2017 Market Value % Market Value % Rs.’000 Rs.’000 Banks, finance and insurance 39,441 45.2 45,520 38.0 Diversified holdings 7,006 8.0 5,425 4.5 Beverage, food and tobacco 22,270 25.5 25,671 21.5 Construction and engineering 1,435 1.6 13,065 10.9 Power and energy 4,021 4.6 3,721 3.1 Manufacturing 13,030 15.1 26,271 22.0 Total 87,203 100.0 119,673 100.0

Sensitivity analysis Investments in equity shares are subject to the performance of investee company and the factors that effects the status of the stock market.

The following table demonstrates the sensitivity of the Group and Company’s equity to a reasonably possible change in the market prices of the listed equity securities, with all other variables held constant.

Change in year 31.03.2018 Group Company share price of all companies in Effect on profit Effect on Effect Effect on equity which the Group / Company before tax equity on profit has invested before tax Rs.’000 Rs.’000 Rs.’000 Rs.’000 31 March 2018 - + 5% 4,360 22,176 4,360 18,068 Investments in equity shares - 5% (4,360) (22,176) (4,360) (18,068)

188 Gearing ratioGearing Capital andnetdebt Equity Net debt deposits term Less: Cash andshort Trade andotherpayables Bank overdraft borrowingsInterest bearing Note borrowings,bearing tradeand otherpayables, lesscashandequivalents. 2018.The Group ratio, monitors capitalusingagearing plusnetdebt.Netdebtincludesinterest whichisnetdebtdividedby equity No changeswere madeinobjectives, policiesorprocesses for managing theyears capitalduring ended31March 2017and31March shareholders.well asthelevel ofdividends to ordinary sharesbusiness. andretained Capital oftheGroup. consistofordinary earnings The Board ofDirectors monitors thereturn oncapitalas Further, astrong capitalbaseismaintainedfor investor, confidenceandsustainfuture creditor development ofthe andmarket consistent withothersintheindustry, capitalismonitored ratio. onthebasisofgearing returns for shareholders andbenefitsfor andto maintainanoptimalcapitalstructureto otherstakeholders reduce thecostofcapital The Group’s whenmanaging objectives capitalare to safeguard theGroup’s inorder to continueasagoingconcern to ability provide 23.8 senior managementoftheGroup. are discussedwiththemanagementofbusinessunitto relate, whichthey submitted to withsummaries theAudit Committee and Audit. by Internal Compliance withsetprocedures reviews by undertaken periodic The results auditreviews issupported ofinternal y y y y y y y y y inthefollowingmanagement ofoperationalrisk areas: management withineachbusinessunit. by thedevelopment ofoverallThis responsibility issupported Group standards for the responsibility for thedevelopment andimplementationofcontrols toThe address primary isassigned operational risk to senior damage to theGroup’s reputation withoverall costeffectiveness andto avoid control procedures initiative thatrestrict andcreativity. the Group’s operations. The Group’s soasto isto objective balancetheavoidance manageoperationalrisk offinanciallossesand requirementsfrom legalandregulatory andgenerally accepted standards behaviour. ofcorporate from arise allof Operationalrisks suchasthosearising personnel, risks technology andliquidity andinfrastructure, otherthancredit, factors andfrom market external ofcausesassociated withtheGroup’s from ofdirect orindirectlossesarising awidevariety istherisk Operational risk processes, operational risk 23.7 y y y y y y y y y risk mitigation,includinginsurancewhenapplicable.risk ethical andbusinessstandards; training andprofessional development; requirements for ofoperationallosses andproposed remedial thereporting action; identified; risks requirements ofcontrols for faced, andprocedures assessmentofoperationalrisks andtheadequacy theperiodic to address the documentation ofcontrols andprocedures; andotherlegalrequirements;compliance withregulatory requirements for thereconciliation oftransactions; andmonitoring requirements for appropriate segregation ofduties, oftransactions; includingtheindependentauthorisation Capital management risk 189 28 34 28 31

31.03.2018 31.03.2017 15,393,765 15,952,99911,622,481 11,418,877 12,700,127 10,742,36911,695,580 9,267,715 (1,156,160) (566,106) 2,693,638 5,210,630 1,016,933 1,693,473 2,718,432 3,965,092 114,433 118,171110,458101,895 Rs.’ 000 0.17 0.33 U nited M nited Group otors L otors Rs.’ 000 anka PLC A anka (1,045,707) (464,495) 862,150 1,153,897 Rs.’ 000 (73,099) 2,151,162 nnual R nnual - 0.19 - 1,359,865 Company eport 2017eport Rs.’ 000 | 2018

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Notes to the Financial Statements

24. Other investments Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Non-current investments Equity securities designated as available for sale financial assets (note 24.1) 501,143 836,538 392,672 684,124 Decrease in market value (144,834) (163,965) (118,509) (129,933) 356,309 672,573 274,163 554,191

Current investments Equity securities designated as fair value through profit or loss (note 24.2) 121,250 158,206 121,250 158,206 Decrease in market value (34,047) (38,533) (34,047) (38,533) 87,203 119,673 87,203 119,673

190

Access Engineering PLC Group e 24.1 Aitken SpencePLCAitken Ceylon GrainElevators PLC PLCCentral Industries Bairaha Farms PLC Citizens Development Citizens Development Commercial BankofCeylon PLC -Nonvoting DFCC BankPLC Commercial BankofCeylon PLC - Voting Diesel & Motor Engineering PLCDiesel &Motor Hatton National BankPLC - Voting John Keells HoldingsPLC Keells John Lanka Walltiles PLC WalltilesLanka Laugfs Gas PLCLaugfs Gas Melstacorp PLCMelstacorp MTD Walkers PLCMTD Walkers National Development BankPLCNational Development Nations Trust BankPLC People’s Leasing &Finance PLC Renuka FoodsRenuka PLC Seylan BankPLCSeylan - Voting Softlogic FinanceSoftlogic PLC Singer Finance PLC (Lanka) Softlogic HoldingsPLCSoftlogic Softlogic LifePLCSoftlogic Insurance Swisstek (Ceylon) PLC The Lanka Hospital Corporation PLC HospitalCorporation The Lanka Three Acre Farms PLC Vallibel OnePLC Tokyo PLC Cement (Lanka) Business Finance PLC -Nonvoting Business Finance PLC - Voting quity securities designated securities quity asavailable for salefinancialassets 361,647 41,59618,299 284,671 35,62329,606 477,092 92,71655,724 260,300 40,30235,349733,064106,974 109,883 90,21151,085 143,049 5,9125,078 440,550 54,29858,637 249,463 24,68920,132 179,704 4,0662,839 388,211 9,2106,289 521,885 11,917 690,634 50,60837,294- - Shares Rs.’000 Rs.’000 21,000 1,140 52,251 10,587 18,600 1,4671,579 82,116 9,7608,080 90,259 5,5211,851 41,862 4,1303,634 89,709 5,1713,140 10,700 249242 o. of No. 5,000 471358 9,000 652540 5,870 846657 10 1 ------31.03.2018 191 836,538 672,573 501,143 356,309 Cost Market V Market 7,033 52,25110,587 8,037 426,997 of no. alue U 825 21,000 nited M nited otors L otors 1,130,478 179,377155,893 1,243,376 85,15673,608 196,150 5,1754,668 361,647 41,59620,324 254,770 33,27226,267 477,092 92,71654,388 109,883 90,21161,523 105,489 23,38123,767 143,049 5,9124,020 545,023 69,51676,085 243,142 24,68917,993 179,704 4,0662,803 388,211 9,2106,988 649,259 9,8247,726 150,000 3,2992,625 Shares Rs.’000 Rs.’000 18,600 1,4671,194 82,116 9,7607,637 90,259 5,5213,159 41,015 4,1303,568 89,709 5,1712,781 20,700 481404 20,000 1,4431,312 5,000 471344 9,000 652553 5,870 846753 anka PLC A anka 10 1 31.03.2017 10,494 nnual R nnual 1,140 Cost eport 2017eport Market V Market 95,592 8,371 7,302 | alue 2018 924

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Notes to the Financial Statements

Company 31.03.2018 31.03.2017 No. of Cost Market Value no. of Cost Market Value Shares Rs.’000 Rs.’000 Shares Rs.’000 Rs.’000

Aitken Spence PLC 323,596 37,820 16,374 323,596 37,820 18,186 Commercial Bank of Ceylon PLC - Non voting 284,671 35,623 29,606 254,770 33,272 26,267 Commercial Bank of Ceylon PLC - Voting - - - 499,370 69,360 65,118 DFCC Bank PLC 477,092 92,716 55,724 477,092 92,716 54,388 Diesel & Motor Engineering PLC 109,883 90,211 51,085 109,883 90,211 61,523 Melstacorp PLC - - - 1,243,376 85,156 73,608 Hatton National Bank PLC - Voting - - - 105,489 23,381 23,767 John Keells Holdings PLC - - - 957,446 151,296 132,032 National Development Bank PLC 440,550 54,298 58,637 545,023 69,516 76,085 Nations Trust Bank PLC 249,463 24,689 20,132 243,142 24,689 17,993 People’s Leasing & Finance PLC 106,154 2,577 1,677 106,154 2,577 1,656 Seylan Bank PLC - Voting 41,862 4,130 3,634 41,015 4,130 3,568 Tokyo Cement (Lanka) PLC 690,634 50,608 37,294 - - - 392,672 274,163 684,124 554,191

24.2 equity securities designated as fair value through profit or loss Group / Company 31.03.2018 31.03.2017 No. of Cost Market Value no. of Cost Market Value Shares Rs.’000 Rs.’000 Shares Rs.’000 Rs.’000

Access Engineering PLC - - - 446,000 11,521 10,615 ACL Cables PLC - - - 50,806 3,135 2,769 Alumex PLC - - - 188,868 3,877 3,588 Bairaha Farms PLC 68,849 13,137 9,267 68,849 13,137 11,030 Central Industries PLC 11,796 638 464 11,796 638 519 Ceylon Grain Elevators PLC 55,470 5,303 3,966 55,470 5,303 3,822 Citizens Development Business Finance PLC - Non voting 52,437 5,269 3,880 52,437 5,269 2,522 Citizens Development Business Finance PLC - Voting 73,224 8,447 6,217 73,224 8,447 4,701 Commercial Bank of Ceylon PLC - Voting - - - 4,449 691 580 Kelani Cables PLC 30,000 4,247 2,790 30,000 4,247 3,525 Kelani Tyres PLC 40,095 3,215 1,973 40,095 3,215 2,205 Lanka IOC PLC 104,100 4,002 3,133 104,100 4,002 3,019 Lanka Walltiles PLC 38,989 4,466 3,837 38,989 4,466 3,626 Laugfs Gas PLC 25,000 885 888 25,000 885 702 MTD Walkers PLC 70,000 4,204 1,435 70,000 4,204 2,450 Nations Trust Bank PLC 85,559 8,249 6,905 83,391 8,249 6,171 People’s Leasing PLC 395,694 8,779 6,252 395,694 8,779 6,173 Renuka Foods PLC 457,001 11,398 7,403 457,001 11,398 8,226 Sanasa Development Bank PLC 31,771 4,326 3,419 30,440 4,326 3,014 Singer Finance (Lanka) PLC 679,224 15,683 10,460 555,729 13,830 9,503 Softlogic Finance PLC 65,944 3,768 2,308 65,944 3,768 2,044 Softlogic Life Insurance PLC - - - 394,030 8,965 7,684 Swisstek (Ceylon) PLC - - - 63,909 4,694 4,173 Three Acre Farms PLC 50,000 7,584 5,600 50,000 7,584 6,415 Vallibel Finance PLC - - - 88,411 5,926 5,172 Vallibel One PLC 310,002 7,650 7,006 310,002 7,650 5,425 121,250 87,203 158,206 119,673

192 Spare parts Vehicles 25.2 At theendof year Written theyear offduring Provision theyear madeduring At thebeginning oftheyear 25.1 each category. hasbeenshownThe nettingofftheprovision stock-in-trade after madefor ofeachcategory slow moving inventories inrespectof intransit(noteGoods 25.2) Work-in-progress Stock-in-trade Others equipment Heavy Tyres Lubricants Vehicles Spare parts 25. Inventories Goods intransitGoods Provision for slow moving inventories 193

31.03.2018 31.03.2017 31.03.2018 31.03.2017 6,485,929 7,475,7043,456,0374,210,477 5,541,215 6,448,7832,629,6483,470,153 4,187,343 4,591,7691,577,2292,708,213 871,824 856,841788,286708,109 273,259 212,850200,275167,891 759,025 513,261675,880510,375 335,084 244,925 112,799 343,580112,406197,734 212,850 158,756167,891141,210 871,824 856,841788,286708,109 872,087 1,489,038 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 72,890 170,080 41,864 39,897 41,407 83,154 64,094 54,09432,38426,681 63,430 - (3,685) - 2018 2017 U nited M nited Group Group Group otors L otors anka PLC A anka 675,471 477,118 38,103 32,215 nnual R nnual - - Company Company Company eport 2017eport | 2018

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Notes to the Financial Statements

25.3 Inventories and trade receivables pledged as security for liabilities of Group entities are as follows. Company Bank Facility Amount pledged Balance as security outstanding Rs.’000 Rs.’000 Orient Motor Company Ltd National Development Bank PLC Overdraft, Short term 100,000 - loans, Letters of credit Commercial Bank of Ceylon PLC Overdraft, Short term 115,000 - loans, Letters of credit Standard Chartered Bank Overdraft, Short term 100,000 - loans, Letters of credit Unimo Enterprises Ltd Sampath Bank PLC Overdraft, Short term 365,000 100,000 loans, Letters of credit National Development Bank PLC Overdraft, Short term 305,000 - loans, Letters of credit Commercial Bank of Ceylon PLC Overdraft, Short term 525,000 755,000 loans, Letters of credit Standard Chartered Bank Overdraft, Short term 500,000 627,000 loans, Letters of credit

26. Trade and other receivables Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade receivables 945,581 1,076,184 651,415 775,049 Impairment allowance (note 26.2) (54,227) (43,903) (45,495) (36,341) 891,354 1,032,281 605,920 738,708

Other receivables (note 26.3) 346,415 424,690 115,316 112,441 Loans to employees 12,162 10,540 12,162 10,540 Economic Service Charge 45,928 48,662 45,928 48,662 Pre-payments 264,159 419,386 45,651 50,163 Facilitation fee receivable - 260 - 260 Advances paid 97,765 54,371 92,238 54,370 Total trade and other receivables 1,657,783 1,990,190 917,215 1,015,144

26.1 The Group’s exposure to credit risk and impairment losses related to trade and other receivables are disclosed in note 23.4.

194 26.5 No loanshave beengranted to theDirectors oftheCompany. At theendof year (numberofemployees -195) Recovered theyear during Loans theyear disbursedduring At thebeginning oftheyear (numberofemployees -185) has exceeded Rs. 20,000are disclosedasfollows: Total loansdisbursedto employees amountsto Rs. 10.9million,outofwhichthemovement ofloansdisbursedto employees which 26.4 ofotherreceivables Impairment receivables Other o 26.3 At theendofyear theyear offduring Bad debtwritten theyearDuring provision /(reversal) At the beginning oftheyear 26.2 Trade for receivables liabilitiesare pledgedassecurity given innote 25.3. Loans to employees allowanceImpairment for trade receivables ther receivables 195

31.03.2018 31.03.2017 executives executives 346,415 424,690115,316112,441 399,861 446,024125,493114,381 (53,446) (21,334)(10,177)(1,940) 11,066 - 54,227 43,90345,49536,341 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 10,911 - 12,714 (1,633)9,7682,125 43,903 48,46036,34135,352 (9,452) - (2,390) (2,924) 9,607 - 2018 2018 2017 non Executives Non Executives U nited M nited Group Group Group otors L otors anka PLC A anka 11,066 - 10,911 - (9,452) - 9,607 - nnual R nnual (614) (1,136) Company Company Company eport 2017eport | 2018

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Notes to the Financial Statements

27. Amounts due from related parties Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Relationship Rs.’000 Rs.’000 Rs.’000 Rs.’000

Orient Motor Company Ltd Subsidiary - - 11,284 10,911 Unimo Enterprises Ltd Subsidiary - - 27,118 17,006 UML Heavy Equipment Ltd Subsidiary - - 2,028 - TVS Lanka (Pvt) Ltd Equity accounted investee - 3,326 - 3,326 TVS Automotives (Pvt) Ltd Related entity - 361 - 325 - 3,687 40,430 31,568

28. Cash and cash equivalents Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Favourable balances Money market deposits 680,200 - 680,200 - Call deposits 94 39,708 94 34,005 Cash at bank 342,685 436,226 244,469 351,349 Cash In hand 133,181 90,172 120,944 79,141 1,156,160 566,106 1,045,707 464,495

Unfavourable balances Bank overdrafts used for cash management purposes (114,433) (118,171) (110,458) (101,895) Net cash and cash equivalent for the purpose of cash flow statements 1,041,727 447,935 935,249 362,600

In September 2015 the Department of Inland Revenue issued seizure notice on all six bank accounts of Orient Motor Company Ltd (OMCL) to recover unpaid NBT of Rs.17,640,485 as per their records. OMCL has set-off this amount against a GST refund approved by Commissioner General of Inland Revenue (CGIR). Orient Motor Company Ltd has filed a fundamental rights petition in the Supreme Court against the Department of Inland Revenue on the basis that these outstanding taxes are not payable as they have been set off against refunds approved by CGIR.The case is currently being heard in the Supreme Court and there are no developments that have arisen which require a provision in the accounts. Therefore, no provision has been made in these financial statements for the year ended 31 March 2018, as OMCL has strong reasons to believe that they will not have to settle any assessments issued by the Department of Inland Revenue.

Overdraft facilities of the Company are unsecured. See note 39.2 for details of corporate guarantees given for related companies.

The Group’s / Company’s exposure to interest rate risk is disclosed in note 23.6

196 T Current At theendofyear Accrued loaninterest Loans outstandingasat31March Payments theyear madeduring At theendof year Obtained during theyearObtained during ofland Revaluation Transfer favour andarelated ofitssubsidiaries company are innote 39.2to described theseconsolidated financialstatements. loans term Short Current liabilities 31.2 31.1 At thebeginning oftheyear 31. At thebeginning oftheyear 30. 29. one vote pershare inthecaseofapoll. dividends asdeclared from timeto timeandare entitledto onevote pershare perindividualpresent atmeetingoftheshareholders or None oftheshares heldby neither, theCompany onitsown noritssubsidiaries. shares areThe holdersofordinary entitledto receive At theendofyear At the beginning oftheyear otal Borrowings whichare guaranteed through guarantees corporate given by theparent company, PLC, United Lanka Motors in ofCompanyDetails andGroup’s interest borrowings, bearing costare whichare given measured atamortised below. Interest bearingborrowings Capital reserves Stated capital 100,900,626 100,900,626 2018 2017 No ofShares

197

(49,320,084) (16,840,253)(20,634,053)(7,777,401) 31.03.2018 31.03.2017 52,033,569 20,796,22020,634,0539,135,259 48,077,602 18,166,14219,276,1959,135,259 2,718,432 3,965,092 2,718,432 3,965,092 4,556,009 2,956,3824,242,8692,922,336 2,718,432 3,965,092 2,713,485 3,955,967 1,633,673 - 3,955,967 2,630,0781,357,858- 2,956,382 2,922,336 2,718,432 3,965,092 (34,046) - Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 336,335 4,947 9,125 2018 2017 2018 2017 336,335 Rs.’000 Rs.’000 Rs.’000 Rs.’000 U nited M nited Group Group Group Group otors L otors anka PLC A anka 1,320,533 - nnual R nnual - 1,359,865 - 1,359,865 - 1,359,865 - 2,007 - 1,357,858 - - 1,359,865 Company Company Company Company eport 2017eport | 2018

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Notes to the Financial Statements

31.3 terms and debt repayment schedule Terms and conditions of the outstanding loans are as follows: Group 31.03.2018 31.03.2017 Effective year of Face Carrying Face Carrying interest rate Maturity value value value value Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short term loans - secured Market rate 2018 2,718,432 2,718,432 2,605,227 2,605,227 Short term loans - unsecured Market rate 2017 - - 1,359,865 1,359,865 2,718,432 2,718,432 3,965,092 3,965,092

Company 31.03.2018 31.03.2017 Effective year of Face Carrying Face Carrying interest rate Maturity value value value value Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short term loans - unsecured Market rate 2017 - - 1,359,865 1,359,865 - - 1,359,865 1,359,865

32. Employee benefits 32.1 Retirement benefit obligation Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Present value of unfunded obligation 1,818 1,108 - - Present value of funded obligation 201,895 173,327 186,845 161,671 Retirement benefit obligation (note 32.5) 203,713 174,435 186,845 161,671

The retirement benefit obligation is based on the actuarial valuation performed by Mr. M. Poopalanathan, AIA, of Messrs Actuarial and Management Consultants (Pvt) Limited. The valuation method used by the actuary is the “Projected Unit Credit Method”, the method recommended by LKAS 19 - Employee Benefits.

32.2 Defined benefit plan Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Employees joined before 1992 / 93 Mutual fund (note 32.3) 620 624 620 624 Employees joined after 1992 / 93 Defined benefit plan (note 32.4) 83,461 93,774 79,902 90,477 84,081 94,398 80,522 91,101

198 2018. funded andanagreement hasbeenentered PLC into withAIAInsurance andcovers 788employees oftheCompany asat31March of thisfundasat31March 2018isRs. 619,897(2017-Rs. 623,914). ofemployees 1992/93,isexternally The liability joinedafter gratuity fundedthrough investments externally Funds inNDBMutual benefits ofemployees to 1992/93ispartly joined prior andthevalue At thebeginning oftheyear 32.5 Dividend adjustmentto theplanasset Benefits payable by theplan Benefits paidby theplan return onplan(noteExpected 32.6) At the beginning oftheyear 32.4 32.3 Defined benefitobligationDefined at theendofyear theyearBenefits paidduring (gains)/lossesinothercomprehensiveActuarial income(note 32.6) Expenses recognised inprofit andloss(note 32.6) Fair value of thedefinedbenefitplanat theendofyear gains/(losses)inothercomprehensiveActuarial income(note 32.6) Retiring gratuity isadefinedbenefitplancovering gratuity employeesRetiring oftheCompany. The Company’s onretirement arising liability Movement inthepresent value ofthedefinedbenefitobligation Movement infairvalue ofdefinedbenefitplan 199

203,713 174,435186,845161,671 174,435 166,758161,671154,070 (17,378) (17,329)(17,241)(16,469) (22,381) (20,245)(20,655)(18,914) 83,461 93,77479,90290,477 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 11,269 10,80110,85710,263 93,774 101,472 10,739 (6,713)9,367(4,506) 40,920 34,63536,46231,021 (3,298) (2,148) (1,044) 978(893)1,090 2018 2017 2018 2017 138 - U nited M nited Group Group otors L otors anka PLC A anka 90,477 97,741 nnual R nnual Company Company eport 2017eport | 2018 -

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Notes to the Financial Statements

32.6 expenses recognised in statement of profit or loss and comprehensive income Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Recognised in profit and loss Defined benefit obligation Current service costs 19,989 17,126 17,061 14,844 Interest on obligation 20,931 17,509 19,401 16,177 40,920 34,635 36,462 31,021

Defined benefit plan Expected return on plan asset 11,269 10,801 10,857 10,263 11,269 10,801 10,857 10,263

Recognised in other comprehensive income Defined benefit obligation Actuarial gains / (losses) recognised during the year (10,739) 6,713 (9,367) 4,506 (10,739) 6,713 (9,367) 4,506

Defined benefit plan Actuarial gains / (losses) recognised during the year (1,044) 978 (893) 1,090 Dividend adjustment to the plan asset 138 - - - (906) 978 (893) 1,090 (11,645) 7,691 (10,260) 5,596

32.7 Actuarial assumptions Principal actuarial assumptions are as follows: Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Rate of discount as at 31 March 11% 12% 11% 12% Future salary increases 10% 10% 10% 10% Retirement age 55 or 60 55 or 60 55 or 60 55 or 60 Staff turnover rate 5% 5% 5% 5%

Assumptions regarding future mortality are based on A67 / 70 Mortality table, issued by the institute of Actuaries, London, United Kingdom.

200 reporting date arereporting Rs. 192,410,889(2017-Rs.200,466,770) andRs. 53,875,049(2017-Rs. 56,130,695) respectively. will have adequate taxlosses. profits forward Unusedtaxlossandunrecognised to utilisesuchcarried deferred taxassetasatthe Deferred Company Motor taxassetonlossesofOrient Ltd (OMCL) hasnotbeenrecognised asitisnotprobable whetherOMCL Net deferred taxassets Provisions Retirement benefitobligation Property, plantandequipment Composition ofdeferred taxassets At theendof year oftimingdifferencesReversal /recognised inothercomprehensive income oftimingdifferencesReversal /recognised inprofit orloss At thebeginning oftheyear 33.1 33. Effect onthepresent valueofdefinedbenefitobligation(Rs.’000) A percentage point changeinthediscount rate assumptions used. outisasfollows: analysiscarried basedonsensitivity The estimated impact Values asdefinedbenefitobligationinthefinancialstatements are appearing sensitive to thechangesinfinancialandnon- 32.8 Effect onthepresent valueofdefinedbenefitobligation(Rs.’000) escalationA percentage rate point changeinthesalary Deferred taxassets Deferred taxassets/liabilities analysis Sensitivity 201

(10,777) 12,057 8,729 12,057 8,729 Rs.’000 Rs.’000 Rs.’000 Rs.’000 11,426 10,703 12,918 (4,091) (5,546) 2,943 (6,323) 4,722 3,572 8,729 15,670 + 1% 2018 2017 385 (618) U nited M nited Group Group otors L otors (11,725) 12,069 - 1% anka PLC A anka 11,316 (9,429) + 1% nnual R nnual ------Company Company eport 2017eport (10,296) 10,534 - 1% | 2018

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Notes to the Financial Statements

33.2 Deferred tax liabilities Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the beginning of the year 38,430 14,430 26,811 (1,898) Prior year adjustment - - - 2,046 At the beginning of the year 38,430 14,430 26,811 148 Charge / (reversal ) of timing differences / recognised in profit or loss 13,270 22,738 26,915 25,401 Origination of timing differences / recognised in other comprehensive income (2,623) 1,262 (2,623) 1,262 At the end of the year 49,077 38,430 51,103 26,811

Composition of deferred tax liability Property plant and equipment 100,831 83,281 100,697 69,516 Retirement benefit obligation (52,317) (45,268) (52,317) (45,267) Investment property - - 2,160 2,145 Intangible assets 563 417 563 417 Net deferred tax liability 49,077 38,430 51,103 26,811

Deferred tax liability already reported has been restated as a result of fair value adjustment arising from investment property. As per the Inland Revenue Act No. 24 of 2017, which came into effect from 1 April 2018, capital gains on realisation of investment assets are taxed at the rate of 10%. The Company identified land portfolio of the Company as an asset held as part of an investment due to the nature of business and tax opinion received from our tax consultant.

According to the transitional provisions, assets acquired prior to 30.09.2017, the cost of the asset is deemed to be the market value of such asset as at 30.09.2017. Since the Company revalued land on 8 November 2017 and there is no further increase recognised in financial statements thereafter, deferred tax has not been provided in the financial statements for the year ended 31.3.2018.

33.3 expenses recognised in statement of other comprehensive income Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Origination / (reversal) of timing differences – recognised in other comprehensive income (note 33.1) 385 (618) - - Reversal / (Origination) of timing differences – recognised in other comprehensive income (note 33.2) 2,623 (1,262) 2,623 (1,262) 3,008 (1,880) 2,623 (1,262)

34. Trade and other payables Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade payables 350,458 531,684 305,350 483,066 Taxes payable 52,050 412,277 44,115 35,510 Dividend payable 223,809 299,339 223,809 299,339 Advances received from customers 68,027 60,142 58,371 35,844 Other payable (note 34.1) 322,589 390,031 230,505 300,138 1,016,933 1,693,473 862,150 1,153,897

202 36.2 36.1 T At theendof year taxpaid Income Under /(over) provision (note 15) periods inrespect ofprior Income taxoncurrent year profitsIncome (note 15) 36. Ltd Developments UML Property LtdUnimo Enterprises Company Motor Orient Ltd 35. Accrued charges o 34.1 At thebeginning oftheyear Others he income tax liability comprise of: he income taxliability Current taxation Amounts dueto related parties Current taxreceivables Current taxliabilities ther payables Subsidiary Subsidiary Subsidiary 203

31.03.2018 31.03.2017 31.03.2018 31.03.2017 31.03.2018 31.03.2017 (290,883) (513,883)(206,076)(472,130) 322,589 390,031230,505300,138 391,382 790,762309,625673,640 205,799 374,730199,625286,978 185,583 416,032110,000386,662 198,269 173,698189,337168,602 124,320 216,333 (18,568) (91,296)(15,025)(91,510) 81,931 185,583 81,931 185,583 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 87,785 190,776 (5,854) (5,193) 2018 2017 U - - - 54 - 4,093 nited M nited Group Group Group Group otors L otors anka PLC A anka 88,524 110,000 88,524 110,000 49,796 42,641 88,524 110,000 49,796 38,494 41,168 131,536 nnual R nnual - Company Company Company Company eport 2017eport | 2018

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Notes to the Financial Statements

37. Cash flow information 37.1 Reconciliation of profit before tax to cash generated from/ (used in) operations. Group Company 31.03.2018 31.03.2017 31.03.2018 31.03.2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Re-stated

Profit before income tax expense 866,458 1,438,602 1,668,212 1,287,680 Adjustments for; Provision for depreciation / amortisation 169,874 134,056 137,304 95,302 Profit on disposal of property, plant and equipment (71,206) (6,016) (23,699) (1,608) Net gain on disposal of available for sale financial assets (13,038) (6,037) (10,777) (4,253) Net gain on disposal of financial assets at the fair value through profit or loss (1,917) (4,353) (1,917) (4,353) Net change in fair value - financial asset at fair value through profit or loss (3,303) 2,865 (3,303) 2,865 Change in fair value of investment property - - - (111,020) Interest expense 406,607 292,236 98,633 49,310 Interest income (13,535) (48,609) (35,268) (45,674) Dividend income (18,152) (36,302) (14,085) (30,503) Dividend received from subsidiary - - (76,789) (93,441) Dividend received from equity accounted investee - - (15,750) (25,988) Impairment of trade receivables and losses on warranty claims 29,200 124 18,214 2,857 Provision for employee benefit obligations 40,924 34,852 36,466 31,238 Expected return on plan asset (11,269) (10,801) (10,857) (10,263) Share of profits of equity accounted investee (137,612) (76,027) - - Profit on disposal of investment in equity accounted investee (82,078) - - - Unrealised profit adjusted in profit on disposal of equity accounted investee 110 - - - Withholding tax on dividend received from equity accounted investee 1,750 2,888 - - Provision for slow moving / obsolete inventories 64,094 50,667 32,384 26,681 Profit on disposal of equity accounted investee - - (826,455) - Unrealised profit on sale of goods to equity accounted investee 424 - - - Operating profit before working capital changes 1,227,331 1,768,145 972,313 1,168,830 Decrease / (increase) in inventories 925,681 (2,099,737) 722,056 (1,888,005) Decrease / (increase) in trade and other receivables 303,207 (491,879) 79,715 (234,515) Decrease / (Increase) in amounts due from related parties 3,687 (3,067) (8,862) (13,570) (Decrease) / Increase in amounts due to related parties - (361) 7,155 13,361 (Decrease) / increase in trade and other payables (669,558) 369,528 (284,764) 141,880 Cash generated from / (used in) operations 1,790,348 (457,371) 1,487,613 (812,019)

37.2 Reconciliation of liabilities arising from financing activities Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Bank borrowings At the beginning of the year 3,955,967 2,630,078 1,357,858 - Proceeds from borrowings 48,077,602 18,166,142 19,276,195 9,135,259 Repayments of borrowings (49,320,084) (16,840,253) (20,634,053) (7,777,401) At the end of the year 2,713,485 3,955,967 - 1,357,858

204 Corporation Ltd.Corporation with regard to NDBBankPLC claimover onhire equipmenttaken purchase agreement Financial by thelesseeofOrient Services PLC, theCompany offered aguarantee thatagreed to Finance settleand / ormitigate onOrient thatmay any arise liability PLC Corporate guarantees issuedto subsidiaries 39.2 39.1 39. ERP System (SAP)-balancepayable Approved commitmentsin andcontracted which thecompany hasspentRs. 109,149,643by 31March 2018. The Group /Company hascapitalcommitmentsamountingto Rs. 265,984,615inrelation to ERPsystem implementation(SAP)outof 38. Corporate guarantees accounted issuedto equity investee TVS Automotives (PvtLtd) TVS Name ofCompany LtdUnimo Enterprises Company Motor Orient Ltd. Name ofCompany relation ofbuildings to construction As perthesaleandpurchase agreement PLC dated 21February United 2011between Lanka Motors andJanashakthiInsurance Corporate guarantees accounted issuedto andequity subsidiaries investee are given below. Contingent liabilities Capital commitments PLC Hatton NationalBank Name ofBank Bank ofCeylon Standard Bank Chartered Sampath BankPLC Sampath BankPLC Bank ofCeylon Standard Bank Chartered Name ofBank Overdraft and term loans andterm Overdraft Facility overdraft loans andterm Letters ofcredit, overdraft loans andterm Letters ofcredit, overdraft loans andterm Letters ofcredit, overdraft loans andterm Letters ofcredit, overdraft loans andterm Letters ofcredit, overdraft loans andterm Letters ofcredit, Facility 205

31.03.2018 31.03.2017 156,835 51,233 156,835 - Rs.’000 Rs.’000 Rs.’000 Rs.’000 U - 51,233 nited M nited Group pledged as pledged as 1,000,000 1,000,000 Amount Amount security security 500,000 325,000 330,000 750,000 otors L otors Rs.’000 Rs.’000 60,000 anka PLC A anka Outstanding Outstanding 31.03.2018 31.03.2018 845,597 835,682 147,353 427,000 135,009 Rs.’000 Rs.’000 156,835 51,233 156,835 - as at as at nnual R nnual - - - 51,233 Company eport 2017eport Outstanding Outstanding 31.03.2017 31.03.2017 912,535 453,959 522,900 Rs.’000 Rs.’000 83,391 6,529 as at as at | 2018 - -

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Notes to the Financial Statements

39.3 Unimo Enterprises Ltd has given bank guarantees to Sri Lanka Customs amounting to Rs. 241.6 Mn for excise duty concession in respect of vehicles assembled but to be approved by the Cabinet appointed committee.

39.4 The Company has guarantees outstanding amounting to Rs.80.6 Mn as at the reporting date.

39.5 Details relating to certain tax assessment pertaining to the Company and its subsidiary Orient Motor Company Ltd are reflected in notes 15 and 28 respectively.

40. Related party disclosures The Company carries out transaction in the ordinary course of business on an arm’s length basis with parties who are defined as related parties in Sri Lanka Accounting Standard 24 (LKAS) “Related Party Disclosures”, the details of which are reported below.

40.1 Parent and ultimate controlling party R I L Property PLC which holds 51% of shares of UML is considered as the parent and ultimate controlling party.

40.2 transaction with Key Management Personnel (KMP) According to Sri Lanka Accounting Standard, LKAS 24 “Related Party Disclosures” , Key Management Personnel (KMP) are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Directors of the Company have been classified as KMP of the Company. The Directors of subsidiaries along with the Company have been identify as KMP of the Group.

40.2.1 Compensation to KMP Group Company 2018 2017 2018 2017 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Short term employment benefits 113,554 117,067 91,036 93,652

In addition to their salaries / fees the Company provides non cash benefits to KMP. The Company also contributes to a post employment defined benefit plan on behalf of the KMP.

40.3 terms and conditions of transactions with related parties Transactions with related parties are carried out in the ordinary course of business on an arm’s length basis. The sales to and purchases from related parties are made on terms equivalent to those that prevail in arm’s length transactions and comparable with those that would have been charged from unrelated companies. Outstanding current account balances at year end are unsecured, interest free and are to be settled in cash. The Company does not have any material commitments to related parties.

206 t a. Transactions accounted investee withsubsidiaries, equity andrelated entities. 40.4 t b. Company Loans settlements Loans granted commissionpaid Indent paidforRentals premises occupied receivedRentals for premises occupied rentals paidforHiring vehicles incomereceived Hiring ofexpenses Reimbursement Expenses incurred Sale oflubricants Purchase ofspare parts Purchase oftyres Sale ofvehicles Sale ofspare parts Company Interest received Purchase ofvehicles provided andservices Repairs Sale ofmotor vehicles Sale oflubricants Repairs and services provided andservices Repairs Purchase ofmotor bikes Expenses incurred Rentals receivedRentals for premises occupied Reimbursement ofexpenses Reimbursement Income onlegalservices Income Repairs and services obtained andservices Repairs ransaction withsubsidiaries ransaction ransactions with equity accounted withequity ransactions investee anditssubsidiary Recurrent related party disclosuresRecurrent related party 7,036,000 7,036,000 Rs. ‘000 26,982 45,226 17,965 24,448 14,778 94,314 1,157 1,714 2,347 1,518 UEL 77 - - - - 207 Rs. ‘000 34,679 19,412 OMCL 3,638 4,906 2,825 Rs. ‘000 35 13,900 ------1,740 1,339 SL TV 138 288 427 437 - - UMPDL Rs. ‘000 90,949 U nited M nited ------Rs. ‘000 SAM TV 4,485 1,826 UML Heavy otors L otors 80 Rs. ‘000 ------1,610 7,802 anka PLC A anka 357 8 ------2017/18 Rs. ‘000 13,900 7,036,000 7,036,000 1,740 5,824 1,826 2017/18 T 113,734 Rs. ‘000 otal 138 288 427 437 30,620 51,742 25,767 90,949 34,679 24,448 14,778 80 nnual R nnual 1,514 2,825 2,347 1,518 1,749 T otal 77 - eport 2017eport 1,096,795 1,096,795 2016/17 2016/17 Rs. ‘000 Rs. ‘000 48,475 23,869 46,836 82,681 50,229 93,894 3,370 1,668 2,462 2,550 4,770 5,966 7,630 1,660 T T otal otal | 721 750 448 432 2018 27 - - - - -

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Notes to the Financial Statements

c. transactions between subsidiaries / equity accounted investee / related entities Unimo Enterprises Ltd Company OMCL TVSL TVSAM Total Total 2017/18 2016/17 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Sale of tyres 130 - - 130 - Expenses incurred 2,341 - 81 2,422 3,471 Reimbursement of expenses 3,799 - - 3,799 3,973 Hiring rentals paid for vehicles 5,274 - - 5,274 6,269 Repairs and services obtained - 97 - 97 160 Purchase of motor bikes - - - - 1340

Orient Motor Company Ltd Company UMPDL TVSL Total Total 2017/18 2016/17 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Expenses incurred 92 - 92 96 Repairs and services obtained - - - 57

TVS Lanka (Pvt) Ltd (Up to the date of divestment) Company TVSAM Total Total 2017/18 2016/17 Rs. ‘000 Rs. ‘000 Rs. ‘000 Repairs and services provided 54 54 78 Interest received 1,355 1,355 - Expenses incurred - - 1,056 Loans granted 65,500 65,500 - d. transactions with the parent company Company R I L Property PLC Total Total 2017/18 2016/17 Rs. ‘000 Rs. ‘000 Rs. ‘000 Services obtained - - 68 Sale of spare parts 52 52 - Repairs and services provided 1,285 1,285 520 e. transactions with other related entities of parent company Company Foodbuzz (Pvt) Ltd Total Total 2017/18 2016/17 Rs. ‘000 Rs. ‘000 Rs. ‘000 Repairs and services provided 440 440 280 Services obtained - - 70 Sale of motor vehicles 3,800 3,800 3925

208 a. The Company entered for into transactions theyear thenon-recurrent ended31March 2018as follows. related party non-recurrent transactions related party 40.5 g. f. b. Ltd, India (Pvt) Sons & Iyengar Sundram TV party Related Non-recurrent related party transactions thatrequire disclosure transactions Non-recurrent immediate market related party by theCompany companiesare for alsoperformed whichnocharges ofthesubsidiary arefunctions made. facilitiesoftheCompany of theaccounting, free ITandadministrative companiesutilisecertain ofcharge andpart The subsidiary note no. 27and35respectively. These receivables andpayables are unsecured, interest free andhave nofixed repayment terms. The receivables from related companiesandpayables to are related setoutin companiesonsale/purchase ofgoods/services as pertheColombo Stock Exchange ListingRules 9.3.2 There were entered theyear, transactions noothernon-recurrent during related party specifiedabove otherthanthetransactions TVS Lanka (Pvt)Ltd Lanka TVS entire shareholding in UMLdisposedits India, (Pvt)Ltd &Sons Iyengar Sundram UML & TV entered into between purchase agreement Pursuant to theshare T ransaction date T 2018 28 March ransaction ransaction T ransaction ransaction 1,000,000 Rs.’000 value 209 Aggregate 1,000,000 Rs.’000 value U equity nited M nited recurrent RPT financial year value for non % of As a entered into 9% during the during Aggregate otors L otors assets total % of As a 8% anka PLC A anka s transaction into the for entering rationale T strategy group overall in linewith and to be ventures new and other business four wheeler more onthe To focus he nnual R nnual transaction T of Rs. 1billion consideration at atotal shares 17.5 million To dispose eport 2017eport erms of erms | 2018

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Notes to the Financial Statements

41. Consolidation The consolidated financial statements of the Company’s shareholding as at 31 March 2018 are in the proportions indicated below.

Subsidiary Ownership interest 2018 2017

Unimo Enterprises Ltd 100% 100% UML Property Developments Ltd 100% 100% Orient Motor Company Ltd 100% 100% UML Heavy Equipment Ltd 100% -

Equity accounted investee TVS Lanka (Pvt) Ltd (Upto the date of divestment) 50% 50%

Group has no non-controlling interest to be reported as all its subsidiaries are fully owned.

Analysis of consolidated profit after income tax expense Group 2018 2017 Rs.’000 Rs.’000

Parent company 1,456,697 1,066,811 Subsidiaries (74,151) 224,733 Equity accounted investee 137,612 76,027 1,520,158 1,367,571 Inter-company elimination (851,258) (241,464) Consolidated profit after tax expenses 668,900 1,126,107

42. Events occurring after the reporting period and other matters Dividends on ordinary shares After satisfying the solvency test, in accordance with Section 57 of the Companies Act, No. 07 of 2007, the Board of Directors recommended a final dividend of Rs. 1.50 per share for the year ended 31 March 2018 amounting to Rs. 151,350,939 which is to be approved at the forth coming Annual General Meeting. In accordance with LKAS 10 - “Events after the reporting period” this dividend is not recognised as a liability as at 31 March 2018.

Subsequent to the reporting date, no circumstances have arisen, which would require adjustments or disclosures in the financial statements other than those disclosed above.

210 b) c) Individuals/Institutions a) 2. Information required 7.6oftheListingRulesColombo Stock Exchange: asperSection PLC shares ofUnitedThe Lanka Motors issued ordinary were listed 1989. withtheCSEon05December 1. Company alsodulycompliedwiththisrequirementdeadlines asrequired for 2016/17) by theListingRulesofCSE.(The The Company dulysubmitted theaudited financialstatements interim for theyear 2017/18to theCSEwithinapplicablestatutory 2016/17). deadlines asrequired No. by theSection 7.5(a)oftheListingRulesCSE(theCompany dulycompliedwiththisrequirement for will besubmitted to theColombo Stock Exchange (CSE) withinthree monthsfrom theyear end, whichiswell withintherequired The audited incomestatement for theyear ended31March 2018andtheaudited Statement ofFinancial Position asat31March 2018 Share Information T Over 1,000,000 Over T 100,001 -1,000,000 Over 1,000,000 Over 100,001 -1,000,000 10,001 -100,000 10,001 -100,000 1,001 -10,000 1,0001 -10,000 T Up to 1,000 Up to 1,000 Institutions Individual (No. ofShares) Shareholdings of Range (No. ofShares) Shareholdings of Range otal otal otal Resident /NonResident asat 31March 2017 Resident /Non asat 31March 2018 Analysis ofShareholders Stock Exchange Listing holders holders shareholders No. of No. of 3,840 share 3,971 share 1,234 2,435 1,314 2,471 149 162 15 19 7 5 No. of 3,907 3,734 173 No. ofshares No. ofshares 43,490,592 94,913,687 Resident Resident 28,883,066 82,416,925 4,822,691 4,218,657 4,650,817 3,692,686 3,579,985 4,336,420 915,361 887,671 31 March 2018 T otal holdings 100,900,626 74,101,105 26,799,521 holding holding 43.10 94.06 28.60 81.68 total total % of % of 4.80 4.20 4.60 0.90 3.66 3.55 4.29 0.88 holders holders No. of No. of share share 211 % oftotal holdings 76 67 17 24 33 11 26 28 2 2 - - 100.00 73.44 26.56 Non -Resident Non -Resident 57,410,034 56,787,408 5,986,939 5,558,544 521,207 308,220 104,267 shares 83,864 17,555 shares 15,908 No. of No. of shareholders - - Annual Report 2017 Report PLC Annual Lanka Motors United holding holding No. of 4,047 3,863 56.90 56.30 total total % of % of 5.94 184 5.51 0.31 0.10 0.02 0.50 0.10 0.00 - - 31 March 2017 holders holders T No. of otal holdings No. of 4,047 share 3,907 share 1,338 2,504 1,260 2,463 100,900,626 179 160 21,268,114 79,632,512 19 15 7 9 No. ofshares No. ofshares 100,900,626 100,900,626 85,670,474 87,975,469 4,822,691 4,739,864 4,734,681 3,692,686 3,888,205 4,440,687 T T otal otal 932,916 903,579 % oftotal holdings holding holding 100.00 100.00 100.00 84.90 21.08 78.92 87.19 total % of total % of 4.80 4.70 4.70 0.90 | 3.66 3.85 4.40 0.90 2018

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Share Information

d) Public Shareholding 31.03.2018 31.03.2017 31.03.2016 31.03.2015 31.03.2014 Public Shareholding 26,848,965 27,095,541 27,063,322 27,083,420 18,154,758 Percentage 26.61 26.85 26.82 26.84 26.99

3. Share Trading 2017/18 2016/17 2015/16 2014/15 2013/14 Market Number of transactions 1,089,473 984,412 1,362,544 2,015,482 1,473,729 Number of shares traded 8,721,432,695 6,846,805,469 8,954,401,301 16,609,902,380 9,790,011,926 Value of shares traded (Rs. Mn) 245,435 177,641 231,840 354,544 195,507 Market days 237 244 241 239 243 Company Number of transactions 2,707 2,471 4,543 6,492 2,750 Number of shares traded 35,696,069 2,343,611 8,348,316 8,792,300 21,951,785 Value of shares traded (Rs. Mn) 2,788 211 826 992 2,557 Market days 217 227 239 235 227

4. Market Capitalisation and Market Prices a) Market capitalisation Year Shareholders Ordinary share UML market CSE market As a % of Market funds in issue capitalisation capitalisation CSE‘s market capitalisation Rs.(Mn) (Mn) Rs.(Mn) Rs.(Bn) capitalisation rank 2017/2018 12,700 100.90 7,668.45 3,032.70 0.25 65 2016/2017 10,742 100.90 7,870.25 2,662.86 0.29 59 2015/2016 10,312 100.90 8,374.75 2,586.15 0.32 59 2014/2015 10,436 100.90 8,889.34 2,891.17 0.31 63 2013/2014 8,097 67.26 8,273.85 2,498.00 0.33 58 b) Market prices 2017/2018 2016/2017 2015/2016 2014/2015 2013/2014 Highest (Rs.) 90.00 99.80 118.00 154.00 130.00 (13.07.2017) (02.08.2016) (12.08.2015) (07.08.2014) (31.01.2014) Lowest (Rs.) 70.30 76.10 75.30 88.00 95.50 (14.11.2017) (28.03.2017) (10.03.2016) (31.03.2015) (02.04.2013) Year End (Rs.) 76.00 78.00 83.00 88.10 123.00

5. Dividends 2017/2018 2016/2017 2015/2016 2014/2015 2013/2014 Dividend (Rs.’000) 353,152 706,303 1,109,908 605,404 874,471 Profit (Rs.’000) 1,456,697 1,066,811 1,662,210 1,236,867 1,482,765 Dividend payout ratio 24.24 66.23 66.77 48.95 58.98 Dividend per share 3.50 7.00 11.00 8.00 13.00

212 *Comparative largest shareholding shareholders asat31March 2017ofthetwenty asat31March 2017Please refer 7.1for details 6. 7. 20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 T Earnings pershareEarnings (Rs) Net assetsvaluepershare Market price pershare price Market Return on equity(%)-After onequity(%)-After Return Tax Price ratio(times) earnings Dividend payout *Others (shareholders under20largest*Others shareholders asat31March 2017)

otal Value Creation for Shareholders Twenty Largest Shareholders Mr. V A YaseenMr.V Mr. M.Anndreino Yaseen Andaradeniya Estate (Pvt)Limited Akbar Brothers PvtLtd A/CNO1 Akbar Mercantile Investments andFinance PLC Mr. P. Rathnayaka Mr. J.A. YaseenMr. Seylan BankPLC/LasanthaSeylan Pathirana Ranaweera Chandika Mr. S.D.Mr. Yaseen Deutsche BankAGDeutsche as Trustee Fund to Candor Opportunities Mr. A.M. WeerasingheMr. Bank ofCeylon No. 1Account 02 Capital andInvestment Company Development PLC -A/CNO; Mr. Chanaka YatawaraChanaka Mr. Sterling Holdings(Private)Sterling Limited Mitsubishi Motors Corporation Motors Mitsubishi Mrs. S.M.Chrysostom Mrs. Mr. M.A. YaseenMr. Ms. R. Yaseen R I L Property PLCR ILProperty Shareholder 213 91,567,171 10,521,402 10,767,210 51,459,320 1,275,885 2,690,441 4,937,142 6,945,471 119,427 119,430 125,000 136,648 150,000 156,000 156,177 203,751 243,300 250,000 301,880 404,478 604,209 shares No. of 31 March 2018 - Annual Report 2017 Report PLC Annual Lanka Motors United 2017/2018 shareholding 115.91 14.44 76.00 12.46 24.24 % oftotal 5.26 90.74 10.43 10.67 51.00 0.12 0.12 0.12 0.14 0.15 0.15 0.15 0.20 0.24 0.25 0.30 0.40 0.60 1.26 2.67 4.89 6.88 - 2016/2017 90,028,324 (Restated) 61,750,266 10,767,210 1,270,385 4,937,142 6,945,471 1,760,121 136,648 150,000 156,000 156,177 195,037 243,300 250,000 301,880 404,478 604,209 shares 91.85 10.57 78.00 11.51 66.23 No. of 7.38 31 March 2017 - - - - - shareholding Change% % oftotal (28.73) (63.40) (2.56) 26.19 36.61 61.20 10.67 89.20 8.25 0.14 0.15 0.15 0.19 0.24 0.25 0.30 0.40 0.60 1.26 4.89 6.88 0.15 1.73 | 2018 - - - - -

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Share Information

7.1 Shareholders Included in the Twenty Largest Shareholding as at 31 March 2017 Shareholding as at 31 March 2017 No. of shares % of Total shareholding Mr. H.A. Van Starrex 881,919 0.87 Deutsche Bank AG as Trustee to Candor Growth Fund 346,594 0.34 Deutsche Bank AG as Trustee to Amana Candor Sharia Fund 225,000 0.22 Waldock Mackenzie Ltd / Hi –Line Trading (Pvt) Ltd 166,371 0.16 Bank of Ceylon A/C NDB Wealth Growth Fund 140,237 0.14 Total 1,760,121 1.73

8. Directors’ Shareholding Name of Director No. of shares as % of total Movement No. of shares as % of total at 31 March 2017 holdings during the year at 31 March 2018 holdings Mr. Sunil G. Wijesinha - - - - - Mr. Chanaka Yatawara 1,270,385 1.259 - 1,275,885 1.264 Mr. Ananda Atukorala 3,000 0.003 - 3000 0.003 Mr. Aashiq Lafir 14,224 0.014 - 14,224 0.014 (Resigned w.e.f 31-03-2018) Mr. Ramesh Yaseen 10,620 0.011 - 10,620 0.011 Mrs Hiroshini Fernando - - - - - Prof. Malik Ranasinghe - - - - - Mr. Stuart Chapman - - - - - Mr. Hiroyasu Inoue - - - - -

Market price - year end Value of shares traded Number of shares traded (Rs.) (Rs. Mn) (Mn) 150 3,000 40

2,500 30 100 2,000

1,500 20

50 1,000 10 500

0 0 0 2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18 2013/14 2014/15 2015/16 2016/17 2017/18

214 Net assets T Non controlling interests Shareholders’ funds reserves Other At theyear end(Rs.) Net assetspershare ** pershareEarnings (Rs.) Profitability T Non current liabilities Current liabilities Total assets Non current assets Current assets Assets employed Capital reserve Stated capital Shareholders’ funds Profit for theyear tax Income Profit before taxation Turnover For theyear ended31March Return oncapital Return Reported asper Reported (in Rs.’000) T March 2018 ** Netassetspershare hasbeen calculated, for allperiods, basedonthenetassetsofGroup andnumberofshares inissueasat31 Annual salesgrowth (%) Price ratio earnings pershare price (Rs.) Market O Current ratio(times) otal E otal liabilities employed (%) thers en year summary -groupen year summary quity quity

12,700,127 12,700,127 (4,190,373) (6,180,377)(4,779,281)(2,713,613)(1,979,694)(1,845,042)(4,652,928)(2,223,079)(3,109,011)(5,025,652) 12,700,127 16,890,500 16,922,74615,091,39613,149,18410,076,871 14,716,147 17,925,37315,303,85210,538,19411,040,79414,941,18920,816,34110,935,116 (3,937,583) (5,967,512)(4,598,093)(2,532,239)(1,805,828)(1,696,197)(4,497,424)(2,105,844)(2,674,371)(4,041,418) 7,807,783 7,449,6527,019,3987,142,8546,537,5665,811,0164,261,2602,422,6541,588,8271,477,478 7,497,571 6,762,1936,356,0685,868,0634,391,5154,072,5882,662,0502,176,4732,467,2062,636,042 9,392,929 4,556,009 2,956,3821,223,2761,218,9741,244,755 (252,790) (212,865)(181,188)(181,374)(173,866)(148,845)(155,504)(117,235)(434,640)(984,234) (197,558) (312,495)(651,380)(363,549)(566,624)(689,737)(911,162)(473,178) 668,900 1,126,1071,702,2231,262,3321,607,7212,012,9142,282,532 336,335 866,458 1,438,6022,353,6031,625,8812,174,3452,702,6513,193,6941,374,720 (17.90) 125.87 11.46 6.994.927.047.724.813.18 76.00 78.0083.0088.10 2018 201720162015201420132012201120102009 6.63 11.1616.8712.5115.9319.9522.62 5.27 10.4816.5112.1019.8627.3139.1622.61 2.39 1.701.902.883.153.031.74 1.921.431.14 - 10,742,369 10,742,369 10,742,369 10,160,553 8,735,3287,281,1215,685,3565,143,0817,818,3474,034,1843,820,0474,619,698 106.46 17.13 10,312,115 10,312,115 10,312,115 102.20 45.22 SLFRS /LKAS 10,435,571 8,097,1777,370,6275,827,4693,987,5783,178,2422,230,088 10,435,571 8,097,1777,370,6275,827,4693,987,5783,178,2422,230,088 10,435,571 8,097,1777,370,6275,816,5693,977,9633,169,9172,222,721 215 103.42 80.2573.0557.6539.4231.4222.03 (4.55) (26.10)(28.22) 123.00 96.00 9,215,669 10,480,397 Annual Report 2017 Report PLC Annual Lanka Motors United 10,900 108.00 90.36 6,210,657 901,542 152.20 90.0033.50 9,615 11.41 87.59 (19.93)(13.27) 8.93 6,287,253 5,829,410 146,290 134,041 12,249 8,325 41.66 1.45 4.60 SLAS 7,255,740 7,280,837 408,908 (82,432) (74,706) (13.51) (7,726) (0.82) (3.69) 7,367 | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Investor Information

Year Shares at the Issued during Stated Market Value beginning the year Capital Per Share (Rs) (Rs) 1990/1991 10,000,000 - 100,000,000 23.75 1991/1992 10,000,000 - 100,000,000 53.00 1992/1993 Issued through Share Trust Scheme to 10,000,000 90,266 100,902,660 35.00 Employees 1993/1994 Issued through Share Trust Scheme to 10,090,266 91,230 - - employees Bonus issue 1:5 - 2,036,300 122,177,960 60.00 1994/1995 12,217,796 - 122,177,960 27.50 1995/1996 12,217,796 - 122,177,960 31.50 1996/1997 Issued through Share Trust Scheme to 12,217,796 53,319 - - Employees Bonus issue 1:5 - 2,443,560 147,146,750 32.00 1997/1998 14,714,675 - 147,146,750 41.50 1998/1999 14,714,675 - 147,146,750 32.50 1999/2000 14,714,675 - 147,146,750 31.25 2000/2001 14,714,675 - 147,146,750 28.00 2001/2002 14,714,675 - 147,146,750 32.00 2002/2003 Bonus issue 1:1 14,714,675 14,714,675 294,293,500 31.00 2003/2004 29,429,350 - 294,293,500 28.00 2004/2005 29,429,350 - 294,293,500 51.75 2005/2006 29,429,350 294,293,500 80.00 2006/2007 Bonus issue 1:7 29,429,350 4,204,192 336,335,420 80.00 2007/2008 33,633,542 - 336,335,420 53.75 2008/2009 33,633,542 - 336,335,420 33.50 2009/2010 33,633,542 - 336,335,420 90.00 2010/2011 Subdivision of shares-every existing ordinary 33,633,542 33,633,542 336,335,420 152.20 share was subdivided into two ordinary shares 2011/2012 67,267,084 - 336,335,420 108.00 2012/2013 67,267,084 - 336,335,420 96.00 2013/2014 67,267,084 - 336,335,420 123.00 2014/2015 Subdivision of shares-every two existing 67,267,084 33,633,542 336,335,420 88.00 ordinary shares were subdivided into three ordinary shares 2015/2016 100,900,626 - 336,335,420 83.00 2016/2017 100,900,626 - 336,335,420 78.00 2017/2018 100,900,626 - 336,335,420 76.00

216 un-collectability. amountandminusany reduction formaturity or impairment method ofany difference thatinitialamountandthe between usingtheeffective interestor minusthecumulative amortisation measured atinitialrecognition, repayments, minusprincipal plus is Amount atwhichthefinancialassetorliability cost Amortised useful life. The systematic allocation ofcostanintangible assetover its Amortisation assumptions. changes inactuarial occurred andtheeffects of assumptions andwhathasactually Is theeffect of difference theprevious between actuarial gainsandlosses Actuarial equivalent. occurwithoutwaitingforthey receipt orpayment ofcashorits andotherevents when Recognizing theeffects oftransactions Accrual basis statements. adopted inpreparing andpresenting by anentity financial The specific principles, bases, conventions, rulesandpractices Accounting policies ofFinancialGlossary obligation resulting inthecurrent period. from employee service Is theincrease inthepresent valueofthedefinedbenefit Current cost service Current assetsdividedby current liabilities. Current ratio may ormay notoccur. effects ofwhichare to by bedetermined thefuture events which date,Conditions orsituationsatthereporting thefinancial Contingencies date.yet beenidentified atthereporting significant andto cover lossesthathasbeenincurred buthasnot thatare notconsidered characteristics similar risk individually basis for assessmentonacollective receivablesImpairment with Collective impairment available for distribution. identifiedfor andconsidered specificpurposes not Reserves Capital reserves investments orfinancialassetsatfairvaluethrough profit orloss. are notclassifiedasloansandreceivables, heldto maturity financial assetswhichare designated asavailable for saleor Available for salefinancialassetsare thosenonderivative Available for salefinancialassets T erms 217 Dividend yield Dividend pershare asapercentage pershare. oftheearnings Dividend pay-out profits.distributable the numberoftimesdividendiscovered by thecurrent years’ Profit taxdividedby after gross dividends. This ratiomeasures Dividend cover over itsusefullife. The systematic allocationofthedepreciable amountasanasset Depreciation the current financialyear. may becomepayable/receivable inafinancialyear otherthan Sum setasidefor incometaxintheFinancial Statements that Deferred taxation instrument inanother entity. orequity andafinancialliability a financialassetinoneentity thatgivesA financialinstrumentisany to contract both rise Financial instrument derivative thatisafinancialguarantee contract) profit oraderivative(except taking, for ofshort-term pattern a together andfor whichthere ofarecent isevidence actual ofidentifiedfinancialinstrumentsthatareportfolio managed ofa ofsellingorrepurchasingpurpose part itin thenearterm, acquired/incurred forA financialasset/liability principally the Fair value through profit andloss length transaction. inan arm’ssettled, willingparties knowledgeable, between The amountfor whichanassetcould beexchanged oraliability Fair value investee’s profit orlossandothercomprehensive income. net assets. The investor’s profit orlossincludesitsshare ofthe acquisition changeintheinvestor’s share oftheinvestee’s recognised atcostandadjusted thereafter for thepost- Is amethodofaccountingwhereby theinvestment isinitially method Equity before taxation. Provision for taxationexcluding deferred taxdividedby theprofit Effective taxrate shares inissue.number ofordinary Profit shareholders dividedby to the ordinary attributable Earnings pershare share. ofthe pershare price Dividend earned asapercentage ofmarket Annual Report 2017 Report PLC Annual Lanka Motors United | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Glossary of Financial Terms

Financial asset Liquid assets Any asset that is cash, equity instrument of another entity or a Assets that are held in cash or in a form that can be converted to contractual right to receive cash or another financial asset from cash readily, such as deposits with other banks, Bills of Exchange another entity. and Treasury Bills and Bonds.

Financial liability Market capitalisation Any liability that is a contractual obligation to deliver cash or Number of ordinary shares in issue multiplied by the market another financial asset to another entity. value of a share as at a date.

Gearing Materiality Proportion of total interest bearing borrowings to capital The relative significance of a transaction or an event, the employed. omission or misstatement of which could influence the economic decisions of users of financial statements. Held to maturity investments Financial assets acquired by the entity with positive intention Net asset value per share and ability to hold to maturity. Shareholders’ funds divided by the number of ordinary shares in issue. Impairment This occurs when recoverable amount of an asset is less than its Non-controlling interest carrying amount. Equity in a subsidiary not attributable directly or indirectly to a parent. Intangible asset An identifiable non-monetary asset without physical substance Parent held for use in the production / supply of goods / services or for A parent is an entity that has one or more subsidiaries. rental to others or for administrative purposes. Price earnings ratio Interest cover Market price of a share divided by earnings per share as reported A ratio showing the number of times interest charge is covered at that date. by earnings before interest and tax. Public holding Investment properties Percentage of shares held by the public calculated as per the Investment property is property (land or a building or part of a Listing Rules of Colombo Stock Exchange as of the date of the building or both) held (by the owner or by the lessee under a report. finance lease) to earn rentals or for capital appreciation or both, rather than for use or sale. Related parties Parties where one party has the ability to control the other party Joint control or exercise significant influence over the other party in making Joint control is the contractually agreed sharing of the control financial and operating decisions, directly or indirectly. over an economic activity and exists only when the strategic financial and operating decisions relating to the activity require Retirement benefit-present value of defined benefit the unanimous consent of the parties sharing control. obligation Is the present value of expected future payments required to Joint venture settle the obligation resulting from employee service in the A joint venture is a contractual arrangement whereby two or current and prior periods. more parties undertake an economic activity that is subject to joint control. Shareholders’ funds Shareholders’ funds consist of stated capital, statutory reserves, Key management personnel capital and revenue reserves. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the Specific impairment provisions activities of the entity, directly or indirectly. Impairment is measured individually for receivables that are individually significant.

218 Notice ofMeeting By OrderBy oftheBoard 06. 05. 04. 03. 02. 01. Thursday, Hotel, City No. Road, Colombo 328,Galle -03,for 28June2018,atRenuka thefollowing purposes; Notice ishereby given thatthe PLCTwenty ofUnited Lanka Motors Meeting AnnualGeneral willbeheldat10.00a.m.on Ninth y y y y Notes 2018 14 May Colombo Company Secretary H Rinoza Mrs. y y y y To considerany otherbusinessofwhichduenoticehasbeengiven. To theBoard authorise ofDirectors donationsfor to andmake determine 2018/2019. the Directors to fixtheirremuneration. To Accountants, Chartered appointMessrs. PricewaterhouseCoopers astheAuditors (PwC), for theensuingyear andto authorise To declare afinaldividendofRs.1.50 pershare for theyear ended31March 2018asrecommended by theDirectors. (ii) To Prof. ofAssociation oftheCompany. whoretires re-elect 83oftheArticles Ranasinghe Malik by rotation ofArticles interms (i) To Mr. SunilG. re-elect ofAssociationWijesinha oftheCompany. whoretires 83oftheArticles by rotation ofArticles interms oftheAuditors thereon. ended 31March 2018andReport To oftheBoard ofDirectors, receive theAudited andconsidertheAnnualReport Financial Statement oftheCompany for theyear A form ofproxy isenclosedinthisReport. A proxy neednotbeamemberoftheCompany. Corner, eight(48)hoursbefore Colombo -02notlessthanforty theappointed hourofthemeeting. To be valid the completed form of proxy must be deposited at the Registered of the Company situated Office at No. Park 100, Hyde of him/her. Any memberof theCompany whoisentitledto attend andvote atthismeetingmay appointaproxy to attend andvote instead isham 219 Annual Report 2017 Report PLC Annual Lanka Motors United | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Notes

220 221 Annual Report 2017 Report PLC Annual Lanka Motors United | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Notes

222 undersigned authorize my/our herby Proxy to vote onmy/our behalf inaccordance withthepreference indicated below: inconsequenceoftheabove pollwhichmay betaken saidmeeting.and atany thereof I/We adjournment and atevery the oftheCompanyMeeting to beheld at10.00a.m.on Thursday, Hotel, City No. Road, Colombo-03 328, Galle 28June2018,atRenuka as my/our proxy to represent me/usand*...... to vote onmy/ ourbehalfatthe Twenty AnnualGeneral Ninth Anthony Chapman 7) Stuart KumarRanasinghe Malik Arthanayake 6) Kulatilleke Fernando AnneHiroshini 5) LadduwaKovisge Hiran 4) Ramesh Yaseen 3) Ananda Atukorala Wijetilake 2) Chanaka Yatawara 1) SunilGamini Wijesinha ...... whomfailing hereby appoint...... of...... I/We ...... of ...... Proxy Form Instructions asto completion appearoverleaf vote, theProxy holdershallvote ashethinksfit. contained intheproxyof theway have inwhichtheinstructions beencompleted) asto theway inwhichtheProxy holdershould Please indicate withan “x” inthespace provided how your Proxy isto vote. there oftheProxy isintheview If holderdoubt(by reason Notes: insertion. you wishyour*If Proxy thewords to speakatthemeetingyou shouldinsert speakand”“to intheplace indicated and initialsuch Signature/s ...... Eighteen. Signed onthis...... day of...... Twoand Thousand 6. To theBoard authorise ofDirectors to donationsfor determine 2018/2019. 5. To Accountants, Chartered appointMessrs. PricewaterhouseCoopers astheAuditors (PwC), for the 4. To declare aFinal DividendofRs. 1.50pershare for theyear ended31March 2018. 3. To Prof. asaDirector re-elect oftheCompany. Ranasinghe Malik 2. To Mr. SunilG. re-elect Wijesinha asaDirector oftheCompany. 1. To oftheBoard ofDirectors, receive theAudited andconsidertheAnnualReport Financial Statements of ensuing year theDirectors andto to authorise fix theirremuneration . the Company oftheAuditors for thereon. theyear ended31March 2018andReport of Colombo of Colombo orfailinghim of Colombo orfailingher of Colombo orfailinghim of Colombo orfailinghim of Colombo orfailinghim of Colombo orfailinghim 223 ...... being a member/members of United Motors Lanka PLC,...... beingamember/membersofUnited Lanka Motors Annual Report 2017 Report PLC Annual Lanka Motors United For Against | 2018

Supplementary Financial Governance Management review Review of the Information Information business United Motors Lanka PLC Annual Report 2017 | 2018

Instructions as to completion

1. Kindly perfect the form of proxy, after filling in legibly your full name and address, and sign in the space provided. Please fill in the date of signature. 2. If you wish to appoint any person other than Directors as your proxy, please insert the relevant details in the space provided overleaf. 3. In terms of Article 66 of the Articles of Association of the Company. (i) In the case of an individual shall be signed by the Appointer or his Attorney; and (ii) In the case of a company or a corporate body shall be either under its common seal or signed by its Attorneys or by an Officer authorised to do so on behalf of such entity. 4. In terms of Article 61 of the Articles of Association of the Company in the case of joint-holders of a share the senior who tenders the vote, whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint-holders and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members in respect of the joint holding. 5. To be valid the completed form of proxy must be deposited at the Registered Office of the Company situated at No. 100, Hyde Park Corner, Colombo 2 not less than forty eight (48) hours before the appointed hour of the meeting.

224 Corporate Information

Name of Company Subsidiary Companies Audit Committee United Motors Lanka PLC Unimo Enterprises Ltd Chairman Orient Motor Company Ltd Prof. Malik Ranasinghe Legal Form UML Property Developments Ltd A Public Limited Liability Company UML Heavy Equipment Ltd Mr. Sunil G. Wijesinha incorporated in Sri Lanka on 9 May 1989. Mr. Ananda Atukorala Bankers (in alphabetical order) Mrs. Hiroshini Fernando Listed with the Colombo Stock Bank of Ceylon Mr. Stuart Chapman Exchange Commercial Bank PLC 5 December 1989 DFCC Bank PLC Remuneration Committee Hatton National Bank PLC Chairman Company Registration Number National Development Bank PLC Prof. Malik Ranasinghe PQ -74 Nations Trust Bank PLC Pan Asia Bank PLC Mr. Sunil G. Wijesinha Accounting Year End People’s Bank Mr. Ananda Atukorala March 31 Sampath Bank PLC Mrs. Hiroshini Fernando Seylan Bank PLC Mr. Stuart Chapman Registered Office Standard Chartered Bank 100, Hyde Park Corner, Colombo 02 Nomination Committee Board of Directors Chairman Head Office Chairman Mr. Stuart Chapman P.O. Box 697, Mr. Sunil G. Wijesinha 100, Hyde Park Corner, Mr. Sunil G. Wijesinha Colombo 02 Group Chief Executive Officer/ Mr. Chanaka Yatawara Tel: 4797200, 4696333, 2448112 Executive Director Mr. Ananda Atukorala Fax: 2448113 Mr. Chanaka Yatawara Mrs. Hiroshini Fernando www.unitedmotors.lk Prof. Malik Ranasinghe Directors VAT Registration Number Mr. Ananda Atukorala Related Party Transactions Review 294000038 - 7000 Mr. Ramesh Yaseen Committee Mrs. Hiroshini Fernando Chairman Tax Payer Identification Number Prof. Malik Ranasinghe Mr. Ananda Atukorala 294000038 Mr. Stuart Chapman Mr. Hiroyasu Inoue Mrs. Hiroshini Fernando Auditors Prof. Malik Ranasinghe PricewaterhouseCoopers Company Secretary No.100, Braybrooke Place, Mrs. Rinoza Hisham Colombo-02

Lawyers Messrs Julius & Creasy 41, Janadipathi Mawatha, Colombo-01 INVESTOR RELATIONS Registrars For investor relations and clarifications on the report, P. W. Corporate Secretarial (Pvt) Ltd, Please contact: 3/17, Kynsey Road, Colombo 08. Company Secretary, Tel: 4640360/3 United Motors Lanka PLC, Fax: 4740588 No. 100, Hyde Park Corner, Colombo 02, Sri Lanka Email: [email protected] Tel: +94(011)4696019/6015 Annual ReportAnnual 2017 | 2018

United Motors Lanka pLc Annual Report 2017 | 2018