Environmental Resources Investment PLC

niomna eore netetPC Annual Report 2011/12 Environmental Resources Investment PLC

Not simple. Just successful.

Environmental Resources Investment PLC Annual Report 2011/12 Not everyone knows who we are or what we do. Yet we are one of the few companies that have brought significant foreign funds in to Sri Lanka, hitting a high of over Rs. 6 billion in Revenue during the year under review.

We restructure, renew and restore failing companies, bringing them back to profitability and good ranking. And we do this while prioritising employee loyalties, rewarding merit and regulating finances in order to achieve the best results, in the most responsible manner.

Today we are a unique Sri Lankan corporate, focusing on the empowerment of Sri Lankan commerce and industry through business process re-engineering strategies that work. Not simple. Just successful. OUR VISION OUR MISSION To be the leading To seek a sustainable investment company in value for our stakeholders Sri Lanka, providing by identifying attractive superior returns to investment opportunities stakeholders while that will generate above maintaining high integrity. market returns at an acceptable level of risk.

Operational Highlights 2 Management Discussion and Analysis Income Statement 77 Financial Highlights 3 Financial Review 28 Statement of Changes in Equity - Group 78 Who We Are 4 Our Presence 33 Statement of Changes in Equity - Company 79 Group Structure 5 Risk Management 34 Cash Flow Statements 80 Chairman’s Message 6 Governance Notes to the Financial Statements 82 Chief Executive Officer’s Review 8 Corporate Governance 39 Supplementary Information Board of Directors 10 Report of the Audit Committee 61 Shareholder Information 136 DNH Financial (Pvt) Ltd 12 Remuneration Committee 62 Decade at a Glance 143 Ceylon Leather Products PLC 14 Sustainability Report 63 Details of Group Properties 144 South Asia Textile Industries Lanka (Pvt) Ltd 16 Financial Reports Glossary of Financial Terms 145 Olancom (Pvt) Ltd 18 Annual Report of the Board of Directors 70 Notice of Annual General Meeting 146 Enterprise Technology (Pvt) Ltd 20 Statement of Directors’ Responsibility 73 Form of Proxy 147 Dankotuwa Porcelain PLC 22 Chief Financial Officer’s Responsibility 74 Corporate Information IBC The Colombo Pharmacy Company PLC 24 Independent Auditor’s Report 75 Palla & Company (Pvt) Ltd 26 Balance Sheet 76 Our Vision & Our Mission | Operational Highlights | Financial Highlights | Who We Are | Group Structure | Chairman’s Message | Chief Executive Officer’s Review | 2 Board of Directors | Management Discussion and Analysis | Our Presence | Risk Management | Governance | Report of the Audit Committee

Operational Highlights

2011 Palla & Company (Pvt) Ltd (PCL), a footwear manufacturing and exporting April company for a consideration of Rs. 155 ERI Board of Directors decided to million. Furthermore, CLPL invested Rs. dispose of 24% ordinary shares of 299 million in fully paid, non-voting, Environmental Resources Limited (BVI) convertible, redeemable, cumulative for a consideration of approximately USD preference shares of PCL, each with a 19.8 million to Photon Global Limited (BVI) coupon rate of 8%, with an option to and ultimate beneficiary being Lionhart convert after one year’s time. Investment Ltd., subject to regulatory approval. Rs. 813 million was infused into the company as a result of the second phase June of ERI’s 2011 warrant conversion. The special resolution for the extension Appointment of Mr. Kelly T. Ehler as a of the expiry date of ERI’s 2011 warrant Director of ERI. conversion was approved unanimously by the warrant holders and shareholders at the Extraordinary meetings held. 2012 July January First phase of the ERI’s 2011 warrant Mr. Eric B. Wikramanyake was appointed conversion was successfully completed as ERI’s new Chief Executive Officer (CEO) infusing Rs. 60 million to the Company. by the Board of Directors.

September February 9,233,774 of Ceylon Leather Products The special resolution for the extension PLC’s (CLPL’s) 2011 warrants were of the expiry date of ERI’s 2012 warrant converted, infusing Rs. 942 million to the conversion was duly approved by the Company. Being a major contributor to warrant holders and shareholders at the the conversion, ERI’s ownership of CLPL Extraordinary meetings held. increased to 81.63%. The Colombo Pharmacy Company PLC, November opened a state-of-the-art pharmacy and ERI won the prestigious International began the renovation process of its 4 ‘Diamond Eye Award’ for quality and storey building located in Colombo 02. excellence by OMAC (Otherways Management Association Club, France) March at an awards ceremony held in Geneva, South Asia Textile Industries Lanka (Pvt) Switzerland. Ltd received world recognised Global Organic Fabrics Textile Standard (GOTS) December accreditation for ensuring organic status Ceylon Leather Products PLC acquired of textiles. 60% of the ordinary shares of M/s. Environmental Resources Investment PLC Annual Report 2011/12 3

FINANCIAL HIGHLIGHTS

2011/2012 2010/2011 % Change

Income Highlights Revenue (Rs.) 6,085,035,311 2,208,049,684 175.58 Profit Before Interest & Tax (Rs.) 308,206,019 604,750,631 (49.04) Profit Before Tax (Rs.) 164,881,218 571,238,564 (71.14) Profit After Tax (Rs.) 101,446,777 480,674,574 (78.89) Diluted EPS (Rs.) 0.39 0.48 (18.97) Interest Cover (Times) 2.15 18.05 (88.09) Return on Equity (%) 1.05 5.45 (80.73) Return on Capital Employed (%) 2.70 5.81 (53.53)

Balance Sheet Highlights Total Assets (Rs.) 12,922,865,660 12,197,503,967 5.95 Total Debt (Rs.) 1,740,703,660 1,596,606,233 9.03 Total Shareholders’ Funds (Rs.) 8,393,877,066 7,372,162,756 13.86 No. of Shares in Issue 349,367,119 312,949,440 11.64 Net Assets per Share (Rs.) 24.03 23.56 1.99 Debt/Equity (%) 17.98 18.10 (0.64) Debt/Total Assets (%) 13.47 13.09 2.91

Market/Shareholder Information Market Price of Share (Rs.) 16.80 77.30 (78.27) Market Capitalization (Rs.) 5,869,367,599 24,190,991,712 (75.74) P/E Ratio (Times) 43.08 51.19 (15.85) Dividend Payout (%) N/A N/A N/A Dividend Per Share (Rs.) N/A N/A N/A

Balance Sheet Highlights Earnings Ratios 6,085 12,923 12,198 9,679 8,821 2,208 3,404 3,377 3,244 2,983 1,125 859 481 421 234 156 109 101 Rs. Million Rs. Million TOTAL ASSETS TOTAL EQUITY TOTAL LIABILITIES REVENUE GROSS PROFIT NET PROFIT

WHO WE ARE

We are Environmental Resources Investment investments, seeing investment PLC (ERI), a rapidly emerging premier opportunities in different perspectives, investment holding company focusing on readily acknowledging dormant potentials of investments within Sri Lanka. The Company investments which others felt unattractive has established a brand image for itself as or highly risky and in the process, vigorously a progressive investment company which seeking, negotiating and finalizing complex sees things differently to make courageous deals. Even though the path taken by ERI investment decisions and make them work has been full of obstacles, ERI has managed through astute financial prudence coupled to overcome hardships and emerge as a with down-to-earth liquidity management, shining star in the corporate sector. Through overlooked by competent Compliance various well-structured and innovative Officers. The Company’s investments are funding processes and striking business diversified in sectors such as Manufacturing, acquisition structures, Board of Directors of IT, Pharmaceutical, Retail Trade, Distribution, ERI managed to convert a shell company to Real Estate, Web Marketing and Stock a conglomerate, consisting of 12 direct and Brokering. We strive to create sustainable indirect subsidiaries within a short span of value addition for our stakeholders and the time. The Company was successful in raising companies we invest in, while continuously more than Rs. 4.5 billion via three successful owning corporate social responsibility for the right issues realizing in 191.2 million community which we are a part of. shares and raised Rs. 3.2 billion through 140.7 million warrants issued for 2010 ERI is the successor to the erstwhile and 2011. One billion warrants are pending reputed Sri Lankan entity of the British conversions, amounting to Rs. 37.5 billion, era - Walker & Greig PLC - a public quoted whilst 2014 and 2015 warrants are traded at company established in 1910, and listed a total valuation of Rs. 26 billion. in the Colombo Stock Exchange in 1970, under the ticker symbol GREG, which was ERI operates with only 23 professionals engaged in the business of trading fast who are through unorthodox and pragmatic moving consumer goods. In July 2007, investment evaluations and razor sharp Lionhart Investment Ltd, a reputed hedge reactions to market sensitivities, totally fund based in the United Kingdom, acquired engrossed in “making things happen” the controlling stake of Walker & Greg PLC by turning around and sustaining the and later restructured the Company into companies we invest in. Their efforts an investment holding company, changing guarantee the direct employment of over its name to Environmental Resources 3000 Sri Lankans. Investment PLC. ERI transformed itself into a different kind of an investment With the ethnic conflict ending and with company that creates long term value for the resultant economic exuberance, the all stakeholders, both large and small, while Company is positively confident of further adhering to highest ethical standards. augmenting the profitability of its group companies and will continue to pursue the Right from its first acquisition, ERI same path, realistically aware that it is “Not positioned itself as a leader in alternative Simple, Just Successful”. Environmental Resources Investment PLC Annual Report 2011/12 5

GROUP STRUCTURE

ERI has built its reputation around its Another facet of our strategy is that in expertise in creating and executing response to the upheaval and shift in watertight business process economic power around the world, we re-engineering strategies that enable plan to deploy even greater capital and corporate turnaround. Yet now it is focus on the stewardship of investments time to re-focus and re-energize our that serve local and fast-growing operations and so, we are expanding our emerging markets around the world which portfolio to include an even wider diversity have proven to be successful. of companies, representing many different stages of corporate growth and performance.

ERI

86.09% 58.36% 8.09% 100% 66.40% 93.15%

OLANCOM CLPPLC PHAR DNH

60.00% 100.00% 8.31% 51.55% 100.00% 100.00% 100.00% 100.00%

PCL CLPDL DPL SAT RoomsNet RoomsNet SENIT EPTL* Travel

* ERI has invested Rs. 100 million in Preference Shares.

ACRONYMS DPL Dankotuwa Porcelain PLC. ERI Environmental Resources Investment PLC. PHAR The Colombo Pharmacy Company PLC. DNH DNH Financial (Pvt) Ltd. OLANCOM Olancom (Pvt) Ltd. CLPL Ceylon Leather Products PLC. ETPL Enterprise Technology (Pvt) Ltd. CLPDL Ceylon Leather Products Distributors (Pvt) Ltd. SENIT Senit Technologies (Pvt) Ltd. PCL Palla & Company (Pvt) Ltd. RoomsNet RoomsNet International Ltd. SAT South Asia Textile Industries Lanka (Pvt) Ltd. RoomsNet Travel RoomsNet Travel (Pvt) Ltd. Who We Are | Group Structure | Chairman’s Message | Chief Executive Officer’s Review | Board of Directors | Management Discussion and Analysis | Our 6 Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports

CHAIRMAN’S MESSAGE

“Overall performance of the Group has been noteworthy and shows a stronger and more stable future as majority of the ventures have been able to turn around despite external factors that were unfavourable for growth. Members of the Board of Directors are optimistic and confident that the steps already taken would show results in the near future which will enhance shareholders’ value of the Company, but no doubt it would be challenging.”

Dear Shareholders, This prompted the Board to take proactive action which resulted in moving to other The year 2011/12 ended as the centenary advancing nations and markets similar to of Environmental Resources Investment South East Asia. One major decision the PLC, the successor to M/s Walker and Board took to avert external global risk Greig PLC having been incorporated in the was to dispose of the foreign company year 1910. On this occasion I am privileged holdings. Disposal of shares in ERL to and pleased to present to you on behalf of Photon Global Ltd in BVI was for a total the Board of Directors, the Annual Report purchase consideration of approximately and the Audited Statements of Accounts USD 19.8 million. The Company has of the Company for the financial year already received USD 3.1 million as a ended 31 March 2012. part payment. This investment in foreign assets was made at a time when the civil You would recall that we stated in our war was at its peak. Annual Report of 2009/10 that Sri Lanka has emerged as one of the most attractive The Board also decided that we investment destinations in the world. The concentrate on consolidating the existing Colombo Stock Exchange became the business ventures. We took meaningful best performing stock exchange. However, and appropriate actions to meet the currently the Colombo Bourse has come global and domestic challenges. ERI’s under pressure and the global economic emphasis strategy was to improve crisis has put further pressure on demand productivity by managerial guidance while from developed country markets. maintaining good governance. Environmental Resources Investment PLC Annual Report 2011/12 7

While all the subsidiary companies took lucrative markets. Venturing into new 13 companies. I offer my gratitude to the measures to increase capacity utilization, markets in the developing world is another fellow Board members for their insights increase production, expansion and step taken by the Management. It is and proper guidance for a successful year. to reduce costs, only Ceylon Leather heartening to note that the local sales had Despite a host of discouraging factors our Products PLC (CLPL) ventured into increased tremendously. Action has been valued shareholders kept their faith and another investment in a related field. taken to open additional sales outlets in confidence in us. Finally, I wish to put on CLPL invested Rs. 454 million in the Kandy and at Union Place, Colombo. record the excellent cooperation extended Palla & Company (Pvt) Ltd. (PCL) a shoe and dedication shown by all levels of staff manufacturing company located in the The Colombo Pharmacy Company PLC in the Group. Export Processing Zone in Katunayake. underwent a massive refurbishment program and will increase its revenue CLPL, which was the 2nd acquisition by from the lease of space in addition to ERI, was able to turn around within a short the revenue derived from the two sales period and has been able to diversify outlets. Overall performance of the its activities by investing in Dankotuwa Group has been noteworthy and shows Porcelain PLC (DPL) (8%), South Asia a stronger and more stable future as Sgd. Textile Industries Lanka (Pvt) Ltd. (SAT) majority of the ventures have been able to Lalith Heengama (51%) and now in PCL. CLPL has been turn around despite external factors that Chairman able to further consolidate company wise were unfavourable for growth. Members as well as to venture into more growth of the Board of Directors are optimistic 15 August 2012 investments. This has enable them and confident that the steps already taken to achieve a higher revenue growth in would show results in the near future 2011/12. which will enhance shareholders’ value of the Company, but no doubt it would be Although fluctuating global commodities challenging. and currency risks are still a challenging environment for SAT, management has I must state here that the 2011/2012 year taken steps to address some major pre- has been a challenging and trying year for acquisition burdens. However, CLPL, SAT business as well as personally for most of and PCL have recorded positive growth our key members. We had to make certain during the financial year. Dankotuwa sacrifices to uphold the interests and Porcelain PLC faced the most challenging rights of the shareholders as well as our year of its operations where management hard working staff members. This would had to make some forward thinking not have been the case if we had to make decisions not to be dependent on western these choices individually. Looking back markets for its high cost products with at the five year period, as Chairman, I am ever shrinking margins. Innovative steps proud of the progress made by ERI during and ERI Management practices have this period. We started with the acquisition been introduced to DPL during the year of an insignificant business venture which to enable the Company to approach more has now grown to a group consisting of Group Structure | Chairman’s Message | Chief Executive Officer’s Review | Board of Directors | Management Discussion And Analysis | Our Presence | Risk 8 Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports

CHIEF EXECUTIVE OFFICER’S REVIEW

“During the past year, we have gradually started to diversify the Group’s export markets into higher growth developing country markets to enhance both volumes and margins on our exports.” “In addition the Group also seeks to continuously leverage the unique strategic opportunities within each industry and the general strategic location of the country to enhance our businesses at every opportunity. As a result we seek to constantly move up the value chain in our businesses, exploit high value niche markets, enhance margins, and leverage country specific strategic opportunities in regional and global supply chains in developing our businesses.”

The financial year 2011/2012 has been a coming financial year. What is significant pivotal year not only for our group but for is the composition of the Group’s turnover. the overall economy as well. After a period The bulk of the Group’s turnover comes of ‘irrational exuberance’ following the end from manufacturing operations (91%), and of the war, we seem to have descended a significant portion of the manufacturing into a period of ‘irrational despair’ for want turnover is now export derived (63%). of a better expression. As a publicly listed Whilst the manufacturing operations had investment holding company, we have to to contend with escalation in energy costs contend with not only the reality we face as during the year, the increasingly favourable evidenced by the operating performance exchange rate outlook for exports will have of our group companies, but also the a very positive impact on a large segment of expectations about the future as we are ever the Group’s activities. In addition, all group mindful that these issues have had a deep companies are also continuously evaluating impact on you, our shareholder, especially alternative energy sources to mitigate the with our company being a popular retail impact of increases in energy costs in the stock on the Colombo Stock Exchange. future.

At an operating level, the Group generated Another driver of our business volumes and a turnover slightly in excess of Rs. 6 billion turnover in the future is not the just the versus approximately Rs. 2.2 billion the increasingly export orientation of the Group, previous year. However, a meaningful but the gradual change in composition of turnover comparison cannot be made as our export markets in the future. Many of our much of the growth in turnover is due to group companies had been dependant on acquisitions that were completed over the Western markets for exports in the past. Not past year. A more meaningful comparison only have these traditional export markets would be to compare organic growth in the been stressed in terms of demand, margins Environmental Resources Investment PLC Annual Report 2011/12 9

had also eroded significantly with the onset which we believe is an attractive investment with the investments we have made and will of the Financial Crises in the West. During area for the future. On the ICT services continue to make in the future. the past year, we have gradually started to side, the Group is laying the foundation to diversify the Group’s export markets into profit from the growth of the ICT sector in During the year, the Group acquired Palla & higher growth developing country markets the future and is consolidating a portfolio Company (Pvt) Ltd. which is a BOI company to enhance both volumes and margins of specialized ICT based companies under that manufactures high quality ladies’ shoes on our exports. This is a gradual process the name Olancom. The Olancom Group is for the export market. Palla & Company was that entails building new distribution being positioned to also benefit from the acquired through our subsidiary company channels, adapting to new customer rapid growth and changes in the Tourism Ceylon Leather Products PLC who is actively tastes, etc that we believe will yield rich industry in Sri Lanka by being a key provider involved in the management of the Company results in the future. In addition the Group of services to this sector. We are also looking and exploiting synergies between the two also seeks to continuously leverage the at further acquisitions in the ICT area companies. In addition, the Group also unique strategic opportunities within each which has scope for consolidation in the finalized an agreement to divest its holding industry and the general strategic location future given the fragmented nature of the in Environmental Resources Limited (BVI) of the country to enhance our businesses industry in Sri Lanka and the critical mass and to make investments focused on at every opportunity. As a result we seek and size needed to compete effectively in Sri Lanka in the future. to constantly move up the value chain in international markets. As discussed in the opening paragraph, we our businesses, exploit high value niche are also mindful of the depressed market markets, enhance margins, and leverage The stock brokering company did not fare conditions on the Colombo Stock Exchange country specific strategic opportunities well as expected given the depressed market with many companies trading below their in regional and global supply chains in conditions on the Colombo Stock Exchange. net asset value per share including our developing our businesses. For example However, we believe the market will make a company. In addition, the weak capital South Asia Textile Industries Lanka (Pvt) gradual recovery driven by the fundamentals market conditions in Sri Lanka and globally Ltd, a group company, has become a highly of corporate earnings and the development during the financial year also contributed to efficient fabric manufacturer and supplier potential of the country despite the many the inability to fully convert the company’s to Sri Lanka’s very competitive garment economic challenges and imbalances that warrants in December 2011 and led to industry with a significant time-to-market are faced both locally and globally. a postponement of the 2012 warrant advantage over foreign suppliers. In terms of profitability, the Group had conversions. In view of these developments, In addition to the Group’s considerable a profit of just over Rs. 100 million this the Company is pro actively evaluating manufacturing investment portfolio, other financial year on a Total Equity of nearly various options to optimize the capital portfolio companies that focused primarily Rs. 9.7 billion at year end. If you were a short structure of our company in the future in on Real Estate and ICT based services are term investor, you would consider this a poor order to enhance returns on our capital laying a good foundation for expansion in return on invested capital. Investing in invested and thereby enhancing the returns the future. The Union Place property owned Sri Lanka Treasury Bills and Bonds, with little to our shareholders. by The Colombo Pharmacy Company PLC risk would have yielded a return of nearly has been completely refurbished and is Rs. 1 billion. However, we are aware that you being leased out at significantly higher have not entrusted us with your capital to Sgd. lease rentals. There is considerable scope invest in passive risk free investments and Eric B. Wikramanayake for further development of this property in believe the capital we manage and have Chief Executive Officer collaboration with local and international invested in our operating companies will investors. The Group is also evaluating other generate a return significantly above the risk 15 August 2012 Real Estate Development opportunities free rate in Sri Lanka over the next few years Chairman’s Message | Chief Executive Officer’s Review Board| of Directors | Management Discussion and Analysis | Our Presence | Risk Management | 10 Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors

BOARD OF DIRECTORS

Mr. Lalith Heengama Manager of the Industrial Development Mr. Lalith Heengama has been a Board, Government Agent Kurunegala, senior public official of the Sri Lanka Director General of Sri Lanka Customs and Administrative Service (SLAS) since Deputy Secretary to the Treasury in the 1965. During his distinguished career Ministry of Finance. He was also a Director spanning over four decades, he has held of the Asia Development Bank and held many senior management positions in the position of Chairman of the National the Government of Sri Lanka and also in Development Trust Fund. The top posts he the private sector. Prior to his retirement has held in many reputed institutions have from public service, he served as State enriched him with a wealth of managerial Secretary to the Ministry of Trade and experience. Mr. Dissanayake is a graduate Commerce. He has also served as from the University of Peradeniya. Mr. Director General of Sri Lanka Customs, Dissanayake also serves as a Director Chairman of Development Lotteries of Ceylon Leather Products PLC and The Board, Member of the Presidential Colombo Pharmacy Company PLC. Lalith Heengama Tariff Commission and on the Boards of Chairman - Non Independent / Non-Executive Directors of SLPA, HKARTI, CDA, Laksala Mr. Gamini Sarath Munasinghe Craft Council and SLIATE. He has also Mr. Gamini Sarath Munasinghe has Heen Banda Dissanayake authored many books and translations. been a career diplomat. During his Director - Independent / Non-Executive Mr. Heengama is a graduate from the distinguished career, he has served as University of Peradeniya (Economics and Sri Lanka’s Deputy High Commissioner in Gamini Sarath Munasinghe Geography) and later acquired a Diploma London (1991-97), High Commissioner Director - Independent / Non-Executive in Intellectual Property Rights (WIPO). He to South Africa (1998-2002) and High Commissioner to Bangladesh (2003-06). Gregory Scott Newsome is a Fellow of the Economic Development Institute of World Bank and the Institute of When serving in Sri Lanka at the Ministry Director - Executive Management of Sri Lanka. Mr. Heengama of Foreign Affairs, he has held the posts Kosala Heengama is also the Chairman of Ceylon Leather of Director of Economic Affairs, Director Director - Executive Products PLC and The Colombo Pharmacy General of South Asia and SAARC, and Company PLC. Additional Secretary before his retirement Kelly T. Ehler, CA from the public service. He graduated Director - Non Independent / Non-Executive Mr. Heen Banda Dissanayake from the University of Ceylon (Peradeniya) Mr. H. B. Dissanayake is a former Governor obtaining a Bachelor of Arts Degree. He of the Central Bank of Sri Lanka. He also holds a Master’s Degree in Buddhist entered the Ceylon Civil Service in 1962. Studies awarded by the Postgraduate He has held the positions of General Institute of Pali and Buddhist Studies of the University of Kelaniya. Mr. Munasinghe Environmental Resources Investment PLC Annual Report 2011/12 11

is a Director of Ceylon Leather Products for efficient information distribution in In addition, he holds directorates in PLC and The Colombo Pharmacy Company multi-layer platforms. Earlier, he was Ferrox Holding Limited, an iron ore mining PLC as well. attached to the Ministry of Finance as project in South Africa Sparcap One Ltd an ICT Chief Advisor for Government of (a TSXV publicly listed company), Lions’ Mr. Gregory Scott Newsome Sri Lanka. Dr. Heengama, who works on Lair Property Ventures (Pvt) Ltd and Mr. Gregory Scott Newsome has been a improved efficiencies and processes in multiple other private companies. Mr. leader of many companies. Mr. Scott is many industries, ventured into financial Ehler qualified as a Chartered Accountant an electronic trading professional with services and strategic investments in ERI, in 1986 and is a licensed Insurance Broker over a decade of experience. He is a and is a Member of Institute of Electronic since 2003. Further he completed the multi-exchange consultant for US, Europe and Electrical Engineers (MIEEE). CICA in depth Tax Program and graduated and South Asian Stock Exchanges and Dr. Heengama serves as a Director from the University of Ottawa obtaining an a skilled presenter of technical material of Ceylon Leather Products PLC, The Honours Degree in Bachelor of Commerce. in seminars and training classes. Mr. Colombo Pharmacy Company PLC and Scott holds a BBA Degree in Finance Dankotuwa Porcelain PLC as well. with a focus on Derivative Securities and Investments from James Madison Mr. Kelly T. Ehler, CA University, Harrisonburg, Virginia, USA. Mr. Ehler has played a prominent role in He has authored ‘SoesBook’, a technical the field of Corporate Finance over the textbook and reference guide for trading past two decades and is responsible for a in the NASDAQ Index. His vision is to number of global support functions with a evolve blueprints for the future growth focus in the area of audit. He also advises for companies as well as national stock on accounts to international hedge funds, exchanges. Mr. Newsome serves as a provides tax advice in the real estate Director of Ceylon Leather Products PLC, development industry and employment The Colombo Pharmacy Company PLC and benefit administration. He is extending his Dankotuwa Porcelain PLC as well. service to a TSX listed, mining exploration company in Zambia, Mukuba Resources Dr. Kosala Heengama Limited. He is the CEO of Corporate Dr. Kosala Heengama brings in more than Finance Outsource Inc. and OMBAS. a decade of specialised ICT, management Previously he served his proficiency for experience in leading and expanding large various dynamic companies in the sectors global IT service organizations. He has of mining, technology manufacturing, also been instrumental in implementation real estate development, leasing and of low cost simplified enterprise systems auto dealership covering a vast range of and technologies which work seamlessly financial activities. He also worked as a banker and as an auditor of PWC. Financial highlights of DNH FINANCIAL (PVT) Ltd Ratio 2011/12 2010/11* Ratio 2011/12 2010/11* Revenue (Rs. '000) 48,811 80,126 Fixed Asset Turnover Ratio (%) 1,152.23 2,042.30 Profit/(Loss) After Tax (Rs. '000) (5,121) 22,249 Shareholder Equity Ratio (%) 69.62 63.30 Revenue Per Employee (Rs. '000) 1,952 4,713 Debt Equity Ratio (%) 0.61 3.52 Gross Profit Margin (%) 98.50 98.73 Current Ratio (Times) 3.07 2.58 Net Profit/(Loss) Margin (%) (10.49) 27.77 Quick Ratio (Times) 3.07 2.58 Earnings/(Loss) Per Share (Rs.) (1.42) 6.18 Net Assets Value Per Share (Rs.) 33.71 35.67 Total Assets (Rs. '000) 174,311 202,877 Enterprise Value Multiple (Times) N/A N/A Total Equity (Rs. '000) 121,353 128,426 No. of Employees 25 17 2010/11 Figures represents fifteen months of operation. Environmental Resources Investment PLC Annual Report 2011/12 13

DNH FINANCIAL (PVT) LTD

DNH Financial (Pvt) Ltd. formerly known as HNB Stockbrokers (Pvt) Ltd, was incorporated in 1992 as a joint venture of HNB, DFCC and Jardine Fleming of Hong Kong under the name of HDF Securities. In October 2009, the Company was acquired by Environmental Resources Investment PLC (ERI) for a consideration of Rs. 156 million. Out of the 28 stock brokers currently operating in the market, only 16 companies have equity in the Colombo Stock Exchange of which DNH is also an equity stakeholder and a voting member.

As a full member of the Colombo Stock and one service centre, targeting major Exchange, DNH Financial (Pvt) Ltd. is cities of the country. licensed to facilitate Equity and Bond trades. The Company currently offers The growing Sri Lankan market after clients a comprehensive equity brokerage the end of the civil war has provided a service supported by a strong research massive opportunity for DNH to thrive platform. The only revenue source of in its operations and minimise its DNH at present is equity trading which is risk. The investment banking services heavily correlated to market turnover. offered will provide the clients of DNH, asset management products, managed DNH’s focus is on providing clients with a funds and strategy specific portfolios, professional service tailored to meet their guaranteed capital portfolios, wealth specific risk appetite and consequently management facilities, as well as maintain the highest standards in the providing services for its corporate clients industry with regard to client servicing. for acquisitions, capital raising, mergers The DNH office is strategically located at and capital structure advice. the World Trade Centre which is an ideal location for a brokering firm considering the fact that both the Colombo Stock Exchange and the Security Exchange Commission of Sri Lanka are located within the two towers. In order to become closer to its growing client base across the country, DNH has opened two branches Financial highlights of CEYLON LEATHER PRODUCTS PLC Ratio 2011/12 2010/11 Ratio 2011/12 2010/11 Revenue (Rs. '000) 1,313,495 1,039,759 Fixed Asset Turnover Ratio (%) 123.93 115.18 Profit/(Loss) After Tax (Rs. '000) 137,178 103,374 Shareholder Equity Ratio (%) 91.39 87.56 Revenue Per Employee (Rs. '000) 2,346 2,189 Debt Equity Ratio (%) 0.56 3.90 Gross Profit Margin (%) 27.29 32.13 Current Ratio (Times) 6.64 4.70 Net Profit/(Loss) Margin (%) 10.44 9.94 Quick Ratio (Times) 5.37 3.56 Earnings/(Loss) Per Share (Rs.) 4.51 5.51 Net Assets Value Per Share (Rs.) 87.34 76.64 Total Assets (Rs. '000) 3,271,712 2,188,360 Enterprise Value Multiple (Times) 9.57 9.14 Total Equity (Rs. '000) 2,989,909 1,916,074 No. of Employees 560 475 Environmental Resources Investment PLC Annual Report 2011/12 15

CEYLON LEATHER PRODUCTS PLC

Ceylon Leather Products PLC (CLPL) is a publicly listed company listed on the Colombo Stock Exchange. CLPL is the pioneer in processing and manufacturing leather, leather footwear and other leather products in Sri Lanka. CLPL also owns the largest tannery in the country. CLPL was initially a state-owned enterprise and was sold to the private sector in the year 1991.

Following privatisation, the company’s volume of orders constantly flowing in, ownership changed several times until CLPL’s factory capacity is generally fully 2009, when the controlling stake of CLPL utilised. CLPL also produces footwear and was acquired by Environmental Resources accessories for the local retail market Investment PLC (ERI). By the end of through its brand ‘DI’. Due to the profit 2011, with the help of ERI, CLPL had gained from the disposal of investment many achievements, most importantly in the previous year, the net profit for turning from a loss making entity to a last year has increased by Rs. 16 million. profitable one and also reaching Rs. 1 Presently the company is operating at billion turnover for the first time in the 94% capacity. Therefore, the future growth history of the company, and becoming a strategy of CLPL will focus on expansion holding company of several established through acquisitions. manufacturing companies. CLPL has the controlling stake of ‘South Asia Textiles Industries Lanka (Pvt) Ltd (SAT)’ a company which is in the business of producing knitted fabric and ‘Palla & Company (Pvt) Ltd.’ which is in the business of producing and exporting leather based ladies’ footwear.

CLPL’s main source of revenue stems from the Government Sector. CLPL is the main leather footwear and accessories provider, to the Sri Lankan armed forces. With high Financial highlights of SOUTH ASIA TEXTILE INDUSTRIES LANKA (PVT) Ltd Ratio 2011/12 2010/11* Ratio 2011/12 2010/11* Revenue (Rs. '000) 2,779,454 3,443,694 Fixed Asset Turnover Ratio (%) 340.01 369.30 Profit/(Loss) After Tax (Rs. '000) (92,476) (728,501) Shareholder Equity Ratio (%) 24.93 24.98 Revenue Per Employee (Rs. '000) 3,731 5,739 Debt Equity Ratio (%) 229.91 182.18 Gross Profit Margin (%) 12.78 (0.19) Current Ratio (Times) 0.87 0.91 Net Profit/(Loss) Margin (%) (3.33) (21.15) Quick Ratio (Times) 0.42 0.46 Earnings/(Loss) Per Share (Rs.) (0.12) (25.02) Net Assets Value Per Share (Rs.) 0.78 0.91 Total Assets (Rs. '000) 2,330,374 2,696,355 Enterprise Value Multiple (Times) N/A N/A Total Equity (Rs. '000) 581,055 673,531 No. of Employees 745 600 *2010/11 Figures represents fifteen months of operation. Environmental Resources Investment PLC Annual Report 2011/12 17

SOUTH ASIA TEXTILE INDUSTRIES LANKA (PVT) Ltd

South Asia Textile Industries Lanka (Pvt.) Ltd. (SAT) was incorporated in 2004 as a subsidiary of South Asia Textiles - Singapore. SAT, was started as a liaison office in 2002 with the objective of marketing Sri Lankan fabric produced in the plant in Singapore. It subsequently set out on an ambitious project of setting up a fabric manufacturing facility in Sri Lanka.

Under the Board of Investment, the and testing facilities, accredited by M&S, company acquired the neglected land NEXT, LACE, GAP for self-color and quality/ and dilapidated buildings of the once testing approvals. The Company is also renowned Pugoda Textile Mills and WRAP certified, OEKO-TEX Class 1 certified transformed it into a state-of-the-art and GOTS/OE certified. fabric processing plant. The ultra-modern textile manufacturing In March 2011, the company was acquired plant, the quality output, the long by Ceylon Leather Products PLC (51%) established customer base and a capacity and Environmental Resources Investment of 50% available to cater to the foreign PLC (8%) through a joint acquisition for a and local market makes SAT the ideal consideration of Rs. 710 million. investment for ERI portfolio as it has the potential to improve and would become SAT has a fully-fledged manufacturing the mode of continuous cash inflow for plant that engages in Weft Knitting, the Group. Dyeing, Printing, Sueding, Brushing and Finishing, with a total monthly capacity to produce 630,000 Kg of finished fabric, catering to world renowned buyers such as M&S, NEXT, Tesco, BHS, Victoria’s Secret, Azda, TEMA, Columbia Sportswear, Sainsbury, Mother Care, H&M, Takko, GAP, JC Penney, Reebok etc. The Company prides itself on its quality and has set up relevant process controls, planning Financial highlights of OLANCOM (PVT) LTd Ratio 2011/12 2010/11 Ratio 2011/12 2010/11 Revenue (Rs. '000) 333,612 366,806 Fixed Asset Turnover Ratio (%) 5,729.30 3,487.51 Profit/(Loss) After Tax (Rs. '000) (51,517) (144,626) Shareholder Equity Ratio (%) (103.87) (102.03) Revenue Per Employee (Rs. '000) 5,654 4,031 Debt Equity Ratio (%) (106.88) (117.11) Gross Profit Margin (%) 22.41 13.17 Current Ratio (Times) 0.23 0.23 Net Profit/(Loss) Margin (%) (15.44) (39.43) Quick Ratio (Times) 0.22 0.21 Earnings/(Loss) Per Share (Rs.) (2.40) (6.74) Net Assets Value Per Share (Rs.) (30.50) (27.24) Total Assets (Rs. '000) 630,481 573,241 Enterprise Value Multiple (Times) N/A N/A Total Equity (Rs. '000) (654,872) (584,854) No. of Employees 59 91 Environmental Resources Investment PLC Annual Report 2011/12 19

OLANCOM (PVT) LtD

Olancom (Pvt) Ltd., formely known as RoomsNet (Pvt) Ltd. founded in 2000 with a small team of professionals to provide e-commerce solutions, operates in the ICT industry with a highly skilled set of employees offering a diverse range of products and services targeted at individuals, SMEs and large public and private enterprises. The Group, through its subsidiary companies, is one of the largest e-commerce operators based in Sri Lanka. It is also one of the leading System Integrators in the country, having completed some of the largest systems integration projects in Sri Lanka.

During 2010, ERI invested Rs. 200 million providing high tech enterprise solutions to in convertible, redeemable preference various segments in the public and private shares of Olancom and on sectors. 31 March 2011 ERI converted the preference shares to ordinary shares Olancom consists of an in-house which resulted in a majority stake of developed system which operates with the 93.15% of Olancom’s stated capital. RoomsNet website which is considered the backbone of the company. This system Olancom has become the technological currently contains information of more solution provider for the group’s than 75,000 European clients. This client companies. Their innovative solutions base is relatively dormant due to the are also offered to outside businesses, European downturn, but Olancom are thereby enhancing the company’s value keeping them engaged so that when the and the Group’s. market shifts, the revenue will come back to old levels. Olancom currently maintains Olancom consists of a few subsidiary a strong working relationship with the companies which are also focused on local hotel providers and is working with various aspects of the ICT field. RoomsNet them to increase their online booking International Ltd is in the business of presence. providing online hotel booking services. Senit Technologies (Pvt) Ltd., Incorporated in 2011 is focused on delivering Enterprise Applications and Web Designing to the corporate sector while Enterprise Technology (Pvt) Ltd. is in the business of Financial highlights of ENTERPRISE TECHNOLOGY (PVT) LTD Ratio 2011/12 2010/11 Ratio 2011/12 2010/11 Revenue (Rs. '000) 124,902 120,630 Fixed Asset Turnover Ratio (%) 3,301.07 2,444.52 Profit/(Loss) After Tax (Rs. '000) (16,844) (54,250) Shareholder Equity Ratio (%) (53.02) (55.54) Revenue Per Employee (Rs. '000) 2,839 3,016 Debt Equity Ratio (%) (171.14) (195.22) Gross Profit Margin (%) 40.29 29.72 Current Ratio (Times) 0.29 0.30 Net Profit/(Loss) Margin (%) (13.49) (44.97) Quick Ratio (Times) 0.24 0.23 Earnings/(Loss) Per Share (Rs.) (42.41) (136.58) Net Assets Value Per Share (Rs.) (343.93) (301.52) Total Assets (Rs. '000) 257,634 215,645 Enterprise Value Multiple (Times) N/A N/A Total Equity (Rs. '000) (136,609) (119,765) No. of Employees 44 40 Environmental Resources Investment PLC Annual Report 2011/12 21

ENTERPRISE TECHNOLOGY (PVT) LTD

Enterprise Technology (Pvt) Ltd. (ETPL) is one of Sri Lanka’s reputed Network Systems Integrators with over 15 years of experience in providing business critical Information Communication Technology (ICT) solutions for major Sri Lankan Corporations.

Their clientele includes Telecommunication, Manufacturing, Government, Financial Institutions, Transportation and Universities.

In 2010 ERI invested Rs. 100 million in ETPL offers an unparalleled ‘one-stop convertible and redeemable preference shop’ solution for delivering world class shares of ETPL while Olancom (Pvt) Ltd. products, technology and services for acquired 100% ordinary shares of the enterprise customers. company, thereby obtaining ownership of ETPL and as a result ETPL became an ETPL is partnered with world renowned indirect subsidiary of ERI. technology providers such as CISCO, Sun, Oracle, Microsoft, EMC, HP and Symantec ETPL operations are spread across a etc. With these partnerships ETPL is wide spectrum of solutions services in capable of delivering the latest technology Data Communication and Networking. to customers at comparatively lower In-house expertise is available for design, cost than its competitors. During the last installation, testing and support of Multi- decade ETPL has been providing services layer Switching and Routing, IP Networks, for large corporations such as Dialog Internet/Enterprise Data Centres, Wireless Telekom, Sri Lanka Telecom, Networks, IP Telephony, Information Sri Lankan Airlines and Government Security, Storage and Disaster Recovery/ institutes such as Universities, Port Business Continuity, Messaging and Call Authority, Inland Revenue, Central Bank of Centres. Sri Lanka, Ministry of Education etc. ETPL owns an investment property consisting of ETPL is constantly focusing on 3 acres 5 perches land in Piliyandala which new developments in Information is located near a river as a guest house Communication Technology and is consisting of a swimming pool. proactive in leveraging these for the benefit of their valued customers. Financial highlights of DANKOTUWA PORCELAIN PLC Ratio 2011/12 2010/11* Ratio 2011/12 2010/11* Revenue (Rs. '000) 1,158,757 1,583,583 Fixed Asset Turnover Ratio (%) 230.91 328.40 Profit/(Loss) After Tax (Rs. '000) (94,638) (16,870) Shareholder Equity Ratio (%) 59.07 62.15 Revenue Per Employee (Rs. '000) 1,054 1,420 Debt Equity Ratio (%) 29.46 25.21 Gross Profit Margin (%) 15.25 18.34 Current Ratio (Times) 1.76 2.15 Net Profit/(Loss) Margin (%) (8.17) (1.07) Quick Ratio (Times) 0.74 1.26 Earnings/(Loss) Per Share (Rs.) (1.31) (0.23) Net Assets Value Per Share (Rs.) 9.85 10.91 Total Assets (Rs. '000) 1,204,328 1,268,262 Enterprise Value Multiple (Times) (27.78) 88.42 Total Equity (Rs. '000) 711,448 788,228 No. of Employees 1,099 1,115 *2010/11 Figures represents fifteen months of operation. Environmental Resources Investment PLC Annual Report 2011/12 23

DANKOTUWA PORCELAIN PLC

Dankotuwa Porcelain PLC (DPL) commenced as a project under the Ceylon Ceramics Corporation (CCC) in 1983, to cater to the export market providing high quality porcelain tableware. Today, DPL is a Public Company listed on the Colombo Stock Exchange. As a company operating under the Board of Investment (BOI), Dankotuwa products are exported to numerous international markets, predominantly to Europe and USA.

While some products are sold under their Continuing its policy of having the own brand names, such as ‘Dankotuwa’, widest range of shapes, Dankotuwa has ‘Elan’ and ‘Laklain’, other products are introduced a new star shape as its latest sold as co-branded products to agents, addition to its range of products. The wholesalers or retailers. company has over 60 different shapes and countless unique decorations which are Dankotuwa products can be found in generated in-house. many top ranking department stores around the world including Macy’s of DPL factory is located on a freehold USA, BHS of UK, El Corte Ingles of Spain, land of 47 acres which has been valued Migres of Switzerland, Isetan of Japan and at Rs. 137 million in 2012. Dankotuwa Jashanmal of Dubai. Dankotuwa is not a is extremely popular for high quality mass scale producer but manufactures products locally and internationally special high quality products for niche epitomised by its world renowned markets, and therefore, its products are customer base. DPL ensures to maintain comparatively expensive due to the high the highest quality of all its products by value components used in its production, following the correct procedures and using such as gold and platinum. quality raw material. With the help of its in house R&D, DPL continuously tests on During 2010, Environmental Resources various combinations of shapes and raw Investment PLC and its subsidiary Ceylon materials in order to produce an output of Leather Products PLC jointly Invested Rs. the highest standard and quality. 433 million for a 65% ownership of the company via a private placement. Financial highlights of THE COLOMBO PHARMACY COMPANY PLC Ratio 2011/12 2010/11 Ratio 2011/12 2010/11 Revenue (Rs. '000) 116,925 138,881 Fixed Asset Turnover Ratio (%) 93.19 127.99 Profit/(Loss) After Tax (Rs. '000) 84,570 27,513 Shareholder Equity Ratio (%) 88.44 93.74 Revenue Per Employee (Rs. '000) 3,439 4,340 Debt Equity Ratio (%) 8.41 0.99 Gross Profit Margin (%) 14.27 14.15 Current Ratio (Times) 1.38 4.37 Net Profit/(Loss) Margin (%) 72.33 19.81 Quick Ratio (Times) 1.13 3.70 Earnings/(Loss) Per Share (Rs.) 66.44 21.62 Net Assets Value Per Share (Rs.) 700.31 619.52 Total Assets (Rs. '000) 1,007,937 841,245 Enterprise Value Multiple (Times) 12.66 162.70 Total Equity (Rs. '000) 891,399 788,559 No. of Employees 34 32 Environmental Resources Investment PLC Annual Report 2011/12 25

THE COLOMBO PHARMACY COMPANY PLC

The Colombo Pharmacy Company PLC originated from a firm of chemists known as ‘Norris Canal Stores’ in 1867. At the turn of the century the name was changed to ‘City Pharmacy’, and became a part of the Pharmacy Syndicate managed by a group of distinguished personalities. On 04 April 1913 this Syndicate was incorporated as a limited liability company named ‘The Colombo Pharmacy Ltd.’ It is today the oldest pharmaceutical company in the country and one of the oldest to be quoted on the Colombo Stock Exchange.

During 2010, ERI acquired 66% of ordinary With the purchase of very strategically shares of the Colombo Pharmacy through located properties at Union Place and the Colombo Stock Exchange for a Bambalapitiya junction in the 1940s, consideration of Rs. 555 million, thereby the Pharmacy’s ‘City Dispensary’ and ‘IC becoming the controlling shareholder of Drugs’ were established. The value of the the company. investment property at Union Place is Rs. 768 million (117.75 perches) while the Eight qualified pharmacists with years land and building value in Bambalapitiya of experience are at hand to offer their is Rs. 122 million (17.39 perches) in 2012. expertise in pharmaceuticals together The building at Union Place is currently with a strong team of employees. under renovation in order to be used as Dispensing of prescriptions is the a modern shopping complex. The old company’s forte since inception. pharmacy was also shifted to the new building which was built under a more Apart from the pharmaceutical business, modern design. The Colombo Pharmacy Colombo Pharmacy also enjoys a rental Company PLC owns a retail drug license income generated from its commercial which permits it to sell pharmaceutical building located in a prime location within products to consumers. The pharmacy Colombo’s business centre. The company business itself is to be enhanced through undertook a complete renovation of the expanding wholesale distribution rights building which is to be completed during as well as enhancing its retail presence 2012, and expects to increase its rental throughout the Island. income. Financial highlights of PALLA & COMPANY (PVT) LTD Ratio 2011/12 2010/11 Ratio 2011/12 2010/11 Revenue (Rs. '000) 576,955 558,870 Fixed Asset Turnover Ratio (%) 318.87 281.35 Profit/(Loss) After Tax (Rs. '000) 3,205 41,770 Shareholder Equity Ratio (%) 81.03 (1.43) Revenue Per Employee (Rs. '000) 1,187 949 Debt Equity Ratio (%) 0.62 (5,735.71) Gross Profit Margin (%) 16.69 16.10 Current Ratio (Times) 3.50 2.96 Net Profit/(Loss) Margin (%) 0.56 7.47 Quick Ratio (Times) 1.99 2.15 Earnings/(Loss) Per Share (Rs.) 35.62 464.11 Net Assets Value Per Share (Rs.) 3,281.12 (57.85) Total Assets (Rs. '000) 364,440 363,462 Enterprise Value Multiple (Times) N/A N/A Total Equity (Rs. '000) 295,301 (5,207) No. of Employees 486 589 Environmental Resources Investment PLC Annual Report 2011/12 27

PALLA & COMPANY (PVT) LTD

Palla & Company (Pvt) Ltd. is a footwear manufacturing company incorporated on 27 February 2004. The venture is the accomplishment of the vision of its founders to cater to the changes in consumer tastes and styles in the global market place. They foresaw an opportunity to manufacture high quality shoes in Sri Lanka considering the available infrastructure and the easy access to the global market.

In November 2011, Ceylon Leather A combination of a competent QC Products PLC (CLPL) made an investment team trained and supervised by foreign of Rs. 454 million to acquire 60% of consultants and a skilled workforce, as Palla & Company (Pvt) Ltd. share capital well as the state-of-the-art automated and 298,641 convertible, redeemable, pattern cutting machines ensures an cumulative and non-voting preference excellent level of quality. The QC team shares. This if converted would result in a independently inspects 100% of the fully diluted 97% of holding of Palla. production in order to maintain quality standards. In addition, the mix of high Previously Palla & Co. was engaged in the quality raw materials sourced from around business of producing ladies’ footwear the world as well as from Sri Lanka has and exporting mainly to European markets helped Palla to maintain its quality. Palla is which was subsequently sold by large expected to source its leather requirement distributors based in the relevant country. from the CLPL Tannery following its The company incurred a non-operation expansion, thus benefiting from the related exchange loss of Rs. 6 million to synergy of the Group. With established date in comparison to the last financial relationships with customers such as year’s Rs. 14 million exchange gain, due to BATA, San Marina and Apepazza, Palla has the depreciation of the LKR. enjoyed a flow of continuous export orders and Palla products have a good reputation among these customers. Chief Executive Officer’s Review | Board of Directors Management| Discussion and Analysis | Our Presence | Risk Management | Governance | Report of the 28 Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors

MANAgEMENt dIScUSSION ANd ANAlySIS

Financial Review power decreased from 7.7% to 5.5% in most of the corporate sector as most of March 2012 compared to March 2011. the manufacturing companies are highly Economic Highlights However, when compared to the month dependent on imported raw materials and The Sri Lankan economy continued of February 2012, there was a drastic financed by foreign currency borrowings. to move forward with tremendous increase in inflation in the month of achievements in 2011 while the global March 2012. This was due to the upward Interest Rate adjustment of petroleum prices and economy was in a crisis. The country The market interest rates were stable electricity charges in mid February 2012. recorded an impressive growth rate of during the first three quarters of the 8.3% in 2011 compared to its growth financial year but began to increase in the of 8.0% in 2010. The performance in all Exchange Rate fourth quarter due to the decisions taken key sectors of the economy contributed In the first nine months of 2011/12 by the Central Bank and subsequently towards this growth: 1.5% in the financial year, the Sri Lankan Rupee it has further increased at the end of agricultural sector, 10.3% in the industrial (LKR) held strongly against other foreign June 2012. The average primary lending sector and 8.6% in service sector. currencies. At the end of last three interest rate in Sri Lanka was reported months LKR began to depreciate over at 10.49% in March 2012 whereas in GDP Growth Rate other foreign currencies as a result of March 2011 it was 9.27%. In 2011 the the decision taken by the Central Bank Repurchased and Reverse Repurchased

8.3 to float the Sri Lankan Rupee, which rates were reduced by 25 basis points and 8.0 7.7 resulted in the depreciation of LKR over 50 basis points resulting in an interest 6.8 6.0 other foreign currencies (USD by 17% and rate of 7.0% and 8.5% respectively. GBP by 11% compared to the previous This was done with the objectives of to year). During this period the Central Bank enhancing investments by the private 3.5 absorbed a substantial part of foreign sector and to facilitate investments to

2006 2007 2008 2009 2010 2011 exchange inflows to the country, resulting support continued economic expansion. in the gross official reserves increasing The Central Bank decided to increase Source: The Central Bank of Sri Lanka considerably during March 2012. The the Repurchased rate and the Reverse Government aims to protect domestic Repurchased rate to 7.75% and 9.75% production and motivate more exports respectively in March 2012, due to the Inflation and decrease the level of imports by expanding credit growth in the private The year on year inflation rate which depreciating the home currency, whereby and public sectors. However, the increase refers to a general rise in prices measured the country can increase its currency in lending rate affected mostly the against a standard level of purchasing reserves. However, it negatively affected companies with high gearing ratio.

Inﬂation Exchange Rates Interest Rate

8.9 8.2

7.5 204.88 7.0 192.83 10.54 10.47 10.49 182.3 179.08

6.4 181.47 178.91 180.30 177.80 176.35 176.57 175.45 7.1 171.93 9.98 5.5 4.9 5.1 9.28 4.7 128.19 9.27 9.36 121.12 9.15 113.90 113.90 113.90

3.8 109.61 109.49 109.89 110.19 110.11 109.85 109.75 2.7 Jul Apr Oct Feb Jan Nov Jun Aug Mar Dec Sep May Jul Apr Oct Feb Jan Nov Jun Aug Mar Dec Sep May 2011 2012 2011 2012

GBP - 2011/2012 Q1-2010 Q2-2010 Q3-2010 Q4-2010 Q1-2011 Q2-2011 Q3-2011 Q4-2011 Year-on-Year Change % USD - 2011/2012 Source: The Central Bank of Sri Lanka Source: The Central Bank of Sri Lanka Source: The Central Bank of Sri Lanka Environmental Resources Investment PLC Annual Report 2011/12 29

Oil Prices - NYMEX Crude Oil vs Local Diesel Price Group Revenue 120 120 100

100 6,085 80 80 60 60 LKR/Liter

USD/Barrel 40 40 2,208 20 20

0 0 234 Rs. Million 2009/10 2010/11 2011/12 Jul 2009 Jul 2010 Jul 2011 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Nov 2009 Nov 2010 Nov 2011 Nov Mar 2009 Mar 2010 Mar 2011 Mar 2012 Sep 2009 Sep 2010 Sep 2011 May 2009 May 2010 May 2011 May 2012

NYMEX Crude Oil Local Diesel Price (LKR) Source: www.ft.com Revenue Composition 2011/12

Gas Prices (Monthly) - Global vs. Local 2% 5% 1% 1% 1,200 150 91% 1,000 120 800 90 Manufacturing 600 Stock Brokering

60 LKR/Liter Investment USD/Barrel 400 Pharmaceutical 200 30 Services

0 0 Sectors. Manufacturing includes Textile, Jul 2009 Jul 2010 Jul 2011 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Nov 2009 Nov 2010 Nov 2011 Nov Mar 2009 Mar 2010 Mar 2011 Mar 2012 Sep 2009 Sep 2010 Sep 2011 May 2009 May 2010 May 2011 May 2012 Footwear & Porcelain Products, which

Saudi Aramco CP Local Gas price (per Kg) Source: www.saudiaramco.com contributed 91% to the total group revenue in 2011/2012 being the main Impact to the Group and finance costs on foreign currency contributor. The fluctuation of the key economic borrowings. This has impacted negatively to the Group performance. indicators had material impact on the Manufacturing Sector 2011/12 - Revenue performance of the Group. The increase in crude oil price & electricity had a negative Group Performance 29% impact on the Group since the main contribution to the total Group revenue is Revenue from the manufacturing sector, thereby The Group has reported a consolidated Footwear resulting in increased cost of production revenue of approximately over Rs. 6 billion 50% Porcelain 21% Textile in the last quarter and for the coming in 2011/2012 compared to Rs 2.2 billion years. in 2010/2011, which reflects YoY growth of 176%. A significant part of the revenue The Group is very much exposed to increase accrued from the manufacturing Apart from the Service sector’s exchange rate fluctuations as 91% sector, due to the acquisitions of South contribution of 5%, Pharmaceuticals of its revenue is generated from the Asia Textile Industries Lanka (Pvt) Ltd. and contributed 2% to the Group revenue in manufacturing sector of which 63% of Palla & Company (Pvt) Ltd. As a result of 2011/12. The Company’s contribution to revenue is from exports, which provides the diversified investment made by the the Group revenue has decreased by 71% a positive impact to the group revenue Company, the Group revenue comprises compared to the prior financial period as and cash flows. However, the inflow of the contribution of several industries a result of decrease in interest income from exports were off-set with the cost such as Manufacturing, Pharmaceutical, received & the capital gains on disposal incurred in importation of high value raw Investments, Stock Brokering & Services material for the manufacturing process Chief Executive Officer’s Review | Board of Directors Management| Discussion and Analysis | Our Presence | Risk Management | Governance | Report of the 30 Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors

MANAgEMENt dIScUSSION ANd ANAlySIS

of current investment due to the adverse Total Expenses Sector wise 2011/2012 Financial Position of the Group market conditions. Total Group assets amounting to Rs. 12.9 7% 4% 2% billion was financed by 65% from equity 1% Other Income 86% capital. Due to the conversion of 2011 The other incomes primarily consist warrants at Rs. 24/= per share, stated capital has increased by Rs. 874 million. of interest income, profit on disposal Manufacturing of property, plant and equipment, Stock Brokering Pharmaceutical Total Group borrowings had increased by rent income, and revaluation gain on Services Investment Rs. 144 million, as a result of new banking investment properties & exchange gain. facilities obtained during the period, The Group’s other income increased by Rs. 404 million, a 237% increase compared to Proﬁtability Capital Structure the previous year. The main reason behind 15% this increase was the divestment of a 24% 1,125 74%

stake in Environmental Resources Limited 859 (BVI), with a Rs. 278 million exchange 11% 571

gain. Further a Rs. 91 million gain was 481

recorded as a result of the revaluation of Shareholder Equity Minority Interest 165 156 135 109 the investment property owned by The 101 Debts Rs. Million Colombo Pharmacy Company PLC located 2009/10 2010/11 2011/12 at Union Place. GP PBT PAT which includes new borrowings obtained Profitability of the Group Taxation amounting to Rs. 3.6 billion during the The gross profit of the Group has Group tax expenses showed a drop of period. increased by 31% compared with the Rs. 27 million as an effect of reduction 2010/11 performance. Even though the in tax rates by the Government in the As at the Balance Sheet date the Group’s revenue has increased by 176%, the gross 2011 fiscal budget and few companies debt-equity ratio amounts to 18% profit has increased at a lower rate due to recording taxable losses during the year. whereas the debt ratio which compares the increase of the cost of sales by 268% group’s debt against total assets, as a result of high production cost. amounts to 13%.The lower leverage ratio

The net profit has decreased by 79% Stated Capital Movement from 01 April 2009 to 31 March 2012 compared to the previous year mainly as a result of decline In gross profit Description Type No. of Shares Price (Rs.) Total (Rs.) generated by the group of companies and As at 31 of March 2009 Ordinary 17,386,080 34,771,000 increase in operational expenses. The 1st Right Issue Ordinary 17,386,080 20.00 347,721,600 increase of administrative cost, selling 2nd Right Issue Ordinary 104,316,480 20.00 2,086,329,600 and distribution cost and finance cost has 3rd Right Issue Ordinary 69,544,320 30 .00 2,086,329,600 resulted from the consolidated effect of 2010 Warrant Conversion Ordinary 104,316,480 22.00 2,294,962,560 the South Asia Textile Industries Lanka 2011 Warrant Conversion (Pvt) Ltd and Olancom group which were - 01st Phase Ordinary 2,532,590 24.00 60,782,160 acquired on the Balance Sheet date of the - 02nd Phase Ordinary 33,885,089 24.00 813,242,136 previous financial year. The Group has lost Total Ordinary Shares 349,367,119 7,724,138,656 its’ share of profit in the associate, which recorded profits in the previous year due Preference Shares 170,625 342,000 to the disposal of stake in ERL. Total 7,724,480,656 Environmental Resources Investment PLC Annual Report 2011/12 31

and Rs. 37 billion worth of warrants to equity over the total Group assets had Liquidity Position be converted within the next three years, increased by 7%. Return on equity Current assets of the Group represent has provided the Group with confidence investment was 1.05% while the return 54% of the Group’s total assets. The regarding the future cash flows. on capital employed showed 2.70% and current asset ratio was 2.47 times, where Group capital employed increased to Rs. the quick asset ratio was 1.95 times in Shareholders’ Fund and Return 11.4 billion in the current year as against 2011/2012. Working capital had improved Rs. 10.4 billion in the previous year. The Group’s net assets per share has by 236% as result of an increase in trade Enterprise value multiple stood at 12.24 improved from Rs. 23.56 to Rs. 24.03 (2%) & other receivables. times. as an impact of the increase in stated The Group’s net cash & cash equivalents capital and increase in retained earnings. have improved by Rs. 618 million, which Total Assets Position of the Group Group earnings per share dropped from represents a 76% increase compared to prior year. The net cash inflow from Rs. 1.51 to Rs. 0.39 (74%) compared with Total Group Assets Compositions the previous year due to the 72% decline finance activities to the Group was 11% in the current year profit attributable Rs. 1,480 million. This was mainly resulted 45% to shareholders and an increase in the from the conversion of warrants and number of ordinary shares. proceeds received from rights issue of PP&E, Invetment Property & Intangible Assets Ceylon Leather Products PLC. During the 29% Other Investments Deferred Tax Asset year investments made by the company Inventory have resulted in a net cash outflow from Net Assets Value Per Share Trade & Other Receivables 11% 4% Cash & Bank Balance 0% investment activities. 24.03 23.56 23.22 22.01 18.29 17.61 Capital Market & Share Performance Compared to the previous financial The stock market went through an year the total Group asset position unstable period in 2011/2012 with price was improved, mainly as a result of the indices on a declining trend. The All Share

Rs. increase in trade & other receivables. The Price Index and Milanka Price Index fell 8% 2009/10 2010/11 2011/12 Group asset turnover ratio stood at 0.47 and 26% respectively in 2011 compared Group Company times at the end of the current financial to 2010. As a result of adverse market year, where the fixed asset turnover ratio conditions which prevailed in the capital stood at 1.88 times. market, the Company’s ordinary share In 2012, the Group’s return on total price decreased to Rs. 16.80 at the end assets was 0.79% as against 3.94% in of the financial period. Over the period, the previous year where the shareholder the Company’s share performance was moderate except on a few occasions, by way of providing considerable turnover to Earning Per Share Total Assets Vs Total Liabilities the Colombo Stock Exchange. 12,923 12,198 1.51 0.57 3,404 3377 3244 0.39 421 Rs. Million Rs. 2009/10 2010/11 2011/12 2009/10 2010/11 2011/12 Total Assets Total Liabilities Chief Executive Officer’s Review | Board of Directors Management| Discussion and Analysis | Our Presence | Risk Management | Governance | Report of the 32 Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors

MANAgEMENt dIScUSSION ANd ANAlySIS

Even though the Company’s net asset Shares Traded Turnover Generated

value per share amounts to Rs. 24.03 13% 17% the market value per share has dropped 43% 58% significantly to Rs. 16.80 as a direct result 10% of the market conditions. The total market 14% capitalization as at the Balance Sheet Ordinary Shares 190,927 Ordinary Shares 9,318,079 2011 Warrants 2,919 2011 Warrants 195,365 date was Rs. 5.9 billion while the Group 2012 Warrants 109,787 18% 2012 Warrants 2,945,652 2014 Warrants 61,015 2014 Warrants 1,601,485 2015 Warrants 75,643 2015 Warrants 2,155,126 equity attributable to equity holders of the 25% 1% 1% parent, amounts to Rs. 8.4 billion. More information pertaining to the Company’s share is in the Supplementary Information section of the Annual Report.

Movement of Share Price Indices Share Performance

8,000 10,000,000 500,000,000 7,000

6,000 8,000,000 400,000,000 5,000 6,000,000 4,000 300,000,000

3,000 4,000,000 200,000,000 2,000

1,000 2,000,000 100,000,000 0 0 0 Apr 2011 Apr 2010 Oct 2011 Oct 2010 Feb 2011 Feb 2012 Feb Jun 2011 Jun 2010 Aug 2011 Dec 2011 Aug 2010 Dec 2010 Jul 2010 Jul 2011 Apr 2010 Apr 2011 Feb 2011 Feb 2011 Feb Jan 2011 Jan 2011 Jun 2010 Jun 2011 Nov 2010 Nov 2011 Nov Aug 2010 Dec 2010 Aug 2011 Dec 2011 Mar 2011 Mar 2012 Sep 2010 Oct 2010 Sep 2011 Oct 2011

ASI MPI May 2010 May 2011 Source: Stocksyn web site Number of Shares Turnover Environmental Resources Investment PLC Annual Report 2011/12 33

our presence

Norway Germany Ukraine Belgium Poland Greece Russia Iceland Turkey USA Italy U.K

France

Portugal Japan

Spain India Switzerland Oman Malaysia

Mexico Dubai Czech Republic Colombia Egypt

South Africa Kuwait Maldives Singapore Jordan Jaﬀna

Negombo Katunayake Gampaha Kandy

Balummahara Pugoda

RISK MANAGEMENT

When the Group Company faces risks, How ERI manages RISK? they are not doing it alone. ERI offers The structure below gives a graphical them assistance, capital at a reasonable overview of the risk management cost, guidance, and a facilitation team process adopted by ERI. Each subsidiary all combined to provide solutions to their is assigned to a highly skilled and risks and ultimately comfort. This comfort experienced team headed by a allows the individual companies to focus Compliance Officer who together act on their core business, which is what they as internal auditors. They inspect the do best, and retain their competitive edge. operations of each subsidiary on a daily basis, identifying problematic areas in ERI has invested in industries, varying operations and placing internal controls from leather, porcelain, textiles to financial as required. They frequently visit or are services, leisure, pharmaceuticals, sometimes located at the subsidiary’s technology and real estate development. premises, which enables them to be more ERI follows a proactive and dynamic ERI does not believe that it needs to be familiar with the processes and identify risk management process. Being able an expert in an industry prior to investing. issues before they turn into crises. to identify and quickly adapt to an Our focus is on financial management and ever changing environment is critical, discipline, with a strong focus on cash When there is an indication of risk, the especially when dealing with newly flow. first step would be to scale down the acquired companies. likelihood of occurrence of the risk and its While there are many great ideas, a implications. The scaling of the risk would In the last two years ERI invested in nine good idea is only good when it is put into be done as shown in the diagram. companies and divested one company practice. We believe the key to success in its portfolio. In 2010/11 the acquired and effective risk management is having Once the risk is identified, it enters into companies increased in value and profit by the right people and being persistent to ERIs continuous risk management model implementing cost reductions, increased put good ideas into practice. which is composed of assesment and efficiencies with improved controls and processes, and also penetrated new market segments and geographical regions. Identiﬁcation of Risk “We make it Work” - How? All businesses have risk. The first step CO MM in dealing with risk is in identifying it. EW U Implementation VI N E IC The risk could be in terms of capital, R A T I O

human resources, the production/service N process, or the market itself. ERI’s Risk

M C

Managers work closely with its group O N

N S

I U

T L Assessment T

companies to properly Assess and O A T

I R O I N & Evaluation Evaluate their risks, help Plan the best NG course of action, and most importantly work together to Implement the solution. Planning The solution is achieved through constant Communication and Consultation whereby the constant Monitoring and Reviewing ensure the risk is kept in check. Environmental Resources Investment PLC Annual Report 2011/12 35

evaluation, planning, and implementation. ERI has a proactive bottom These four processors are facillitated by a chain which consists of constant up implementation approach communication to mitigate the risk that identifies risks at the followed by monitoring and review to ensure similar types of risks are root level and addresses it addressed and action has been taken, to immediately before it could other types of risks that may arise during the day to day operations of each of the affect the whole Group companies. and thereby, protects the interest of all stakeholders.

Minor Consequence Risk that can be Risks that can be safely ignored mitigated through simple change in behavior

Major Consequence Risks that could be Risks to actively mitigated identify, through insurance monitor and mitigate

Low High Likelihood Likelihood

ERI PLC - Information Flow Chart

Board of Directors

Chief Executive Oﬃcer

Compliance Department

CLPL DPL DNH PHAR OLANCOM

RISK MANAGEMENT

Company Perspective Risk Description Mitigating Strategy BUSINESS RISK Business Risk The companies ERI has acquired carry varying ∫ Business level risk has been mitigated by the Company by degrees of business associated with their acquiring businesses that are counter cyclical to each other in industries. terms of key economic drivers of their businesses. ∫ Intra-group structures and shared resource groups have been established to facilitate leveraging of opportunities and reduction of costs across all the Group’s businesses. OPERATIONAL RISK Risk of Losing Key Maintaining relationships with key suppliers ∫ The state of the relationships with the suppliers is evaluated Suppliers is imperative to the success of any business and the related cost-benefit analysis is conducted to assess that require high quality and timely input of the applicability of re-establishing any severed relationships. raw materials or services. Being subject to the Suppliers will be prioritised based on the assessment risk of severing such relationships may cause undertaken, and legal implications are also taken into a degradation of the whole operational cycle. consideration. This is especially important in the case of newly ∫ A centralized group wide payment processing system has been acquired companies that may be financially established that has considerable expertise in managing key distressed. suppliers especially in the case of dealing with newly acquired companies. Systems and Tracking In managing complex processes it is imperative ∫ The systems and processes of the companies acquired by ERI Processes that accuracy and timely records are are reviewed in terms of their ability to provide accurate and maintained. It is important that the progress timely information, and the systems are updated where this is of orders is tracked in relation to what is being deemed necessary. planned. In an environment where much of this ∫ For example most of the acquired companies did not have takes place through manual record keeping integrated ERP systems. or through a combination of differing and non-integrated systems the risk of omissions ∫ After thoroughly studying the systems of each of the and human errors can be significant. Further, companies, a significant step taken in the last financial year retrieving information for decision making and was to develop ERP systems for each of those companies. management purposes can be taxing where data is not accessible from a central point. ∫ These ERP solutions were built in-house customising them to suit the requirement of each company. ∫ This assisted the information generation process while eliminating space for fraud and human errors. Loss of Key People Human factor becomes a critical component ∫ The Company’s acquisition strategy is largely focused on in the operations of ERI. The company’s acquiring companies with quality management teams that are businesses are engaged in complex strongly incentivised to work effectively with the support of the manufacturing, technology, and financial ERI group. processes that are reliant on highly skilled employees. Environmental Resources Investment PLC Annual Report 2011/12 37

Risk Description Mitigating Strategy FINANCIAL RISK Credit and Liquidity Risk Delays and defaults from customers can tie up ∫ Ensuring the cash is collected on time and negotiating better vital funds that could be utilized to generate a credit terms is the policy of ERI in managing working capital return. The impact of this is intensified where related risk. large orders are involved from both private ∫ As most of the companies had been under the ERI umbrella and government customers, and where there for a period of more than one year, all of them had shown an is a large base of credit customers. Allowing improvement in terms of credit risk management. non-negotiated credit to customers without sufficient follow-up may lead to the Company ∫ Each company has improved significantly in managing their having insufficient funds to manage its working debtors. Not only the Marketing Departments but the Finance capital, making it necessary to borrow at short Departments play an active role in the collection process. term rates. Furthermore, this also increases the risk of foreign exchange losses, and losses due ∫ Purchasing Departments constantly coordinate with suppliers to inflation. to obtain better credit terms. All purchasing heads in the group companies coordinate with each other to find suppliers who offer the best price for commonly used material. ∫ Being in constant touch with the markets helps to pick up periods of price hikes of raw material and re-arrange the effective rotation of working capital ensuring that the operations are carried out smoothly. Exchange Rate Risk ERI group companies which import goods ∫ Exchange rate risk is beyond the control of the management. from abroad and sell to foreign countries are ∫ However, the strategies for mitigating currency risk are exposed to exchange rate risk. Due to exchange assessed based on the business characteristics of the rate fluctuations payments or receipts with individual group company, while one of the most popular foreign business partners or clients can strategies still remains to be netting. change beyond anticipated levels, when considered from a local currency basis. This ∫ Where large payments and receipts are generated from can expose a company to unanticipated levels overseas, the income and costs are netted off through an of both exchange gains and losses. A sharp international currency. depreciation of the rupee following a float of the currency that occurred towards the end of this ∫ Other hedging techniques are considered based on risk financial year, had a major impact on the cash exposure and transaction volume. flows of several companies. Management Discussion and Analysis | Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | 38 Sustainability Report | Financial Reports | Annual Report of the Board of Directors | Statement of Directors’ Responsibility

RISK MANAGEMENT

Risk Description Mitigating Strategy REPUTATIONAL RISK Reputational Risk Maintaining a sound reputation is very ∫ Reputational damage takes time and work to heal. In instances important to sustain business, as this where ERI acquires a company that has already been subjected affects how the stakeholders see a particular to reputational damage, this has to be considered on a organization. Most reputational issues that situational basis. In majority of the times, what is important damage the operations of a business stem out is that the causes for reputational damage are identified, of the inability to provide the promised goods or and a suitable rectification strategy is implemented. In many services on time, or delays in making necessary instances, this means that weakened business processes need payments. to be strengthened, necessary funds need to be deployed to rejuvenate vital functions of the Company and any necessary There are several organizations under the payments (such as payments due to creditors) need to be ERI umbrella that suffered from reputational made. damage at the time of acquisition, mainly due to the factors mentioned above. ∫ There can be instances where open communication with regulatory bodies is established to rectify any damage to regulatory compliance. ∫ Continuing to protect the good reputation of the subsidiaries under the Group means to constantly keep the processes of our subsidiaries under check through internal compliance procedures and monitoring. REGULATORY RISK Regulatory Risk Regulatory risk is with reference to the failure to ∫ The Company and its employees at all levels are committed to comply with the increasing array of regulatory comply with the regulatory requirements and to maintain the requirements and expectations. As a public compliance with the regulatory framework. quoted company, regulations implemented ∫ Audit committee reviews the quarterly financial and compliance by the Companies Act, CSE, SEC etc. will have reports in order to ensure the regulatory compliance and a direct impact. Following procedures are put adherence to internal control procedures. in place to ensure that all regulatory risks are complied with. ∫ The Company has engaged the services of a separate legal officer, an Attorney at Law by profession, who is responsible for company’s compliance with all the laws and regulations. ∫ A dedicated full time compliance person with extensive knowledge and experience in corporate law is working with the compliance team to ensure all statutory reporting is done promptly. ∫ An experienced person in Human Resources Management is handling all employee related matters to avoid labour law related issues. Environmental Resources Investment PLC Annual Report 2011/12 39

GOVERNANCE

Corporate Governance controls that stifles growth. Furthermore, they behold effective Governance as a vital CHAIRMAN`S MESSAGE element which strikes a balance between ERI Governance philosophy provides accountability, control and assurance guidelines for the Directors and and value creation (performance). These Management in forming the core two components together referred operations of the Company as well as to as enterprise Governance, form upholding the institutionalised spirit which the accountability framework of the cascades in implementing strategies organisation. and proper internal control systems of As the person who is responsible for the Company. In practice we strive to running the Board I understand my role assure the trust that our shareholders, in preserving good Corporate Governance customers, employees and community within the enterprise which is crucial and have placed in us especially in complying affirm that the Board of Directors to the with generally accepted Corporate best of their knowledge and belief is also Governance practices as well as specific satisfied that the Company operates and requirements under the Listing Rules of observes high ethical standards as an the Colombo Stock Exchange, the Code active, not a passive responsibility. of Best Practices issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka on matters relating to Corporate Governance. Sgd. The Board of Directors of the Company Lalith Heengama perceives good Governance as an Chairman uncompromising pursuit that provides assurance and comfort for growth in 15 August 2012 a sustainable manner; not as a set of Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 40 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

CORPORATE GOVERNANCE

The Company is bound by the generally Mr. Gregory Scott Newsome. The members independent judgement upon matters accepted Corporate Governance practices consider that the Board is well structured relating to strategies and including and as well as specific regulatory requirements with an appropriate mix of expertise not limited to above matters. In addition, under the listing rules of the Colombo and experience to discharge their Special Board meetings are held as and Stock Exchange and the Code of Best responsibilities. when required especially when there are Practices issued jointly by the Institute of pressing corporate or commercial matters Chartered Accountants of Sri Lanka and Each Non-Executive Director has to be discussed and decided upon. the Securities and Exchange Commission submitted a declaration of his of Sri Lanka. In its continuous search for independence or Non-Independence as Attendance at the Board and sub upholding good Governance, the Company required under the Listing Rules of the committee meetings is set out below: embraces the said best practices on its Colombo Stock Exchange. own and the compliance and adherence to The Board has resolved, taking into Company Secretaries those rules are specifically and distinctly account all the circumstances, that Mr. PW Corporate Secretarial (Pvt) Ltd. elaborated in the compliance table in the Gamini Sarath Munasinghe and Mr. Heen acts as the Company Secretaries being Governance section of the Annual Report. Banda Dissanayake can be classified appointed to the said position on as Independent Directors although they 01 November 2011 prior to which Board of Directors serve on the Boards of other subsidiary Secretaries and Registrars (Pvt) Ltd. The Board, comprising of professional companies of ERI in which a majority functioned as the Company Secretaries. and experienced business leaders with of the other members of the Board are Both P W Corporate Secretarial (Pvt) high repute, provides strategic direction also Directors since they are not directly Ltd. and Secretaries and Registrars (Pvt) to the Company. While understanding involved in the management of the Ltd. are qualified Company Secretaries. the commitment towards the policy Company, and being Directors of other The Company Secretaries attend Board of responsible Governance, the Board Companies would not dissatisfy that they Meetings and ensure that minutes are provides the required effort, care, are independent. kept of all proceedings at each Board oversight and analysis in countenancing Meeting. The Company Secretaries advise the Board and ensure that proper the current challenges and opportunities Board Meetings and procedures and applicable rules and to take the organization forward with the Attendance of Directors regulations are followed by the Board. Senior Management team. Board Meetings are scheduled to consider among other matters, the performance Board Composition and Financial Statements for the Audit Committee The Board of Directors presently period and to approve routine capital The Audit Committee is responsible for comprises of four Non-Executive Directors expenditure. This creates an atmosphere considering how it should select and and two Executive Directors namely that encourages healthy debate by all the apply accounting policies, internal control Dr. Kosala Heengama and members of the Board and the Chairman and monitoring the integrity of Financial ensures that each Director bears Statements of the Company by ensuring

Name of Director Directorship Status Main Audit Remuneration Board Committee Committee Total number of meetings held: 7 3 1 Mr. Lalith Heengama Non–Executive/Non-Independent 7/7 3/3 1/1 Dr. Kosala Heengama Executive 7/7 N/A N/A Mr. Gregory Scott Newsome Executive 7/7 N/A N/A Mr. Heen Banda Dissanayake Non–Executive/Independent 7/7 3/3 1/1 Mr. Gamini Sarath Munasinghe Non–Executive/Independent 5/7 3/3 1/1 Mr. Kelly T Ehler (Appointed on 20/12/2011) Non-Executive/Non-Independent 2/3 1/1 N/A Environmental Resources Investment PLC Annual Report 2011/12 41

compliance with relevant financial the compensation for the Chief Executive reporting regulations and requirements. Officer, the Chief Financial Officer and Further it assists the Board in the effective other senior executives , including base discharge of its responsibilities on risk salaries, bonus and any incentive plans, management, too. The Audit Committee deferred compensation and retirement also oversees the appropriate relationship plans and share purchase or issuance between the Company and the Auditor and plans including stock options. Further the reviews the Company’s financial reporting attention of the committee was drawn to system. areas of succession planning, including the appointment, training and evaluation The Board has appointed an Audit of senior management and compensation Committee consisting of Non-Executive of Directors. Directors which was chaired by Mr. H. B. Dissanayake and is currently chaired by The Board has appointed a Remuneration Mr. Kelly T. Ehler, a qualified Chartered Committee consisting of three Non- Accountant. A comprehensive Report Executive Directors. Report of the of the Audit Committee appears on the Remuneration Committee appears on the Governance section of the Annual Report. Governance section of the Annual Report.

The names of the members of the Audit The names of the members of the Committee are given below. Remuneration Committee are given below.

Remuneration Committee Going Concern The Remuneration Committee assists The Board after reviewing the financial the Board in fulfilling its oversight position and cash flow of the Company responsibilities with respect to the and its subsidiaries, confident that establishment of key human resources the Company and its subsidiaries have and compensation policies, including all adequate resources to continue their incentive and equity based compensation operations in the foreseeable future and plans, the performance evaluation of the directors have adopted the going the Chief Executive Officer and the Chief concern basis in preparing the accounts. Financial Officer, and determination of

The Audit Committee consists of: Mr. H. B Dissanayake (Former Chairman) Non-Executive/Independent Director Mr. G. S Munasinghe Non-Executive/Independent Director Mr. Lalith Heengama Non-Executive/Non-Independent Director (Resigned at the 3rd Meeting) Mr. Kelly T. Ehler (Chairman) Non-Executive/Non-Independent Director (Appointed at the 3rd Meeting)

The Remuneration Committee consists of: Mr. G. S Munasinghe (Chairman) Non-Executive/Independent Director Mr. H. B Dissanayake Non-Executive/Independent Director Mr. Lalith Heengama Non-Executive Director Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 42 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

CORPORATE GOVERNANCE

Compliance Statements of Compliance of the Principles under the Listing Rules of Colombo Stock Exchange and the Code of Best Practice of Corporate Governance jointly issued by the Securities and Exchange Commission of Sri Lanka and The Institute of Chartered Accountants of Sri Lanka are specified below:

The Company’s Level of Compliance with the CSE’s New Listing Rules is given below.

Corporate Governance Principles CSE Rule Reference Compliance Status Company’s Level of Compliance Non-Executive Directors 7.10.1 Compliant Four (04) out of six (06) Directors are Non-Executives Independent Directors 7.10.2 (a) Compliant Two (02) out of four (04) Non-Executive Directors are 7.10.2 (b) Independent. Each Non-Executive Director has submitted a declaration of his Independence or Non-Independence as required under the Listing Rules of the CSE Disclosures Relating to Directors 7.10.3 Compliant Given under the section of “Board of Directors” of the Annual Report. Remuneration Committee 7.10.5 (a) The Committee comprises of three (03) Non-Executive Directors, Majority of whom are Independent. 7.10.5 (b) Compliant Please refer Remuneration Committee Report in the 7.10.5 (c) Governance section of the Annual Report. The aggregate remuneration paid to Executive and Non- Executive Directors is given on Note 35 of the Financial Statements. Audit Committee 7.10.6 (a) The Committee comprises of three (03) Non-Executive Directors, majority of whom are Independent. Representatives from the Senior Management attented the respective meetings by invitation. 7.10.6 (c) Compliant Please refer Report of the Audit Committee in the Governance section of the Annual Report. Environmental Resources Investment PLC Annual Report 2011/12 43

The Company’s Level of Compliance with the Code of Best Practices on Corporate Governance is Given Below:

SECTION 1: THE COMPANY A. DIRECTORS A.1 The Board Every public company should be headed by an effective Board, which should direct, lead and control the Company.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.1.1 The Board should meet regularly. Board Compliant The Board meets regularly according to the pre-agreed plans, which meetings should be held at least once in includes at least a quarterly meeting and additionally as and when every quarter of a financial year. there are pressing corporate or commercial matters to be considered or decided upon. The Board has met seven (07) times during the financial year under review. A.1.2 The Board should be responsible for Compliant The Board provides stewardship, vision and strategic direction matters including: to the Group and fosters a culture of integrity, transparency and accountability across the Group. A review of marketing, financial, ∫ ensuring the formulation and business and other strategies and their implementation takes implementation of a sound business place during the Board meetings. The Board also meets the Group strategy; Management Committee at least once a year in order to provide direction on matters relating to strategic formulation. One of the Board’s responsibilities is to monitor the effectiveness of management policies and decisions, including the implementation of strategies. ∫ ensuring that the Chief Executive Compliant The Board ensures that the Chief Executive Officer and Management Officer (CEO) and Management Team Team possess the skills required to implement the overall strategy possess the skills, experience and by evaluating competencies of potential candidates and assess their knowledge to implement the strategy; suitability for the position and thereafter providing constant guidance and supervision. The Directors are from diverse backgrounds and bring in a wide range of competencies and skills that facilitate the effective discharging of their responsibilities. ∫ ensuring the adoption of an effective Compliant A key responsibility of the Board of Directors is to ensure that the CEO and Senior Management organization has the ability to sustain excellence in CEO leadership succession strategy; over time, with smooth transition from one leader to the next. This process is pivotal as CEO and Senior Management succession impact company culture, Board/CEO relations and perception from multiple constituencies inside and outside the business. In this context, the Board ensures the monitoring of performance of its CEO and Senior Management by periodic reviews on both financial and non-financial objectives as well as challenging assignments in the unique and diverse business fields that the Group operates in and its delivery effectiveness. ∫ ensuring effective systems to secure Compliant The Annual Report has discussed this in detail under the Risk integrity of information, internal Management section of the Annual Report. controls and risk management; The Board monitors and evaluates risks and performance, approves all important investment decisions and is also responsible for the measurable internal financial controls. ∫ ensuring compliance with laws, Compliant The Board follows a policy of strict compliance with laws and regulations and ethical standards; regulatory requirements and ensures that stakeholder interests are safeguarded in key corporate decisions. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 44 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

CORPORATE GOVERNANCE

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status ∫ ensuring all stakeholder interests are Compliant In addition to fulfilling its obligations for increased stakeholder value, considered in corporate decisions; the Board has responsibility towards its customers, employees, suppliers and to the community in which it operates all of whom are essential to the success of the Company as well as the group companies. The Board relies on the integrity and due diligence of Senior Management, Auditors and Advisors to oversee the Group’s overall performance. ∫ ensuring that the company’s values Compliant The Code of Ethics demands strict compliance on financial reporting and standards are set with emphasis and any non-compliance with laws and/or ethics needed to be on adopting appropriate accounting reported to the Audit Committee. policies and fostering compliance with The details are available on the Statement of Directors’ financial regulations; and Responsibilities of the Financial Reports section. ∫ fulfilling such other Board functions as Compliant The size and the scale of the organization demands proficiency in are vital, given the scale, nature and process control and implementation, proper delegation and clear complexity of the business concerned communication between the Board and the individual group leader. A.1.3 The Board collectively, and Directors Compliant The Board is responsible in determining that the Company is individually, must act in accordance with managed in the best interest of the shareholders, while adhering to the laws of the country, as applicable to the laws of the jurisdiction, within which it operates, and observing the business enterprise. There should high ethical standards. be a procedure agreed to by the Board Further the Board seeks advice from third party experts at the of Directors, to obtain independent Company’s expense as and when such advice is required. professional advice where necessary, at the Company’s expense. A.1.4 All Directors should have access to the Compliant The Company Secretary assists the Chairman in all aspects pertaining advice and services of the Company to the functions of the Board. Also helps in arranging the Board Secretary, who is responsible to the Meetings and in making available all the information necessary for the Board in ensuring that Board procedures Board to have in their deliberations. are followed and that applicable rules Members of the Board have unrestricted access to the advice and and regulations are complied with. Any services of the Company Secretary. The Company Secretary ensures question of the removal of the Company that Board procedures and all applicable rules and regulations are Secretary should be a matter for the followed. Board as a whole. Environmental Resources Investment PLC Annual Report 2011/12 45

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.1.5 All Directors should bring independent Compliant The Chairman plays a key role in ensuring that views of all Directors judgment to bear on issues of strategy, are sought during the Board Meetings in order to bring each Director’s performance, resources (including independent judgment to bear upon on matters relating to strategy, key appointments) and standards of performance, resources and business conduct. business conduct. As individuals and as a whole the Directors are committed to uphold the values of fair business practices thus ensuring confidentiality, fair dealing and compliance with laws and regulations.

A. 1.6 Every Director should dedicate adequate Compliant The Chairman, Executive and Non-Executive Directors are committed time and effort to matters of the Board to discharging their duties as Directors of the Company and ensure and the Company, to ensure that the that adequate time and attention are given to make their contribution duties and responsibilities owed to the effective. Company are satisfactorily discharged. The Board Papers and the agenda are received by the Directors prior It must be recognised that Directors to the Board Meetings, thus enabling the Directors of the Company to have to dedicate sufficient time before make any clarifications ahead of the meetings. a meeting to review Board Papers and call for additional information and clarification, and after a meeting to follow up on issues consequent to the meeting. This should be supplemented by a time allocation for familiarisation with business changes, operations, risks and controls. A.1.7 Every Director should receive appropriate Compliant Opportunity is given to the Directors to familiarize and gain an in- training when first appointed to the depth understanding of the Company’s business, strategy, risks and Board of a company, and subsequently processes. as necessary. Training curricular should Training is provided for the Executive Directors in order to carry out encompass both general aspects of their responsibilities more effectively. This includes training provided directorship and matters specific to the by principals, external and in-house training. particular industry/company concerned. A Director must recognize that there is Directors are updated on changes in law and regulations, tax laws and a need for continuous training and an accounting standards. expansion of the Knowledge and skills required to effectively perform his duties as a Director. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 46 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

CORPORATE GOVERNANCE

A.2 Chairman and Chief Executive Officer Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.2 There are two key tasks at the top of Compliant The positions of the Chairman and the CEO have been separated. every public company – conducting of The Chairman plays the key task of conducting the business of the the business of the Board, and facilitating Board and the Chief Executive Officer plays the key task of facilitating executive responsibility for management responsibilities to the management in furtherance of the Company’s of the Company’s business. There should business goals. be a clear division of responsibilities as the head of the Company, which will ensure a balance of power and authority such that no one individual has fettered powers of decision. A.2.1 A decision to combine the posts of Compliant The positions of Chairman and CEO are separated.. Chairman and CEO in one person should be justified and highlighted in the Annual Report.

A.3 Chairman’s Role The Chairman’s role in preserving good Corporate Governance is crucial. As the person responsible for running the Board, the Chairman should preserve order and facilitate the effective discharge of Board’s functions.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.3.1 The Chairman should conduct Board Compliant Board meetings are held in a conducive environment which facilitates proceedings in a proper manner and healthy debate by all the Board members. The Chairman provides ensure, inter-alia, that: leadership to the Board and ensures that there is an effective contribution from the Directors, where their individual contributions ∫ the effective participation of both are taken into consideration and objectively assessed prior to key Executive and Non- Executive Directors decision making. is secured; The Chairman ensures that Executive and Non-Executive Directors ∫ all Directors are encouraged to make are given the opportunity to give their views on the matters and an effective contribution, within their provide opportunity for effective participation, thus maintaining the respective capabilities, for the benefit of balance of power between Executive and Non-Executive Directors. the Company; Board members are free to contribute towards the inclusion of items ∫ a balance of power between Executive in the agenda of Board meetings and carry out the duties of the and Non- Executive Directors is Company without any undue influence from other parties. maintained; The Chairman satisfies himself that the information available ∫ the views of Directors on issues under to the Board is sufficient to make the informed assessment of consideration are ascertained; and the Company’s affairs as well as to discharge their duties to all ∫ the Board is in complete control of stakeholders. the Company’s affairs and alert to its obligations to all shareholders and other stakeholders. Environmental Resources Investment PLC Annual Report 2011/12 47

A.4 Financial Acumen The Board should ensure the availability within it of those with sufficient financial acumen and knowledge to offer guidance on matters of finance.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.4 Availability of sufficient financial acumen Compliant The Board has adequate number of Directors who possess a wide and knowledge range of financial acumen, expertise and qualifications that allow them to offer requisite guidance to the Board on matters of finance.

A.5 Board Balance It is preferable for the Board to have a balance of Executive and Non-Executive Directors such that no individual or small group of individuals can dominate the Board’s decision-taking.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.5.1 The Board should include Non-Executive Compliant The composition of the Board of Directors meets the number of Directors of sufficient calibre and Executive and Non-Executive Directors required by this Code and the number for their views to carry significant Listing Rules of the Colombo Stock Exchange. weight in the Board’s decisions. The Four (04) out of six (06) Directors are Non-Executive and two (02) Board should include at least two Non- are Executive members. A new Non-Executive Director was appointed Executive Directors or such number of during the year under review while maintaining the required balance Non-Executive Directors equivalent to of Executive and Non-Executive Directors on the Board. one third of total number of Directors, whichever is higher. In the event the Chairman and CEO is the same person, Non-Executive Directors should comprise a majority of the Board. A.5.2 Where the constitution of the Board Compliant Two (02) out of four (04) Non-Executive Directors are Independent of Directors includes only two Non- Directors. Executive Directors, both such Non-Executive Directors should be ‘Independent’. In all other instances two or one third of Non-Executive Directors appointed to the Board of Directors whichever is higher should be ‘Independent’. A.5.3 For a Director to be deemed Compliant When determining the Independence of Non-Executive Directors the ‘Independent’ such Director should be Board also takes into account the factors set out in this section. independent of management and free of any business or other relationship that could materially interfere with or could reasonably be perceived to materially interfere with the exercise of their unfettered and independent judgment. A.5.4 Each Non-Executive Director should Compliant The requisite declaration form/s had been submitted by the submit a signed and dated declaration Non-Executive Directors, which were used for determining the annually of his/her independence or Independence and Non-Independence of the Non-Executive Non-Independence against the specified Directors. criteria set out in the specimen in schedule H. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 48 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

CORPORATE GOVERNANCE

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.5.5 The Board should make a determination Compliant The Board determines the independence and Non-Independence annually as to the independence or Non- of the Non-Executive Directors, based on the requisite declarations Independence of each Non-Executive submitted by them. It is explained in detail in the Governance section Director based on such a declaration of the Annual Report. made on decided criteria and other information available to the Board, and should set out in the Annual Report the names of directors determined to be ‘Independent’. The Board should specify the criteria not met and the basis for its determination in the Annual Report, if it determines that a Director is Independent notwithstanding the existence of relationships or circumstances which indicate the contrary. A.5.8 The Chairman should hold meetings with Compliant Chairman meets the Non-Executive Directors without the Executive the Non-Executive Directors only, without Directors in order to discuss issues pertaining to functioning of the the Executive Directors being present, as Company. Also, when the need arises Chairman seeks the advice of necessary and at least once each year. the Independent Directors to obtain views with regards to important matters. A.5.9 Where Directors have concerns about the Compliant The Board Meetings Minutes are prepared by the Company Secretary. matters of the Company which cannot be The Board Minutes include concerns raised by Directors and the unanimously resolved, they should ensure ultimate unanimous decisions of the Board and the Minutes are their concerns are recorded in the Board circulated to all Directors and adopted at the subsequent Board Minutes. Meetings.

A.6 Supply of Information The Board should be provided with timely information in a form and of a quality appropriate to enable it to discharge its duties.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.6.1 Management has an obligation to provide Compliant All the Board Members including Non-Executive Directors are the Board with appropriate and timely provided with information on the operations and performance of information, but information volunteered the Company on a monthly basis. This helps to prevent asymmetry by management may not be enough in between Executive Directors and Non-Executive Directors. all circumstances and Directors should The Chairman ensures that the background is set for discussions make further inquiries where necessary. at Board Meetings and the subject is introduced if the Board The Chairman should ensure all Directors members have not attended the meeting previously. Furthermore the are properly briefed on issues arising at Management also makes itself available on call to respond to queries Board Meetings. raised at Board Meetings and to provide additional information as and when required by the Board Members. A.6.2 The minutes, agenda and papers required Compliant In addition to the agenda of the Board Meeting and the minutes of for a Board Meeting should ordinarily be the previous Meeting, the Directors are provided with comprehensive provided to Directors at least seven (7) data on financial and non-financial information by the Management days before the meeting, to facilitate its at least seven (07) days prior to the date of the regular meeting. effective conduct. Additional information could be requested by any member of the Board as and when needed. Environmental Resources Investment PLC Annual Report 2011/12 49

A.7 Appointments to the Board There should be a formal and transparent procedure for the appointment of new Directors to the Board.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.7.2 The Nomination Committee or in the Compliant A Board approved procedure is in place to evaluate the Board- absence of a nomination committee the composition to ascertain that the combined knowledge and Board as a whole, should annually assess experience of the Board meet the strategic demands of the Company board-composition to ascertain whether and utilize such findings in considering and finalizing the new Board the combined knowledge and experience appointments and re-elections. of the Board matches the strategic demands facing the Company. The finding of such assessment should be taken into account when new Board appointments are considered and when incumbent Directors come up for re-election. A.7.3 Upon the appointment of a new Director Compliant Mr. Kelly T. Ehler, a new Director was appointed to the Directorate of to the Board, the Company should the Company w.e.f. 20 December 2011 to hold office until the next forthwith disclose to shareholders: Annual General Meeting. A disclosure has been made to the Colombo ∫ a brief resume of the Director; Stock Exchange accordingly. ∫ the nature of his experience in the Please refer Section on ‘Profiles of the Directors’ in this Annual Report relevant functional areas; for a brief profile of each of the Directors. ∫ the names of companies in which the Director holds directorships or memberships in Board Committees; and ∫ whether such Director can be considered “Independent”

A.8 Re-Election All Directors should be required to submit themselves for re-election at regular intervals and at least once every three years.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.8.1 Non-Executive Directors should be Compliant In terms of the Articles of Association, one third of the Directors, appointed for specified terms subject to except for the Managing Director, retire in rotation and may offer re-election and to the provisions in the themselves to be re-elected at the Annual General Meeting. By Companies Act relating to the removal advantage of being the Managing Director, the Chairman is not of a Director, and their re-appointment required to make himself available for re-election as per the Articles. should not be automatic. A.8.2 All Directors including the Chairman of Compliant The Company’s Articles of Association provides that any Director the Board, should be subject to election appointed by the Board to hold office until the next Annual General by shareholders at the first opportunity Meeting (AGM), may seek reappointment by the shareholders at the after their appointment, and to re- said AGM. election thereafter at intervals of no more than three years. The names of Directors submitted for election or re-election should be accompanied by a resume minimally as set out in paragraph A.7.3 above, to enable shareholders to make an informed decision on their election. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 50 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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A.10 Disclosure of Information in Respect of Directors Shareholders should be kept advised of relevant details in respect of Directors.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.10.1 The Annual Report of the Company Compliant should set out the following information in relation to each Director. ∫ Name, qualifications and brief profile; Available under Directors’ Profiles section of the Annual Report. ∫ The nature of his/her expertise in Available under Directors’ Profiles section of the Annual Report. relevant functional areas; ∫ Immediate family and/or material Mr. Lalith Heengama and Dr. Kosala Heengama fall within the business relationships with other definition of ‘close family members’ of the Code. Directors of the Company; ∫ Names of listed companies in Sri Lanka Available under Directors’ Profiles section of the Annual Report. in which the Director concerned serves as a Director; ∫ Names of other companies in which Available under Directors’ Profiles section of the Annual Report. the Director concerned serves as a Director, provided that where he/she holds directorship in companies within a Group of which the Company is a part, their names need not be disclosed; it is sufficient to state that he/she holds other directorships in such companies; ∫ Number/percentage of board meetings The details are available under the attendance of the Directors in the of the Company attended during the Governance section of the Annual Report. year; ∫ Names of Board Committees in which The details are available under Governance section of the Annual the Director serves as Chairman or a Report. member; and ∫ Number/percentage of Committee The details are available under the attendance of the Directors in the Meetings attended during the year. Governance section of the Annual Report.

A.11 Appraisal of Chief Executive Officer (CEO) Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status A.11 The Board should be required, at least Compliant Mr. Eric Bird Wikramanayake, the present Chief Executive Officer annually, to assess the performance of assumed office from 06 January 2012. The Board will carry out the the CEO. appraisal of his performance at the end of year 2012. Environmental Resources Investment PLC Annual Report 2011/12 51

B. Directors’ Remuneration B.1 Remuneration Procedure Companies should establish a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his/her own remuneration.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status B.1.1 To avoid potential conflicts of interest, Compliant The framework and policy on remuneration of the Chairman, Executive the Board of Directors should set up Directors, Chief Executive Officer and Senior Management are decided a Remuneration Committee to make by the Remuneration Committee. recommendations to the Board, within The Board of Directors appoints members to the Remuneration agreed terms of reference, on the Committee. Company’s framework of remunerating Executive Directors (These also include The Board of Directors has set the terms of reference of the Post-Employment Benefits as well as Remuneration Committee in line with this Code. Terminal Benefits). Terms of Reference for Remuneration Committees are set Attendance Details of the members at the Remuneration Committee out in schedule C. Meeting is disclosed in the Governance section of the Annual Report. B.1.2 Remuneration Committees should Compliant The Chairman of the Remuneration Committee, who is appointed by consist exclusively of Non-Executive the Board, is an Independent Director. Directors, and should have a Chairman, The present Committee consists of three (03) Non–Executive who should be appointed by the Board. Directors out of which two (02) are Independent Directors. The composition of the Remuneration Committee meets the requirements of the CSE Listing Rules. B.1.3 The Chairman and members of the Compliant Names of the members of the Remuneration Committee are available Remuneration Committee should be in the Governance section of the Annual Report. listed in the Annual Report each year. B.1.4 The Board as a whole, or where required Compliant The Board of Directors determines the remuneration of by the Articles of Association the Non-Executive Directors. shareholders, should determine the remuneration of Non-Executive Directors, including members of the Remuneration Committee, within the limits set in the Articles of Association. Where permitted by the Articles, the Board may delegate this responsibility to a sub-committee of the Board, which might include the CEO. B.1.5 The Remuneration Committee should Compliant The remuneration of the Executive Directors is recommended by the consult the Chairman and/or CEO about Remuneration Committee in consultation with the Chairman. its proposals relating to the remuneration of other Executive Directors and have access to professional advice from within and outside the Company, in discharging their responsibilities. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 52 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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B.2 The Level and Make Up of Remuneration The Company’s Annual Report should contain a Statement of Remuneration Policy and details of remuneration of the Board as a whole.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status B.2 Levels of remuneration of both Executive Compliant The remunerations of Executive Directors and Non-Executive and Non-Executive Directors should Directors have been decided in recognition of their contribution be sufficient to attract and retain the towards the overall decision making process of the Board and Directors needed to run the Company providing advice and assistance in achieving the strategic objectives successfully. A proportion of Executive of the Company. No share options have been offered to Executive Directors’ remuneration should be Directors. structured to link rewards to corporate and individual performance.

B.3 Disclosure of Remuneration The Company’s Annual Report should contain a Statement of Remuneration Policy and details of remuneration of the Board as a whole.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status B.3.1 The Annual Report should set out the Compliant The remuneration details are stated in the Note 35 of the Financial names of Directors (or persons in the Statements. parent company’s committee in the case of a group company) comprising the Remuneration Committee, contain a statement of remuneration policy and set out the aggregate remuneration paid to Executive and Non-Executive Directors. Environmental Resources Investment PLC Annual Report 2011/12 53

C. Relations with Shareholders C.1 Constructive Use of the Annual General Meeting (AGM) and Conduct of General Meetings Boards should use the AGM to communicate with shareholders and should encourage their participation.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status C.1.1 Companies should count all proxy Compliant A Form of Proxy is attached to the Annual Report, when it is sent votes and should indicate the number to the shareholders. The Chairman makes an announcement of of proxies lodged on each resolution, the proxies received at the commencement of the Annual General and the balance for and against the Meeting. resolution, after it has been dealt with on a show of hands, except where a poll is called. C.1.2 Companies should propose a separate Compliant The Company proposes a separate resolution at the AGM on each resolution at the AGM on each substantial separate issue, including for the adoption of the Financial substantially separate issue and should Statements. in particular propose a resolution at the AGM relating to the adoption of the report and accounts. C.1.3 The Chairman of the Board should Compliant The Annual General Meeting acts as a forum where shareholders’ arrange for the Chairmen of the issues are raised. The Chairmen of all the Committees are usually Audit, Remuneration and Nomination present. Committees to be available to answer questions at the AGM if so requested by the Chairman. C.1.4 Companies should arrange for the Notice Compliant The Notice of AGM and related documents have been dispatched to of the AGM and related papers to be the shareholders fifteen (15) working days prior to the AGM, as per sent to shareholders as determined by section 135 of the Companies Act No. 07 of 2007. statute, before the meeting. C.1.5 Companies should circulate with every Compliant The Notice of meeting outlines the procedure relating to voting at the Notice of General Meeting, a summary AGM. Every shareholder is entitled to one vote per share. of the procedures governing voting at General Meetings.

C.2 Major Transaction Further to compliance with the requirements under the Companies Act, Directors should disclose to shareholders all proposed corporate transactions which, if entered into, would materially alter/vary the Company’s net asset base or in the case of a Company with subsidiaries, the consolidated Group net asset base.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status C.2.1 Prior to a Company engaging in or Compliant The major transaction occurred during the year under review has been committing to a ‘Major Transaction’, notified to the shareholders appropriately. involving the acquisition, sale or disposition of greater than half of the net value of the Company’s assets or that of a subsidiary which has a material bearing on the consolidated net assets of the Company, the Directors should disclose to shareholders all material facts of such transaction. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 54 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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D. Accountability and Audit D.1 Financial Reporting The Board should present a balanced and understandable assessment of the Company’s financial position, performance and prospects.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status D.1.1 The Board’s responsibility to present a Compliant In preparing of Annual and Quarterly Financial Statements, the balanced and understandable assessment Company complies with the requirements of the: extends to interim and other price-sensitive ∫ Companies Act No. 07 of 2007 public reports and reports to regulators, ∫ Sri Lanka Accounting Standards, and as well as to information required to be presented by statutory requirements. ∫ Listing Rules of the Colombo Stock Exchange. The Annual and Interim Financial Statements are published within the time periods prescribed by the Listing Rules of the Colombo Stock Exchange. Given below is a table containing the dates on which the annual and Interim Financial Statements were uploaded to the CSE website/dispatched to the shareholders, during the year under review.

Description Submission Date Status Annual Report for the Year Ended 31 March 2011 30 August 2011 Compliant 1st Quarter Interim Financial Statements 12 August 2011 Compliant 2nd Quarter Interim Financial Statements 8 November 2011 Compliant 3rd Quarter Interim Financial Statements 15 February 2012 Compliant 4th Quarter Interim Financial Statements 31 May 2012 Compliant D.1.2 The Directors’ Report, which forms part of the Compliant The Declarations by the Directors required by this section have Annual Report, should contain declarations by been made in the Financial Reports section of the Annual Report. the Directors to the effect that: ∫ the Company has not engaged in any activity which contravenes laws and regulations; ∫ the Directors have declared all material interests in contracts involving the Company and refrained from voting on matters in which they were materially interested; ∫ the Company has made all endeavours to ensure the equitable treatment of shareholders; ∫ the business is a going concern, with supporting assumptions or qualifications as necessary; and Environmental Resources Investment PLC Annual Report 2011/12 55

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status ∫ they have conducted a review of the internal controls, covering financial, operational and compliance controls and risk management, and have obtained reasonable assurance of their effectiveness and successful adherence therewith, and, if it is unable to make any of these declarations, to explain why it is unable to do so. D.1.3 The Annual Report should contain a Compliant The Statement of the Directors’ Responsibilities for Financial statement setting out the responsibilities Statement is stated under the Financial Reports section of the of the Board for the preparation and Annual Report. presentation of Financial Statements, The Auditors’ Responsibilities regarding the Annual Financial together with a Statement by the Auditors Statements are outlined in the Auditors’ Report of the Annual about their reporting responsibilities. Report. D.1.4 The Annual Report should contain a Compliant The Board endeavours to present a balanced and an objective “Management Discussion & Analysis”, assessment of the Company’s position and performance. discussing, among other issues: Information required by this section is included in the Annual ∫ industry structure and developments; Report. ∫ opportunities and threats;

∫ risks and concerns; ∫ internal control systems and their adequacy; ∫ social and environmental protection activities carried out by the Company; ∫ financial performance; ∫ material developments in human resource / industrial relations; and ∫ prospects for the future. D.1.5 The Directors should report that the Compliant Information on the Board’s determination of the entry as a going business is a going concern, with supporting concern is included in the Governance section of the Annual assumptions or qualifications as necessary. Report. The matters to which the Board should give due consideration when adopting the going concern assumption are set out in Schedule E to this Code. D.1.6 In the event the net assets of the Company Compliant This situation did not arise during the financial year under review. fall below 50% of the value of the Company’s shareholders’ funds, the Directors shall forthwith summon an Extraordinary General Meeting of the Company to notify shareholders of the position and of remedial action being taken. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 56 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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D.2 Internal Control Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status D.2 The Board should maintain a sound Compliant The Board has maintained an internal control mechanism as reviewed system of internal control to safeguard by the Audit Committee annually. shareholders’ investments and the Company’s assets

D.3 Audit Committee The Board should establish formal and transparent arrangements for considering how they should select and apply accounting policies, financial reporting and internal control principles and maintaining an appropriate relationship with the Company’s Auditors.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status D.3.1 The Audit Committee should be Compliant The Audit Committee consists of three (03) Non-Executive Directors, comprised of a minimum of two majority of whom are Independent. The composition of the Audit independent Non-Executive Directors (in Committee meets the requirements of the CSE Listing Rules and this instances where a company has only two Code. directors on its Board) or exclusively by Non-Executive Directors, a majority of whom should be independent, whichever is higher. The Chairman of the Committee should be a Non-Executive Director, appointed by the Board. D.3.2 The duties of the Audit Committee Compliant The Audit Committee is a sub-committee of the Board and its should include keeping under review the main purpose is to assist the Board in the effective discharge of scope and results of the audit and its its responsibilities on financial reporting, risk management and effectiveness, and the independence and corporate control. It assists the Board in monitoring compliance with objectivity of the Auditors. Where the applicable laws and other regulatory requirements. Auditors also supply a substantial volume The Audit Committee plays a crucial role in reviewing the effectiveness of non-audit services to the Company, of the internal control systems. The methods by which the Audit the Committee should keep the nature Committee satisfies itself that it is operating effectively are given and extent of such services under below: review, seeking to balance objectivity, independence and value for money. ∫ Clear organisational structures with assigned responsibilities and set objectives; ∫ Representations from Executive Management; ∫ Budgetary Control; ∫ Approval Procedures for Capital Expenditure and Investments; ∫ Review of Information called for Board Meetings; ∫ Discussions with External Auditors ∫ Code of Ethics; and ∫ Assessment of situations of potential conflicts of interest, if any. The appointment/reappointment of the External Auditors is based on the recommendations by the Audit Committee. The Audit Committee if required, recommends to the Board, the removal of Auditors. Environmental Resources Investment PLC Annual Report 2011/12 57

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status The Committee also evaluates the performance of the External Auditors, reviews the terms of engagement and fees of the Auditors of the audit. The fees paid to the External Auditors on account of audit related services and non-audit services are also reviewed by the company. Based on the provisions of Section 3 of the guideline for Appointment of Auditors of Listed Companies, issued by the Securities and Exchange Commission, the Audit Committee determines that the external auditors possess the required independence to be the Auditors of the Company. The Audit Committee met the External Auditors prior to recommendation of Financial Statements to the Board. D.3.3 The Audit Committee should have a Compliant Terms of Reference of the Committee clearly set out its written Terms of Reference, dealing responsibilities and authority. clearly with its authority and duties. The Board also considered the Code of Best Practices on Audit Detailed guidance on the scope and Committees of The Institute of Chartered Accountants of Sri Lanka in functions of the Audit Committee can be defining the terms of reference for the Audit Committee. found in the Code of Best Practices on Audit Committees issued by the Institute of Chartered Accountants of Sri Lanka in 2002. D.3.4 The names of Directors (persons in the Compliant The names of the members of the Audit Committee are disclosed in Parent Company’s Committee in the case the Governance section of the Annual Report. of a group company) comprising the Audit Committee should be disclosed in the Annual Report.

The Committee should also make a Committee meetings and the attendance of members is given in the determination of the independence of table appearing in the Governance section of the Annual Report. the Auditors and should disclose the basis of such determination in the Annual Report.

The Annual Report should contain a The report of the Audit Committee is available in the Governance report by the Audit Committee, setting section of the Annual Report. out the manner of compliance by the Company, in relation to the above, during the period to which the Annual Report relates. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 58 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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D.4 Code of Business Conduct & Ethics Companies must adopt a Code of Business Conduct & Ethics for Directors and members of the Senior Management team and must promptly disclose any waivers of the Code for Directors or others.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status D.4.1 All companies must disclose whether they Compliant The Company has adhered to the Code of Ethics which is applicable have a Code of Business Conduct & Ethics to Directors and Employees of the Company. The areas covered for Directors and members of the Senior in the Code of Ethics include proprietary information, conflict of Management Team and if they have such interest, benefits from third parties, accurate books of account, a Code, make an affirmative declaration usage of company for personal use, illegal acquisition of competitor in the Annual Report that all Directors information, insider trading, protection of environment and natural and members of the Senior Management resources and gender equity. Team have complied with such Code, Compliance with laws and regulations is a strict requirement for and if unable to make that declaration, Directors and all employees. state why they are unable to do so. Each company may determine its own policies in the formulation of such a Code, but all companies should address the following important topics in their respective Codes: ∫ conflict of interest; ∫ corporate opportunities; ∫ confidentiality; ∫ fair dealing; ∫ protection and proper use of company assets; ∫ compliance with laws, rules and regulations (including insider trading laws); and ∫ encouraging the reporting of any illegal or unethical behaviour. These aspects are expanded on in Schedule G. D.4.2 The Chairman must affirm in the Compliant The Chairman of the Board affirms that there have not been any Company’s Annual Report that he is material violations of any of the provisions in the Code of Ethics. not aware of any violation of any of the provisions of the Code of Business Conduct & Ethics.

D.5 Corporate Governance Disclosure Directors should be required to disclose the extent to which the Company adheres to established principles and practices of good Corporate Governance.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status D.5.1 The Directors should include in the Compliant The contents of this Report deals with the extent to which the Company’s Annual Report a Corporate established Principles of Good Corporate Governance have been Governance Report, setting out the adhered to and the requirements stated under Code of Best manner and extent to which the Company Practices on Corporate Governance issued by the Security Exchange has complied with the principles and Commissions and The Institute of Chartered Accountants of provisions of this Code. Sri Lanka, have been complied with. Environmental Resources Investment PLC Annual Report 2011/12 59

SECTION 2: SHAREHOLDERS E. INSTITUTIONAL INVESTORS E.1 Shareholder Voting Institutional shareholders have a responsibility to make considered use of their votes and should be encouraged to ensure their voting intentions are translated into practice.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status E.1.1 A listed company should conduct a Compliant The Annual General Meeting provides the shareholders with the regular and structured dialogue with opportunity to express their views. The Chairman ensures, that any shareholders based on a mutual views expressed by the investor personally or at the Annual General understanding of objectives. Arising from Meetings are discussed with the Board. The Directors consider it vital such dialogue, the Chairman should to understand the views of shareholders and, in particular, any issues ensure the views of shareholders are concerning them. communicated to the Board as a whole.

E.2 Evaluation of Governance Disclosures Institutional shareholders have a responsibility to make considered use of their votes and should be encouraged to ensure their voting intentions are translated into practice.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status E.2 When evaluating companies’ Governance Compliant The Corporate Governance Report contains the Company’s arrangements, particularly those relating Governance arrangements. Institutional investors are at liberty to to Board structure and composition, provide any feedback on the Governance arrangement. institutional investors should be encouraged to give due weight to all relevant factors drawn to their attention.

F. OTHER INVESTORS F.1 Investing/Divesting Decision Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status F.1 Individual shareholders, investing Compliant The Company’s communications with the shareholders, including directly in shares of companies should the Annual Report, provide information that enables shareholders to be encouraged to carry out adequate make conversant judgments or to seek advice on their investment analysis or seek independent advice in decisions. The extensive nature of the information given would investing or divesting decisions. enables the shareholders to carry out adequate analysis when making their decisions. Our Presence | Risk Management | Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual 60 Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report

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F.2 Shareholder Voting Individual shareholders should be encouraged to participate in General Meetings of companies and exercise their voting rights.

Code Corporate Governance Principles Compliance Company’s Compliance with the Code Reference Status F.2 Individual Shareholders Voting. Compliant Participation of the shareholders in the General Meeting and casting their votes are encouraged. Instructions regarding appointing a proxy and the manner in which the proxy form should be completed is stated in the Annual Report.

Compliance Report The Directors confirm that, to the best of their knowledge, all taxes and duties payable by the Company and all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and all other known statutory dues payable as at the Balance Sheet date, have been paid or provided for in the accounts.

By order of the Board of Environmental Resources Investment PLC

Sgd. PW Corporate Secretarial (Pvt) Ltd Secretaries Colombo

15 August 2012 Environmental Resources Investment PLC Annual Report 2011/12 61

GOVERNANCE

Report of the Audit maintains (i) the necessary books, records procedures for the receipt, retention and Committee and accounts in sufficient detail to treatment of complaints received by the accurately and fairly reflect transactions; Company regarding accounting, internal The Audit Committee is formally constituted as (ii) effective internal control systems and accounting controls or auditing matters; a subcommittee of the Main Board to which it (iii) adequate processes for assessing External Auditors of such subsidiary entities. is accountable and responsible and comprises the risk of material misstatement of the b) The Committee may delegate to one or of three Non-Executive Directors of whom Financial Statements and for detecting more of its members the authority to two members are independent. The Audit control weaknesses or fraud. pre-approve non-audit services but pre- Committee has written terms of references, b) Satisfy itself, through discussion with approval by such member or members so dealing clearly with its authority & duties and management, that the adequacy of delegated shall be presented to the full is established mainly with the purpose of internal controls, systems and procedures Committee at its first scheduled meeting assisting the Board in the effective discharge has been periodically assessed in order following such pre-approval. of their oversight responsibility in the integrity to ensure compliance with regulatory of the Financial Statements, Risk Management, requirements and recommendations. Meetings of Audit Committee Internal Control, Compliance with Legal and Three Audit Committee meetings were held Regulatory Requirements, review of External c) Review and discuss major financial risk during the year ended 31 March 2012. The Auditor’s performance and independence and exposures and the steps taken to monitor attendance details are given in the Governance internal audit function. and control such exposures, including the use of any financial derivatives and section of the Annual Report. Duties and Responsibilities hedging activities. Conclusion The duties and responsibilities of the Committee External Audit as they relate to the matters are as follows: The Directors, after conducting necessary a) Ensure the External Auditors Report inquiries and reviews including reviews of the 1) Financial Reporting and Disclosure directly to the Committee on a regular Group’s budget for the ensuing year, capital basis. a) Review and recommend to the Board for expenditure requirements, future prospects and approval, the Audited Annual Financial b) Review the independence of the External risks, cash flows and borrowing facilities, have a Statements, including the Auditors’ Auditors, including a written report reasonable expectation that the Company and Report thereon, the Quarterly Financial from the External Auditors respecting the Group have adequate resources to continue Statements, Management Discussion their independence and consideration in operational existence for the foreseeable and Analysis, Financial Reports, and any of applicable auditor independence future. Therefore, the going concern basis has guidance with respect to earnings per share standards. been adopted in the preparation of the Financial to be given, prior to the public disclosure of c) Review the audit plan of the external Statements. such information, with such documents to Auditors prior to the commencement of indicate whether such information has been the audit. The Audit Committee is satisfied that the reviewed by the Board or the Committee. effectiveness of the organisational structure d) Review the results of the external of the Group and of the implementation of the b) Review with management, and with external audit and the report thereon including, Group’s accounting policies and operational auditors, significant accounting principles without limitation, a discussion with the controls provide reasonable assurance that the and disclosure issues under Sri Lanka external auditors as to the quality of affairs of the Group are managed in accordance Accounting Standards (SLASs) as issued by accounting principles used, any alternative with Group policies and that the Group assets the Institute of Chartered Accountants of treatments of financial information that are properly accounted for and adequately Sri Lanka, with a view to gaining reasonable have been discussed with management, safeguarded. assurance that Financial Statements are the ramifications of their use as well accurate, complete and present fairly the as any other material changes. Review financial position and the results of its a report describing all material written operations in accordance with SLASs. communication between management and Sgd. 2) Internal Controls and Audit the auditors such as management letters Kelly T. Ehler, C. A. and schedule of unadjusted differences. a) Review the adequacy and effectiveness Chairman of the system of internal control and Audit Committee Associated Responsibilities management information systems through discussions with management and the a) Monitor and periodically review the 15 August 2012 External Auditor to ensure that company Whistleblower Policy and associated Governance | Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors | 62 Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report | Balance Sheet | Income Statement

GOVERNANCE

Remuneration Committee ∫ Performance Objectives ∫ Succession Planning -annually review the performance -annually review Environmental The composition of the Remuneration objectives for the Chief Executive Resources PLC’s succession plan Committee is in line with the requirements Officer, the Chief Financial Officer for the Chief Executive Officer, the of the Colombo Stock Exchange Listing and the Senior Executives and, at the Chief Financial Officer and Senior Rules and Guidelines. Accordingly it Committee’s discretion, recommend Management, including appointment, comprises of two Independent Non any changes to the Board for training and evaluation; –Executive Directors and one Non– consideration; Executive Director. ∫ Directors’ Compensation ∫ Evaluation of Performance -annually review Directors’ The Committee acts within the -annually review and evaluate the compensation and, in the Committee’s parameters set by its terms of reference performance of the Chief Executive discretion, recommend any changes to which cover the development of the Officer and the Chief Financial Officer the Board for consideration; framework and policy on remuneration in light of pre-established performance of the Chairman, Executive Directors and objectives and report its conclusions to ∫ Compensation Disclosure Senior Management of the Company. the Board; - review all annual executive compensation disclosure before it is The purpose of the Committee is to ∫ Chief Executive Officer and Chief publicly released; assist the Board in fulfilling its oversight Financial Officer Compensation responsibilities with respect to: - annually review the compensation ∫ Investigations for the Chief Executive Officer and - direct and supervise the investigation (a) the establishment of key human the Chief Financial Officer and, in the into any matter brought to its attention resources and compensation policies, Committee’s discretion, recommend within the scope of the Committee’s including all incentive and equity any changes to the Board for duties based compensation plans; consideration; ∫ Other Duties (b) the performance evaluation of the - perform such other duties as may Chief Executive Officer and the Chief ∫ Executive Management Compensation be assigned to it by the Board from Financial Officer, and determination -annually review the Chief Executive time to time or as may be required by of the compensation for the Chief Officer’s recommendations for the applicable regulatory authorities or Executive Officer, the Chief Financial Senior Executives’ compensation legislation. Officer and other Senior Executives of and, in the Committee’s discretion, Environmental Resources Investment recommend any changes to the Board PLC, including base salaries, bonus for consideration; and any incentive plans, deferred ∫ Compensation Policies compensation and retirement plans -ensure compensation policies for the Sgd. and share purchase or issuance plans Directors, the Chief Executive Officer, Gamini S. Munasinghe including stock options; the Chief Financial Officer and the Chairman (c) succession planning, including the Senior Executives properly reflect their Remuneration Committee appointment, training and evaluation respective duties and responsibilities; of senior management; and are competitive in attracting, retaining 15 August 2012 and motivating people of the highest (d) compensation of Directors. quality and align the interests of the directors, Duties and Responsibilities The duties and responsibilities of the Committee as they relate to the matters are as follows: Environmental Resources Investment PLC Annual Report 2011/12 63

SUSTAINABILITY REPORT

ERI Management Philosophy and company’s strengths and weaknesses and looks forward to the challenge to turn Significant HR Activities were received. around the companies under its wings. Twenty three professionals who are the Initiatives were made to introduce ‘Quality ERI believes in close top management best in their chosen fields represent ERI, Circles’ to the Group’s companies in the engagement with employees at all levels, which has over 3000 people working in third quarter of 2011/12. Dankotuwa and is an equal opportunity employer who its group of companies. ERI continues Porcelain which was a pioneer of starting treats all employees with respect and its success with its open door policy Quality Circles resuscitated this effort equality irrespective of their race, religion, for the employees and the friendly and with its convention after a lapse of many gender, social background or any other consultative culture which enables easy years and the expertise of Dankotuwa was distinction. access to the top in making varied and cascaded to the other companies in the timely decisions which is imperative for a Group by starting the circles with South group of companies which manages vast Group Welfare Activities Asia Textile Industries Lanka (Pvt) Ltd. and diverse business entities. During the year 2011/12, most companies ERI, as always, goes beyond the norm to in the Group held their annual get- Weekly, monthly, periodic and need achieve results for the benefit of all its together, annual pirith ceremonies, carol based meetings are held within the key stakeholders, driving our approach to services and bakthi geetha, long service disciplines of Finance, Audit, HR and do things differently to the obvious. The awards, inter-company sales awards etc. Compliance, reporting to the Board of Company within a short span of time Some of the highlights of these welfare Directors. A Group CEO meeting with has taken giant strides to consolidate all activities are depicted below. Board Directors is also held regularly for acquisitions and turn around some of the 1. Long Service Awards open discussions and decision making. acquisitions sooner than projected. ERI 2. Annual Pirith Ceremonies Employee annual appraisals and a climate strives to live its motto ‘We make it work’ 3. Carol Services survey were conducted for the year under to the best of its ability and work diligently 4. Annual Staff/Executive Outings review where open feedback on the to maintain its zero retrenchment policy 5. Annual Company Get-together 6. Quarterly Birthday Parties Environmental Resources Investment PLC Annual Report 2011/12 65

Sustainability Report The year 2011 was a year of consolidation a paediatric cancer ward for the Jaffna ERI aspires to be the best in the business amidst many challenges and undeterred Hospital. A total of 670 km over 24 days while striving to play a responsible role by such challenges, ERI forged ahead were walked for charity in collecting funds. as a good corporate citizen serving with conquering all and was focused A cross section of ERI group employees and helping the communities that the and committed to fulfilling its social took part in this charity walk, walking the company operates in. ERI is always sustainability obligations, and executed distance from Galleface to Ja-ela and mindful of the social implications it has a number of programs during the another group walking from Kochchikade on the community as a result of the year 2011/12 which had far-reaching to Pannala. businesses that it is involved in. and positive societal effects on the communities. Jaffna Challengers Sponsorship ERI continues to carry on the journey it Year 2011 saw the dawn of the league began in 2007 in reviving companies in These activities, though directly not in version of the rugby sevens where the distress, thereby saving thousands of line with sustainability such as green prime objective was the desire to have jobs which in itself could be considered energy efforts or large scale corporate international giants of the game to as the most important and significant social responsibility activities, they indeed play with the local teams where the contribution that the Company has contributed to many societal aspects. expertise of such talent and knowledge made to the society at large by saving would enable to uplift the skill especially and sustaining over 3000 employees, Participation In ‘Trail’ – Cancer Walk among the rural rugby players. ERI, as thereby assuring and safeguarding the ‘Trail’ was a walk by the living, for a life, pioneers in believing in the far reaching ‘family unit’ of all our employees where organized by the Colours of Courage Trust effects of such initiatives was one of the some employments are second or third initiated by MAS. It was an attempt to raise companies which obtained a franchise generation employments with much awareness, collect funds and journey from where the team ‘Jaffna Challengers’ put up loyalty and commitment ingrained. Dondra to Point Pedro with the ultimate a formidable fight to stay on top of their goal of raising Rs. 220 million to put up game. Report of the Audit Committee | Remuneration Committee | Sustainability Report | Financial Reports | Annual Report of the Board of Directors | Statement of 66 Directors’ Responsibility | Chief Financial Officer’s Responsibility | Independent Auditor’s Report | Balance Sheet | Income Statement

SUSTAINABILITY REPORT

Gunner Supercross Sponsorship Internships HR Statistics This is an annual event that ERI has been ERI Group boasts of diverse business Staﬀ Category Wise Analysis supporting, together with its subsidiary entities which pave the perfect path for 3% Ceylon Leather Products PLC. The funds the best available internship program for 20% 11% collected by the event is utilised to uplift any discerning undergraduate. The Group the standard of welfare of those who had has been home to a few such students in made the supreme sacrifice or endured the areas of corporate law during the year Management injuries in the battle field and their 2011/2012, finance and stock broking. Executives Non Executives families. The future will see ERI housing both local 66% Contract and international undergraduates in Donations to Orphanages focused projects which will benefit both the Company and the candidate, which in Service Wise Analysis The staff of ERI together with donations itself is an excellent opportunity for them 12% from the companies in the Group initiated to develop and hone many skills that will 7% 62% a visit each to the ‘Preethipura Home’ send them equipped to the world of work, 3% and the ‘Mallika Home’ in Bambalapitiya ready to take on many challenges. respectively during the Christmas season Upto 5 years 16% 5 - 10 years to distribute essential items and gifts. 10-15 years 15-20 years Over 20 years Environmental Resources Investment PLC Annual Report 2011/12 67

Gender Wise Analysis of Employees Group Staff Strength COMPANY Management Executive Non-Executive Contract 35% CLPL 24 57 423 57 65% SAT 11 53 681 - DPL 33 79 443 544

Male PALLA 9 36 429 12 Female ERI 9 14 - - DNH 2 22 1 - Age Wise Analysis of Employees 3% PHARMA 3 4 27 - 5% 8% SENIT 1 8 - - 35% ROOMSNET 1 5 - - 9% 18 - 25 26 - 35 ETPL 3 35 3 3 36 - 40 10% 41 - 45 Total 96 313 2007 616 46- 50 51 - 55 Over 55 30%

Total Group Employees 1% 2% 1% 1% 18% 16% Ceylon Leather Products PLC SAT Industries Lanka (Pvt) Ltd Dankotuwa Porcelain PLC Palla & Company (Pvt) Ltd Environmental Resources Investment PLC DNH Financial (Pvt) Ltd 25% The Colombo Pharmacy Company PLC 36% Olancom (Pvt) Ltd - Group

Environmental Resources Investment PLC Annual Report 2011/12 69

ANNUAL REPORT OF THE BOARD OF DIRECTORS

The Directors of Environmental Resources Investment PLC are Shareholders Information pleased to present their report together with the Audited Financial Information relating to major shareholders and share statistics Statements of the Company as at 31 March 2012. of the Company as at 31 March 2012 , are given on in the Supplementary Information section of the Annual Report. Principal Activities The principal activity is to operate as an Investment Holding Stated Capital Company. As at 31 March 2012 the Company has investments in In accordance with the Section 58 of the Companies Act No. 7 of various sectors such as manufacturing, pharmaceutical, ICT, real 2007, share capital and share premium were reclassified as stated estate and service sectors. capital. The stated capital of the company as at 31 March 2012 was Rs. 7,724,480,656/- The details of the stated capital are more Investments During the Financial Year of the Group fully described in the Note 15 of the Financial Statements of the Annual Report. Company Holding Status Nature of Core Business Transaction Ceylon Leather Increased in Warrants Footwear and Allotment of Shares – Consequent to the Exchange of Products PLC Holding by Subscription Leather Goods Warrants 13.62% & Trading Manufacturing. The Company issued 36,417,679 ordinary shares of Activities Rs. 874,024,296/-, each at an issue price of Rs. 24/- per share Palla & 51.65% Acquired by Footwear to the holders of warrants who exercised the option to exchange Company (Pvt) Ordinary Shares Ceylon Leather Manufacturing Ltd (Indirect Products PLC and Exporting. their warrants to ordinary shares of the Company. The proceeds of Holding) the issue were utilized for the purpose of investments. South Asia Increase in Due to the Textile Textiles Indirect Holding increase in Manufacturing Payment of Statutory Expenses Industries by 1.02% Ceylon Leather Lanka (Pvt) Ltd Products PLC The Directors confirm that to the best of their knowledge, all holding. payments in respect of statutory liabilities including EPF, ETF, and Dankotuwa Increased in Due to the Porcelain PAYE tax have been made within the stipulated period during the Porcelain PLC Indirect Holding increase in Manufacturing financial year. by 7.02% Ceylon Leather Products PLC holding. Summarised Financial Position Group Company Disposals During the Financial Year of the Group 2012/11 2010/11 2012/11 2010/11 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Company % Disposed Nature of Core Business Revenue 6,085,035 2,208,049 175,551 255,185 Transaction Profit/(Loss) Environmental 24% Sold to Photon Investing in 164,881 571,239 327,573 110,543 Resources Global Limited, Commodity Before Tax Limited, BVI Ultimate Sector Income Tax (63,434) (90,564) (98) (17,540) beneficiary Profit/(Loss) 101,447 480,675 327,475 93,003 being Lionhart After Tax Investment Ltd. Auditors Report Business Review The Report of the Auditors on the Financial Statements of the A review on the Group’s operations and its activities are discussed Company is given in the Financial Reports section of the Annual in detail under Chairman’s Report and Chief Executive Officer’s Report. Statement of the Annual Report. Environmental Resources Investment PLC Annual Report 2011/12 71

Accounting Policies Mr. Kelly T. Ehler was appointed as a Director on 20 December The Accounting Policies adopted by the Company in the 2011. preparation of Financial Statements are given on Note 2 of the In terms of Article 25 (6) of the Articles of Association of the Financial Statements which are consistent with those of the Company, Dr. Kosala Heengama retires by rotation and offers previous period. himself for re-election as a Director of the Company.

Donations Mr. Kelly T. Ehler who was appointed during the year retires The Company and the Group made donations of Rs. 200,000/- in terms of Article 25 (2) of the Articles of Association of the towards charitable purposes during the year under review. Company, and being eligible offer himself for re-election as a (2011 – Rs. 200,000/-) Director.

Mr. Lalith Heengama and Mr. Heen Banda Dissanayake retire Corporate Governance in terms of Section 210 of the Companies Act No. 7 of 2007 Available under the Governance section of the Annual Report. and offer themselves for re-election as per Section 211 of the Companies Act 07 of 2007. Statement of Directors Responsibilities Available under the Directors Responsibilities section of the Directors’ Interests in Shares Annual Report. Board of Directors and Chief Executives Officer of Environmental Resources Investment PLC have no shareholding in the Company Taxation as at the year ended 31 March 2012. The Company’s liability to taxation has been computed according As at As at to the provision of the Inland Revenue Act No. 10 of 2006 and 31 March 31 March 2012 2011 amendments thereto. Note 27 of the Financial Statements Mr. Lalith Heengama Nil Nil describes the method of computation of taxes of the company. Dr. K. Heengama Nil Nil Mr. G. S. Newsome Nil Nil Capital Expenditure Mr. H. B Dissanayake Nil Nil The Company and the Group incurred capital expenditure of Mr. G. S. Munasinghe Nil Nil Rs. 1,141,863 and Rs. 225,394,952/- respectively during the Mr. K. T. Ehler Nil Nil Mr. Eric B. Wikramanayake Nil Nil year. The details are disclosed under Note 4 of the Financial Statements. Subsequent to the Balance Sheet date the following transaction was done by a Director of the Company. Reserves Purchase of Shares – Mr. Kelly T. Ehler - 380,000 Ordinary Shares. The movement of reserves during the year are given under the Statement of Changes in Equity of the Financial Reports section of the Annual Report. Interests Register The Company maintains an interests register in terms of the Companies Act No. 7 of 2007. The names of Directors who were Directorate directly or in-directly interested in a contract or a related party The Directors of the Company as at 31 March 2012 were; transaction with the Company during the accounting period under Mr. Lalith Heengama – Chairman review are given in Note 35 of the Financial Statements. Dr. Kosala Heengama Mr. Gregory Scott Newsome Mr. Heen Banda Dissanayake Mr. Gamini Sarath Munasinghe Mr. Kelly T. Ehler Sustainability Report | Financial Reports | Annual Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s 72 Responsibility | Independent Auditor’s Report | Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements

ANNUAL REPORT OF THE BOARD OF DIRECTORS

Directors Remuneration Dividends Information relating to Directors remuneration has been disclosed Directors do not recommend a dividend for the year under review. in Note 35 of the Financial Statements. Auditors Related Party Transactions The accounts for the year have been audited by Messrs. Ernst & Related party transactions of the Group and the Company for the Young, Chartered Accountants. They have indicated willingness to financial year ended 31 March 2012 are provided in Note 35 of the continue as Auditors for the following year as well. Financial Statements. The Auditors, Messrs. Ernst & Young were paid Rs. 600,000/- and Rs. 511,939/- for the year ended 31 March 2012 as audit and Shareholders Information non-audit fees by the Company. The distribution of shareholders is appears in the Supplementary Information section of the Annual Report. There were 8,222 As far as the Directors are aware, the Auditors do not have any registered shareholders as at 31 March 2012. other relationship with the Company or any of its subsidiaries.

By Order of the Board of Market Value of Company’s Ordinary Shares Environmental Resources Investment PLC The market value of the Company’s ordinary shares as at 31 March 2012 was Rs. 16.80 compared to Rs. 77.30 as at 31 March 2011. Sgd. Sgd. Events Occurring After the Balance Sheet Date Lalith Heengama G. S. Newsome The details of the post Balance Sheet events are more or fully Chairman Director described in the Note 36 of the Financial Statements. PW Corporate Secretarial (Pvt) Ltd Secretaries Annual General Meeting The Annual General Meeting of the Company will be held at the 15 August 2012 Samudra Ballroom, Taj Samudra Hotel on 19 September 2012 at 3.00 p.m. The Notice of the Annual General Meeting, appears in the Supplementary Information section of the Annual Report.

Going Concern The details of the going concern of the Company and its subsidiaries are available in the Governance section of the Annual Report.

Details of Land and Buildings The details of Group properties appears in the Supplementary Information section of the Annual Report. The market values of Land and Buildings are disclosed in the Note 4 of the Financial Statements. Environmental Resources Investment PLC Annual Report 2011/12 73

STATEMENT OF DIRECTORS’ RESPONSIBILITY

The responsibility of the Directors in In preparing the Financial Statements review of the Company’s budget for the relation to the Financial Statements of appropriate accounting policies have been financial year 2012/2013 including cash the company is set out in the following selected and applied consistently, whilst flows and borrowing facilities, consider statement. The responsibility of the reasonable and prudent judgments and that the Company has adequate resources Auditors, in relation to the Financial estimates have been made. to continue in operation. Statements, prepared in accordance with the provision of the Companies Act No. As per Section 148 of the Act, the The Board of Directors is of the 07 of 2007, is set out in the Independent Directors are required to maintain opinion that Board has discharged its Auditors’ Report appearing in Financial sufficient accounting records to disclose responsibilities as set out above. Reports section of the Annual Report. with reasonable accuracy of the financial position of the Company and to ensure By Order of the Board of The Companies Act No. 07 of 2007 that the Financial Statements presented Environmental Resources Investment PLC stipulates that, Directors are responsible comply with the requirements of the for the preparation of Financial Companies Act. Statements for each financial year and place before an Annual General Meeting, The Directors are also responsible for comprising a Income Statement and devising proper internal controls for Sgd. a Balance Sheet which presents a true safeguarding the assets of the company P W Corporate Secretarial (Pvt) Ltd and fair view of the state of affairs against unauthorised use or disposition Secretaries of the Company as at the end of the and prevention and detection of fraud and Colombo financial year and which comply with the for reliability of financial information used requirements of the above Act. within the business or publication. 15 August 2012

The Financial Statements have been The Directors continue to adopt the going prepared and presented in accordance concern basis in preparing accounts and with Sri Lanka Accounting Standards. after making inquiries and following a Annual Report of the Board of Directors | Statement of Directors’ Responsibility | Chief Financial Officer’s Responsibility | 74 Independent Auditor’s Report | Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements

Chief Financial Officer’s Responsibility

The Financial Statements are prepared in limitations that should be recognized compliance with the Sri Lanka Accounting in weighing the assurances provided Standards issued by the Institute of by any system of internal controls and Chartered Accountants of Sri Lanka and accounting. The Financial Statements the requirements of the Companies Act, were audited by Ernst & Young Chartered No 7 of 2007 and any other applicable Accountants, the Independent Auditors. statutes. The accounting policies used in The Audit Committee of the Company the preparation of the Financial Statement meets periodically with the internal are appropriate and are consistently Auditors and the Independent Auditors to applied, except unless otherwise stated review the manner in which these auditors in the notes accompanying the Financial are performing their responsibilities, Statements. The Board of Directors and to discuss auditing, internal control and the management of the Company and financial reporting issues. To ensure accept responsibility for the integrity and complete independence, the Independent objectivity of these Financial Statements. Auditors have full and free access to The estimates and judgments relating to the members of the Audit Committee to the Financial Statements were made on discuss any matter of substance. a prudent and reasonable basis, in order that the Financial Statements reflect in a true and fair manner, the form and substance of transactions, and reasonably present the Company’s state of affairs. Sgd. To ensure this, the Company has taken Sajeewa P. Ranasinghe proper and sufficient care in installing a Chief Financial Officer system of internal control and accounting records, for safeguarding assets, and 15 August 2012 for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. However, there are inherent Environmental Resources Investment PLC Annual Report 2011/12 75

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF Scope of Audit and Basis of Opinion Statements give a true and fair view of the ENVIRONMENTAL RESOURCES Our responsibility is to express an opinion Company’s state of affairs as at 31 March INVESTMENT PLC on these Financial Statements based on our 2012 and its profit and cash flows for the audit. We conducted our audit in accordance year then ended in accordance with Report on the Financial Statements with Sri Lanka Auditing Standards. Those Sri Lanka Accounting Standards. We have audited the accompanying standards require that we plan and perform Financial Statements of Environmental the audit to obtain reasonable assurance Group Resources Investment PLC (“Company”), the whether the Financial Statements are free In our opinion, the consolidated Financial consolidated Financial Statements of the from material misstatement. Statements give a true and fair view of Company and its subsidiaries (“the Group”) the state of affairs as at 31 March 2012 which comprise the Balance Sheets as at 31 An audit includes examining, on a test and the profit and cash flows for the year March 2012, and the Income Statements, basis, evidence supporting the amounts and then ended, in accordance with Sri Lanka statements of changes in equity and Cash disclosures in the Financial Statements. Accounting Standards, of the Company and Flow Statements for the year then ended, An audit also includes assessing the its subsidiaries dealt with thereby, so far as and a summary of significant accounting accounting policies used and significant concerns the shareholders of the Company. policies and other explanatory notes. estimates made by management, as well as evaluating the overall Financial Statement presentation. Report on Other Legal and Management’s Responsibility for the Regulatory Requirements Financial Statements We have obtained all the information and In our opinion, these Financial Statements Management is responsible for the explanations which to the best of our also comply with the requirements of preparation and fair presentation of these knowledge and belief were necessary for the Sections 151(2) and 153(2) to 153(7) of the Financial Statements in accordance purposes of our audit. We therefore believe Companies Act No. 07 of 2007. with Sri Lanka Accounting Standards. that our audit provides a reasonable basis This responsibility includes: designing, for our opinion. implementing and maintaining internal control relevant to the preparation and Opinion fair presentation of Financial Statements Company that are free from material misstatement, 15 August 2012 In our opinion, so far as appears from our whether due to fraud or error; selecting and Colombo. examination, the Company maintained applying appropriate accounting policies; proper accounting records for the year and making accounting estimates that are ended 31 March 2012 and the Financial reasonable in the circumstances. Chief Financial Officer’s Responsibility | Independent Auditor’s Report Balance| Sheet | Income Statement | Statement of Changes in Equity | Cash Flow 76 Statements | Notes to the Financial Statements | Supplementary Information | Glossary of Financial Terms | Notice of Annual General Meeting

BALANCE SHEET

Group Company

As at 31 March Note 2012 2011 2012 2011 Restated Rs. Rs. Rs. Rs.

ASSETS Non-Current Assets Property, Plant & Equipment 4 3,232,135,665 3,077,736,834 136,544,572 233,218,999 Leasehold Property 5 26,006,823 - - - Investment Property 6 903,750,000 726,344,000 - - Intangible Assets 7 1,613,322,446 1,433,939,441 3,902,027 837,972 Investment in Subsidiaries 8 - - 3,819,778,552 2,666,650,532 Investment in Associates 9 - 2,196,196,117 - 2,059,324,720 Other Investments 10 1,954,440 1,954,440 260,000,000 260,000,000 Other Non-Current Asset 11 146,126,282 628,264,843 - 600,000,000 Deferred Tax Asset 19 6,415,650 398,517 - - 5,929,711,306 8,064,834,192 4,220,225,151 5,820,032,223 Current Assets Inventories 12 1,479,111,881 1,385,876,638 - - Trade and Other Receivables 13 3,747,234,241 1,698,052,575 2,962,291,240 773,203,038 Current Investments 14 320,795,787 232,510,214 165,144,118 218,363,561 Income Tax Receivables 11,448,341 - 9,170,030 - Cash and Cash Equivalents 30 1,434,564,104 816,230,348 765,594,378 130,463,606 6,993,154,354 4,132,669,775 3,902,199,766 1,122,030,205 Total Assets 12,922,865,660 12,197,503,967 8,122,424,917 6,942,062,428 EQUITY AND LIABILITIES Equity Attributable to Equity Holders of the Parent Stated Capital 15 7,724,480,656 6,850,456,360 7,724,480,656 6,850,456,360 Revaluation Reserve 16 64,389,098 13,849,346 - - Other Reserves 17 3,320,140 3,320,140 3,320,140 3,320,140 Currency Translation Reserve 17.3 (18,656,800) - - - Retained Earnings 620,343,972 504,536,910 385,775,918 63,609,142 8,393,877,066 7,372,162,756 8,113,576,714 6,917,385,642 Minority Interests 1,284,922,186 1,448,702,670 - - Total Equity 9,678,799,252 8,820,865,426 8,113,576,714 6,917,385,642 Non-Current Liabilities Interest Bearing Loans & Borrowings 18 79,095,152 148,141,487 - - Non Interest Bearing Loans & Borrowings 23 - 17,779,000 - - Deferred Tax Liability 19 163,876,187 157,505,513 633,520 1,242,493 Other Deferred Liabilities 20 167,718,760 155,560,340 1,560,000 722,500 Deferred Income 21 2,502,745 2,925,750 - - 413,192,844 481,912,090 2,193,520 1,964,993 Current Liabilities Trade and Other Payables 22 1,117,497,776 1,406,243,177 6,267,177 18,911,723 Income Tax Payable 51,379,774 57,410,022 - 3,412,564 Current Portion of Interest Bearing Loans & Borrowings 18 1,636,461,518 1,426,026,756 - - Current Portion of Non Interest Bearing Loans & Borrowings 23 25,146,990 4,658,990 - - Dividend Payable 24 387,506 387,506 387,506 387,506 2,830,873,564 2,894,726,451 6,654,683 22,711,793 Total Equity and Liabilities 12,922,865,660 12,197,503,967 8,122,424,917 6,942,062,428

I certify that these Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

Sajeewa P. Ranasinghe Chief Financial Officer The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by:

Lalith Heengama G. S. Newsome Chairman Director The accounting policies and notes on pages 82 through 135 form an integral part of the Financial Statements. 15 August 2012 Colombo Environmental Resources Investment PLC Annual Report 2011/12 77

INCOME STATEMENT

Group Company

Year Ended 31 March Note 2012 2011 2012 2011 Restated Rs. Rs. Rs. Rs.

Revenue 3 6,085,035,311 2,208,049,684 175,550,875 255,184,781 Cost of Sales (4,959,946,599) (1,348,596,971) - - Gross Profit 1,125,088,712 859,452,713 175,550,875 255,184,781 Other Income 25 575,175,451 170,700,130 406,269,491 14,617,980 Selling & Distribution Expenses (319,003,315) (235,484,906) (18,580,756) (4,117,922) Administrative Expenses (1,073,054,829) (326,788,703) (235,666,040) (155,142,334) Finance Cost 26 (143,324,801) (33,512,067) - - Net Results of the Associate - 136,871,397 - - Profit Before Tax 28 164,881,218 571,238,564 327,573,570 110,542,505 Income Tax Expense 27 (63,434,441) (90,563,990) (98,284) (17,539,686) Profit for the Year 101,446,777 480,674,574 327,475,286 93,002,819

Attributable to: Equity Holders of the Parent 125,906,657 443,401,536 Minority Interests (24,459,880) 37,273,038 101,446,777 480,674,574

Earning Per Share - Basic 29 0.39 1.51 - Diluted 29 0.39 0.48

STATEMENT OF CHANGES IN EQUITY - GROUP Rs. quity (23,940) (440,996) otal E (1,817,640) (6,883,098) 19,112,825 71,189,182 (18,656,800) T (11,938,916) (10,873,735) 970,662,513 480,674,574 874,024,296 101,446,777 (151,871,801) 8,820,865,426 2,982,903,850 2,086,329,600 2,294,962,560 9,678,799,252

- - - - - Rs. Interest Minority (547,237) (774,140) 5,263,479 (1,817,640) (1,751,918) (6,883,098) 37,273,038 37,273,038 20,755,671 (24,459,880) 439,073,198 970,662,513 (151,871,801) 1,448,702,670 1,284,922,186

- - - - Rs. otal T (23,940) 106,241 13,849,346 50,433,511 (18,656,800) (10,186,998) (10,099,595) 443,401,536 874,024,296 125,906,657 7,372,162,756 7,372,162,756 8,393,877,066 8,393,877,066 2,543,830,652 2,086,329,600 2,294,962,560

------Rs. osses) (23,940) arnings/ ( L Retained E 71,346,312 (10,186,998) (10,099,595) 443,401,536 504,536,910 125,906,657 620,343,972 arent

------Rs. Reserve Currency ranslation T (18,656,800) (18,656,800)

------Rs. quity Holders of the P quity Holders Other Reserves 3,320,140 3,320,140 3,320,140

------Rs. Attributable to E Attributable to 106,241 Reserves 13,849,346 13,849,346 50,433,511 64,389,098 Revaluation

------Rs. Stated Capital 874,024,296 7,724,480,656 7,724,480,656 2,469,164,200 6,850,456,360 2,086,329,600 2,294,962,560

15 15 15 Note

Year Ended 31 March Ended Year Conversion Warrant Subsidiary Minority Dividend to Shareholders Year for the Profit Balance as at 31 March 2011 Balance as at 31 March 2010 (Restated) Rights Issue of OrdinaryRights Shares Conversion Warrant on Revaluation Tax Deferred through Minority Addition to Acquisition of Subsidiaries Direct Cost on Share Issue Dividend Preference Increase/ (Decrease) in Differences Currency Translation Balance as at 31 March 2012 part of the Financial Statements. an integral on pages 82 through 135 form The accounting policies and notes Reserve Reserve Revaluation Deferred Tax on Revaluation Tax Deferred Year for the / (Loss) Profit Reserve Subsidiary Dividend to Shareholders Minority Direct Cost on Share Issue through Minority Addition to Acquisition of Subsidiaries Environmental Resources Investment PLC Annual Report 2011/12 79

STATEMENT OF CHANGES IN EQUITY - COMPANY Rs. otal T (23,940) (5,575,720) (5,308,510) 93,002,819 327,475,286 327,475,286 874,024,296 6,917,385,642 6,917,385,642 2,448,690,323 2,086,329,600 2,294,962,560 8,113,576,714

- - - Rs. osses) arnings/ ( L (23,940) Retained E (5,575,720) (5,308,510) 63,609,142 93,002,819 (23,794,017) 327,475,286 327,475,286 385,775,918

------Rs. Other Reserves 3,320,140 3,320,140 3,320,140

- - - - - Rs. Stated Capital 874,024,296 7,724,480,656 7,724,480,656 2,469,164,200 6,850,456,360 2,086,329,600 2,294,962,560

15 15 15 Note Year Ended 31 March Ended Year Balance as at 31 March 2011 Balance as at 31 March 2010 Rights Issue of OrdinaryRights Shares Conversion Warrant Direct Cost on Share Issue Dividend Preference Conversions Warrant Conversion Direct Cost on Warrant Balance as at 31 March 2012 part of the Financial Statements. an integral on pages 82 through 135 form The accounting policies and notes Profit for the Year for the Profit Year for the Profit Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information | 80 Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

CASH FLOW STATEMENTS

Group Company

Year Ended 31 March Note 2012 2011 2012 2011 Restated Rs. Rs. Rs. Rs.

Cash Flows From / (Used in) Operating Activities Net Profit Before Tax 164,881,218 571,238,564 327,573,570 110,542,505

Adjustments for Depreciation 4 266,653,174 65,541,564 37,017,717 13,589,348 Amortization of Intangible assets 7 34,835,377 825,367 435,945 21,486 (Profit)/Loss on Sale of Property, Plant and Equipment 28 (13,933,397) (4,380,973) (3,001,426) - Net (Gain)/Loss on Fair Value Adjustment of Investment Property 6 (117,327,699) - - - (Profit)/Loss from Disposal of Current Investment (25,511,289) (76,608,149) (24,858,954) (76,608,149) Provision for Fall in Value of Current Investments 67,593,653 - 52,471,620 - (Profit)/Loss from Disposal of Associate 25 27,898,117 (16,386,577) (108,973,280) Share of Profits from Associate - (42,043,284) - - Provision for Defined Benefit Plans 20 31,361,321 525,348 837,500 722,500 Amortization of Deferred Income 21 (423,005) (246,750) - - Amortization of Prepaid Lease Rentals 5 81,177 - - - Investment & Sundry Income (476,103,415) (107,714,294) (297,296,211) (14,617,980) Exchange (Gain)/Loss on Conversion (15,946,769) - - - Write off of Inventory 13,499,075 - - - Impairment Loss on Asset Held for Sale - 201,025,934 - - Negative Goodwill 25 (133,402) (386,080,138) - - Finance Cost 26 143,324,801 33,512,067 - - Operating Profit/(Loss) Before Working Capital Changes 100,748,937 239,208,679 (15,793,519) 33,649,710

(Increase)/Decrease in Inventories 57,276,171 (144,827,383) - - (Increase)/Decrease in Trade and Other Receivables 71,180,176 (413,683,908) (81,701,855) (342,903,827) Increase/(Decrease) in Trade and Other Payables (361,098,021) 17,174,669 (12,644,546) 12,611,420 Cash Generated From/(Used in) Operations (131,892,737) (302,127,943) (110,139,921) (296,642,697)

Defined Benefit Plan Costs Paid 20 (28,037,820) (11,913,882) - - Interest Paid (143,324,802) (33,512,067) - - Income Tax Paid (100,557,606) (54,982,198) (13,289,851) (18,736,641) Net Cash Flow From/(Used in) Operating Activities (403,812,965) (402,536,090) (123,429,771) (315,379,338)

Cash Flow from Investing Activities Acquisition of Property, Plant & Equipment 4 (225,394,952) (300,924,159) (1,141,863) (238,907,581) Acquisition of Investment Property 6 (60,078,301) - - - Acquisition of Intangible Assets 7 - (7,434,457) (3,500,000) (859,458) Proceeds from Sale of Investments 99,225,026 258,613,423 91,891,687 258,613,423 Proceeds from Sale of Property, Plant and Equipment 75,342,039 8,884,586 63,800,000 3,335,796 Investment & Sundry Income Received 305,641,857 107,714,294 19,237,386 14,617,980 Investment in Subsidiaries (1,280,711,555) (2,685,505,791) (1,153,128,020) (2,167,551,257) Environmental Resources Investment PLC Annual Report 2011/12 81

Group Company

Year Ended 31 March Note 2012 2011 2012 2011 Restated Rs. Rs. Rs. Rs.

Investment in Associates 9 - (2,059,324,720) - (2,059,324,720) Proceeds from Disposal of Associate 338,970,479 22,901,328 338,970,479 - Proceeds from Disposal of Non Current Assets 600,000,000 - 600,000,000 Investment in Other Non Current Assets (118,809,729) (620,474,843) - (600,000,000) Investment in Other Investments - (100,000,000) - (260,000,000) Investment in Current Investments (229,842,840) (274,624,340) (66,284,910) (263,434,688) Net Cash Flows From/(Used in) Investing Activities (495,657,976) (5,650,174,680) (110,155,242) (5,313,510,505)

Cash Flow from Financing Activities Proceeds from Rights & Warrants Issue 15 874,024,296 4,381,292,160 874,024,296 4,381,292,160 Proceeds from Rights/Warrants Issue - Subsidiary 941,844,948 912,500,000 - - Direct Cost on Share Issue (10,873,735) (11,937,315) (5,308,510) (5,575,720) Proceeds from Interest Bearing Loans & Borrowings 18 3,587,088,294 783,686,865 - - Repayment of Interest Bearing Loans & Borrowings 18 (3,605,131,851) (922,502,878) - - Repayment of Non Interest Bearing Loans & Borrowings 23 (298,641,313) - - - Principal Payment under Finance Lease Liabilities 18 (7,489,166) (2,947,190) - - Dividend Paid to Minority - (1,817,640) - - Net Cash Flows From/(Used in) Financing Activities 1,480,821,473 5,138,274,002 868,715,786 4,375,716,440

Net Increase/(Decrease) in Cash & Cash Equivalents 581,350,531 (914,436,767) 635,130,772 (1,253,173,403) Cash & Cash Equivalent at the Beginning of the Year 30 511,796,633 1,426,233,400 130,463,606 1,383,637,009 Cash & Cash Equivalent at the End of the Year 30 1,093,147,164 511,796,633 765,594,378 130,463,606

NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION Sub-subsidiary through Ceylon Leather Products PLC Environmental Resources Investment PLC is a public – Palla & Company (Pvt) Ltd limited liability Company incorporated and domiciled in During the year, the principal activity of the company Sri Lanka and listed on the Colombo Stock Exchange. was manufacturing shoes for exports. The registered office and the principal place of Business Subsidiary – DNH Financial (Pvt) Ltd is located at Level 16, West Tower, World Trade Centre, During the period, the principal activity of the company Echelon Square, Colombo 01. was functioning as a stock broker in the Colombo Stock In the consolidated Financial Statements, “the Exchange. Company” refers to Environmental Resources Subsidiary – Olancom (Pvt) Ltd Investment PLC, as the holding Company and “the During the period, the principal activity of the company Group” refers to the companies whose accounts have was to operate an internet based online reservation been consolidated therein. system for the global travel industry.

1.1 parent Entity Sub-subsidiary through Olancom (Pvt) Ltd The Company’s Parent undertaking is Lionhart – Enterprise Technology (Pvt) Ltd Investments Limited, which is a company incorporated During the period, the principal activity of the company in the United Kingdom. was to engage in networking business solutions.

1.2 Date of Authorization for Issue Sub-subsidiary through Olancom (Pvt) Ltd – Senit Technologies (Pvt) Ltd The Financial Statements for the year ended 31 March During the period, the principal activity of the company 2012 were authorized for issue in accordance with a was to carry on information technology back office resolution by the Board of Directors on 15 August 2012. operation to provide credit card acquiring services and acquire information technology platform to facilitate 1.3 principal Activities & Nature of Operations e-commerce. Company The Company operated as the Investment Holding Sub-subsidiary through Olancom (Pvt) Ltd Company of the Group, and is presently engaged in – RoomsNet International Limited carrying out such activities. During the year, the principal activity of the company was the buying of accommodation (Room Nights) Subsidiary – Ceylon Leather Products PLC from suppliers of such accommodation and selling During the period, the principal activities of the the accommodation (Room Nights) on its affiliated company were manufacturing and selling of Leather, site network, RoomsNet.com to the end users of the Leather Footwear and Leather Goods. accommodation.

Sub-subsidiary through Ceylon Leather Products PLC Sub-subsidiary through Olancom (Pvt) Ltd - Ceylon Leather Products Distributors (Pvt) Ltd – RoomsNet Travels (Pvt) Ltd During the period, the principal activity of the company During the year, the principal activity of the company was retail selling of Leather Footwear and Leather was to perform as an on-line travel agent selling hotel Goods. rooms worldwide to customers, globally.

Sub-subsidiary through Ceylon Leather Products PLC Subsidiary – Dankotuwa Porcelain PLC – South Asia Textile Industries Lanka (Pvt) Ltd During the year, the principal activity of the company During the year, the principal activity of the company was involved in manufacturing of porcelain tableware was manufacturing and sale of knitted fabrics for the targeted to the export and domestic market. export and local markets. Environmental Resources Investment PLC Annual Report 2011/12 83

Subsidiary – The Colombo Pharmacy Company PLC Judgments made by management in the application During the year, the principal activity of the company of SLAS that have a significant effect on the Financial was to dispense chemists and retail dealers in Statements are mentioned below: pharmaceuticals. Policy Note Property, Plant and Equipment 2. BASIS OF PREPARATION Valuation and Depreciation 2.7.8 4.9 Valuation of Intangible Assets 2.7.12 7 2.1 Statement of Compliance Deferred Tax 2.7.2(b) 19 The Balance Sheet, Income Statement, Statement Employee Benefit Liabilities 2.7.17 20 of Changes in Equity and the Cash Flow Statement, Provision for Contingent Liabilities 2.7.15 33 together with the accounting policies and notes (the “Financial Statements”) have been prepared in 2.4 Changes in Accounting Policies compliance with the Sri Lanka Accounting Standards The accounting policies have been consistently applied (SLAS) issued by the Institute of Chartered Accountants by the Company and Group and are consistent with of Sri Lanka. those used in the previous year. 2.2 Basis of Preparation 2.5 Comparative Information The Financial Statements, presented in Sri Lanka Previous year’s figures and phrases have been re- Rupees, have been prepared on an accrual basis and arranged, wherever necessary, to conform to the under the historical cost convention unless stated current year’s presentation. otherwise. The preparation and presentation of these Financial Statements is in compliance with the 2.6 Consolidation Policy Companies Act No. 07 of 2007. 2.6.1 Basis of Consolidation 2.3 Significant Accounting Judgments, Estimates and The Consolidated Financial Statements include the Assumptions Financial Statements of the Company, its subsidiaries The preparation of the Financial Statements in and other companies over which it has control (Note conformity with SLAS, requires management to make 1.3). The Group’s Financial Statements comprise of the judgments, estimates and assumptions that affect the Consolidated Financial Statements of the Company application of accounting policies and the reported and the Group which have been prepared in compliance amounts of assets, liabilities, income and expenses. with the Group’s accounting policies. All intra Group balances, income and expenses and profits and losses The estimates and underlying assumptions are based resulting from intra Group transactions are eliminated on historical experience and various other factors that in full. are believed to be reasonable under the circumstances, the results of which form the basis of making the 2.6.2 Acquisitions and Divestments judgments about the carrying amount of assets and Acquisitions of subsidiaries are accounted for using liabilities that are not readily apparent from other the purchase method of accounting. The results of sources. subsidiaries and associates acquired or incorporated during the year have been included from the date of The estimates and underlying assumptions are reviewed acquisition or incorporation while results of subsidiaries on an ongoing basis. Revisions to accounting estimates and associates disposed have been included up to the are recognised in the period in which the estimate is date of disposal. revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 84 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

2.6.3 Subsidiaries shown as a component of profit for the period in the Subsidiaries are those enterprises controlled by the Income Statement and as a component of equity in the parent. Control exists when the parent holds more than Consolidated Balance Sheet, separately from parent 50% of the voting rights or otherwise has a controlling shareholders’ equity. The Consolidated Cash Flow interest. Statement includes the cash flows of the Company and its subsidiaries. Subsidiaries are consolidated from the date the parent obtains control until the date that control ceases. 2.6.4 Associates Associates are those investments over which the Group Subsidiaries consolidated have been listed in Note 1.3 has significant influence and holds 20% to 50% of and Note 8 to the Financial Statements. the equity and which are neither subsidiaries nor joint The following subsidiaries have been incorporated in ventures of the Group. Sri Lanka: The Investments in Associates are carried in the Name Holding % Balance Sheet at cost plus post acquisition changes 31 March 31 March in the Group’s share of net assets of the associates. 2012 2011 Goodwill relating to an associate is included in the Ceylon Leather Products PLC 86.09% 72.47% carrying amount of the investment. After application of the equity method, the Group determines whether Ceylon Leather Products it is necessary to recognize any additional impairment Distributers (Pvt) Ltd 86.09% 72.47% loss with respect to the Group’s net investment in the DNH Financial (Pvt) Ltd associate. The Income Statement reflects the share of (Formerly HNB Stockbrokers (Pvt) Ltd) 100% 100% the results of operations of the associate. Where there The Colombo Pharmacy Company PLC 66.40% 66.40% has been a change recognised directly in the equity of Dankotuwa Porcelain PLC 65.51% 64.49% the associate, the Group recognises its share of any changes in the Statement of Changes in Equity. South Asia Textile Industries Lanka (Pvt) Ltd 52.46% 45.44% When the Group’s share of losses in an associate equals Olancom (Pvt) Ltd 93.15% 93.15% or exceeds the interest in the undertaking, the Group Palla & Company (Pvt) Ltd 51.65% - does not recognise further losses unless it has incurred obligations or made payments on behalf of the entity. Enterprise Technology (Pvt) Ltd 93.15% 93.15% Senit Technologies (Pvt) Ltd 93.15% 93.15% The Group ceases to use the equity method of RoomsNet Travels (Pvt) Ltd 93.15% 93.15% accounting on the date from which it no longer has significant influence in the associate. The accounting The following subsidiary has been policies of associate companies conform to those used incorporated in United Kingdom. for similar transactions of the Group. RoomsNet International Limited 93.15% 93.15% Environmental Resources Limited – BVI which is a The total profits and losses for the period, of direct associate of the Company and has been disposed the Company and of its subsidiaries included during the year, being the effective date 14 April 2011. in consolidation and all assets and liabilities of The effective holding for the Company as at the disposal the Company and of its subsidiaries included in date was 23.85%. consolidation are shown in the Consolidated Income Environmental Resources limited was incorporated in Statement and Balance Sheet respectively. the British Virgin Island (BVI) on 06 December 2005 Minority interests which represents the portion of under the BVI Business Companies Act, 2004 and profit or loss and net assets not held by the Group, are engaged as an investment holding Company. Environmental Resources Investment PLC Annual Report 2011/12 85

2.6.5 Goodwill the currency of the primary economic environment in Goodwill acquired in a business combination is initially which the entities of the Group operate. measured at cost being the excess of the cost of the All foreign exchange transactions are converted to business combination over the Group’s interest in Sri Lanka Rupees, at the rates of exchange prevailing at the net fair value of the identifiable assets, liabilities the time the transactions are effected. and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated Monetary assets and liabilities denominated in impairment losses. Goodwill is reviewed for impairment, foreign currency are retranslated to Sri Lanka Rupee annually or more frequently if events or changes in equivalents at the exchange rate prevailing at the circumstances indicate that the carrying value may Balance Sheet date. be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is from Non-monetary assets and liabilities are translated the acquisition date, allocated to Groups of cash- using exchange rates that existed when the values generating units that are expected to benefit from the were determined. The resulting gains and losses are synergies of the combination. accounted for in the Income Statement.

Impairment is determined by assessing the recoverable Foreign Operations amount of the cash-generating unit to which the The Balance Sheet and Income Statement of overseas goodwill relates. Where the recoverable amount of the subsidiaries which are deemed to be foreign operations cash generating unit is less than the carrying amount, are translated to Sri Lanka Rupees at the rate of an impairment loss is recognised. The impairment loss exchange prevailing as at the Balance Sheet date and is allocated first to reduce the carrying amount of any at the average annual rate of exchange for the period goodwill allocated to the unit and then to the other respectively. assets pro-rata to the carrying amount of each asset in the unit. Goodwill and fair value adjustments arising The exchange differences arising on the translation on the acquisition of a foreign operation are treated are taken directly to a separate component of equity. as assets and liabilities of the foreign operation and On disposal of a foreign entity, the deferred cumulative translated at the closing rate. amount recognised in equity relating to that particular foreign operation is recognised in the Income Where goodwill forms part of a cash-generating unit Statement. and part of the operation within that unit is disposed of the goodwill associated with the operation disposed 2.7.2 Taxation of is included in the carrying amount of the operation (a) Current Taxes when determining the gain or loss on disposal of the Current income tax assets and liabilities for the current operation. period are measured at the amount expected to be recovered from or paid to the taxation authorities. The 2.7 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES tax rates and tax laws used to compute the amount are The principal accounting policies adopted in the those that are enacted or substantively enacted by the preparation of these Financial Statements are set out Balance Sheet date. below. The provision for income tax is based on the elements 2.7.1 Foreign Currency Translation of income and expenditure as reported in the Financial Statements and computed in accordance with the Foreign Currency Transactions provisions of the relevant tax legislations. The Consolidated Financial Statements are presented in Sri Lanka Rupees, which is the Company’s functional and presentation currency. The functional currency is Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 86 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

Current income tax relating to items recognised directly (c) Sales Tax in equity, is recognised in equity and not in the Income Revenue expenses and assets are recognized net Statement. of the amount of sales tax, except where the sales tax incurred on a purchase of asset or service is not (b) Deferred Tax recoverable from the taxation authorities, in which Deferred income tax is provided, using the liability case the sales tax is recognized as a part of the cost method, on temporary differences at the Balance Sheet of the asset or part of the expense item as applicable date between the tax bases of assets and liabilities and receivable and payable that are stated with the their carrying amounts for financial reporting purposes. amount of sales tax included. The amount of sales tax recoverable and payable in respect of taxation Deferred income tax liabilities are recognised for authorities is included as a part of receivables and all taxable temporary differences, except where the payables in the Balance Sheet. deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that 2.7.3 Borrowing Costs is not a business combination and at the time of the Borrowing costs are recognised as an expense in the transaction affects neither the accounting profit nor period in which they are incurred. taxable profit or loss.

Deferred income tax assets are recognised for all 2.7.4 Inventories deductible temporary differences, carry-forward of Inventories are valued at the lower of cost and net unused tax assets and unused tax losses, to the extent realisable value, after making due allowances for that it is probable that taxable profit will be available obsolete and slow moving items. Net realisable value against which the deductible temporary differences, is the price at which inventories can be sold in the and the carry-forward of unused tax assets and unused ordinary course of business, less the estimated cost of tax losses can be utilised except where the deferred completion and the estimated cost necessary to make income tax asset relating to the deductible temporary the sale. difference arises from the initial recognition of an The cost incurred in bringing inventories to its present asset or liability in a transaction that is not a business location and condition is accounted using the following combination and at the time of the transaction, affects cost formulae:- neither the accounting profit nor taxable profit or loss. Raw Materials - At purchase cost on weighted The carrying amount of deferred income tax assets is average basis reviewed at each Balance Sheet date and reduced to Finished Goods & - At the cost of direct materials, the extent that it is no longer probable that sufficient Work-in-Progress direct labour and an appropriate taxable profit will be available to allow all or part of the proportion of fixed production deferred income tax asset to be utilised. overheads based on normal operating capacity, but excluding Deferred income tax assets and liabilities are measured borrowing costs. at the tax rates that are expected to apply to the year Consumables & - At purchase cost on weighted when the asset is realised or the liability is settled, Spares average basis based on tax rates (and tax laws) that have been Goods in Transit - At purchase price enacted or substantively enacted at the Balance Sheet date. Pharmaceutical - At purchase cost on weighted Items average basis Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the Income Statement. Environmental Resources Investment PLC Annual Report 2011/12 87

2.7.5 trade and Other Receivables investment individually. These reductions for other than Trade receivables are stated at the amounts they are temporary declines in carrying amounts are charged to estimated to realize net of allowances for bad and Income Statement. doubtful receivables. (c) Disposal of Investment Other receivables are recognized at cost less On disposal of an investment, the difference between allowances for bad and doubtful receivables. net disposals and proceeds and the carrying amounts are recognised as income or expense 2.7.6 Cash and Cash Equivalents Cash and cash equivalents are defined as cash in 2.7.8 property, Plant and Equipment hand, demand deposits and short term highly liquid (a) Cost and Revaluation investments, readily convertible to known amount of Property, plant and equipment is stated at cost, cash and subject to insignificant risk of changes in excluding the costs of day to day servicing, less value. accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of For the purpose of the Cash Flow Statement, cash and the plant and equipment when that cost is incurred, if cash equivalents consist of cash in hand and deposits in the recognition criteria are met. banks, net of outstanding bank overdrafts. Investments with short term maturities i.e. three months or less Certain property, plant and equipment including land from the date of acquisition are also treated as cash & building of the Group are measured at fair value less equivalents. depreciation and impairment charged subsequent to the date of the revaluation. Where items of property, 2.7.7 Investments plant and equipment are subsequently revalued, the (a) Initial Recognition entire class of such assets is revalued. The group has Cost of investment includes purchase cost and adopted a policy of revaluing assets every three years. acquisition charges such as brokerages, fees, duties When an asset is revalued, any increase in the carrying and bank regulatory fees. The Company distinguishes amount is credited directly to a revaluation surplus, and presents current and non current investment in the unless it reverses a previous revaluation decrease Balance Sheet. relating to the same asset, which was previously (b) Measurement recognised as an expense. In these circumstances, the (i) Current Investment increase is recognised as income to the extent of the Current investments are carried at the lower of cost and previous write down. When an asset’s carrying amount market value, determined on the basis of aggregate is decreased as a result of a revaluation, the decrease is portfolio. recognised as an expense unless it reverses a previous increment relating to that asset, in which case it is Unrealized losses arising from reduction to market charged against any related revaluation surplus, to the value and reversals of such reduction required to state extent that the decrease does not exceed the amount current investments at lower of cost and market value held in the revaluation surplus in respect of that are included in Income Statement same asset. Any balance remaining in the revaluation surplus in respect of an asset, is transferred directly to (ii) Other Long Term Investments accumulated profits on retirement or disposal of the Long term investments are stated at cost. asset. The carrying amounts are reduced to recognize a decline other than temporary determined for each Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 88 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

(b) Subsequent Expenditure Investment properties are measured initially at cost, Expenditure incurred to replace a component of an item including transaction costs. The carrying amount of property, plant and equipment that is accounted includes the cost of replacing part of an existing for separately, including major inspection and investment property at the time that cost is incurred if overhaul expenditure, is capitalized. Other subsequent the recognition criteria are met; excludes the costs of expenditure is capitalized only if it is probable that day to day servicing of an investment property. the future economic benefits embodied in the item of property, plant and equipment will flow to the Company Subsequent to initial recognition, investment properties and its cost can be measured reliably. The costs of the are stated at fair value, which reflects market conditions day-to-day servicing of property, plant and equipment at the Balance Sheet date. Gains or losses arising from are recognized in the Income Statement as incurred. changes in the fair values of investment properties are included in the Income Statement in the period in which (c) Depreciation they arise. Depreciation is provided on a straight-line basis over the estimated useful lives (or lease term, if shorter) of Investment properties are derecognised when either each part of an item of property, plant and equipment, they have been disposed of or when the investment other than freehold land, in order to spread the property is permanently withdrawn from use and no cost and/or the valuation over the estimated useful future economic benefit is expected from its disposal. economic life of such assets. Any gains or losses on the retirement or disposal of an investment property are recognised in the Income Depreciation of an asset begins when it is available for Statement in the year of retirement or disposal. use whereas depreciation of an asset ceases at the earlier of the date that the asset is classified as held for Transfers are made to investment property, when sale and the date that the asset is derecognised. and only when there is a change in use, evidenced by the end of owner occupation, commencement of The appropriateness of useful lives of the asset and the an operating lease to another party or completion of depreciation rates are assessed annually. constructions or developments. Transfers are made from investment property, only when, there is a change The useful lives of the assets have been disclosed under in use evidenced by commencement of owner- Note 4.9. occupation or commencement of development with a view to sale. (d) De-recognition An item of property, plant and equipment is For a transfer from investment property to owner derecognised upon disposal or when no future occupied property or inventories, the deemed cost of economic benefits are expected from its use or property for subsequent accounting is its fair value at disposal. Any gain or loss arising on derecognition of the date of change in use. If the property occupied by the asset (calculated as the difference between the the Company as an owner occupied property becomes net disposal proceeds and the carrying amount of the an investment property, the Company accounts for such asset) is included in the Income Statement in the year property in accordance with the policy stated under the asset is derecognised. property, plant and equipment up to the date of change in use. For a transfer from inventories to investment 2.7.9 Investment Property property, any difference between the fair value of the Properties held to earn rental income and properties property at that date and its previous carrying amount held for capital appreciation have been classified as is recognised in the Income Statement. When the investment property, together with other assets that are Company completes the construction or development of integral to such investment properties. a self-constructed investment property, any difference between the fair value of the property at that date Environmental Resources Investment PLC Annual Report 2011/12 89

and its previous carrying amount is recognised in the The useful lives of intangible assets are assessed to be Income Statement. either finite or indefinite.

2.7.10 Finance Leases - Group as a Lessee Intangible assets with finite lives are amortized over Finance leases which transfer to the Group substantially the useful economic life and assessed for impairment all the risks and benefits incidental to ownership of the whenever there is an indication that the intangible leased item, are capitalised at the inception of the lease assets may be impaired. The amortization period and at the fair value of the leased property or if lower at the the amortization method for intangible assets with present value of the minimum lease payments. Lease finite useful life are reviewed at least at each financial payments are apportioned between the finance charges year end. Changes in the expected useful life or the and reduction of the lease liability so as to achieve a expected pattern of consumption of future economic constant rate of interest on the remaining balance of benefits embodied in the assets is accounted for the liability. Finance charges are charged and reflected by changing the amortization period or method, as in the Income Statement. appropriate and treated as changes in accounting estimates. The amortization expenses on intangible If there is no reasonable certainty that the Group will assets with finite lives are recognized in the Income obtain ownership by the end of the lease term, the Statement in the expense category consistent with the capitalised leased assets are depreciated over the function of the intangible assets. shorter of the estimated useful life of the asset or the lease term, whichever is shorter. The depreciation policy Intangible assets with indefinite useful lives are tested for depreciable leased assets is consistent with that for for impairment annually either individually or at the depreciable asset that are owned as described in Note cash generating unit level. Such intangibles are not 4. amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether Operating lease payments are recognised as an indefinite life assessment continues to be supportable. expense in the Income Statement on a straight line If not, the change in the useful life assessment from basis over the lease term. indefinite to finite is made on a prospective basis.

2.7.11 leasehold Property 2.7.13 Impairment of Non Financial Assets Leasehold property is stated at recorded carrying The Group assesses, at each reporting date, whether values as at the effective date of Sri Lanka Accounting there is an indication that an asset may be impaired. If Standard 19 – Leases. Such carrying amounts are any such indication exists, or when annual impairment amortized over the remaining lease term or useful life of testing for an asset is required, the Group makes an the leased property whichever in shorter. estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash- 2.7.12 Intangible Assets generating unit’s fair value less costs to sell and its Intangible assets acquired separately are measured value in use and is determined for an individual asset, on initial recognition at cost. Following initial unless the asset does not generate cash inflows that recognition, intangible assets are carried at cost less are largely independent of those from other assets any accumulated amortization and any accumulated or Groups of assets. Where the carrying amount of impairment losses. Internally generated intangible an asset exceeds its recoverable amount, the asset assets, excluding capitalized development costs are not is considered impaired and is written down to its capitalized and expenditure is reflected in the Income recoverable amount. In assessing value in use, the Statement in the year in which the expenditure is estimated future cash flows are discounted to their incurred. present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 90 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

fair value less costs to sell, an appropriate valuation 2.7.15 provisions, Contingent Assets and Contingent Liabilities model is used. These calculations are corroborated Provisions are made for all obligations existing as at by valuation multiples or other available fair value the Balance Sheet date when it is probable that such indicators. an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the Impairment losses of continuing operations are outflow. recognised in the Income Statement in those expense categories consistent with the function of the impaired All contingent liabilities are disclosed as a note to the asset, except for property previously revalued where Financial Statements unless the outflow of resources is the revaluation was taken to equity. In this case the remote. impairment is also recognised in equity up to the amount of any previous revaluation. Contingent assets are disclosed, where inflow of economic benefit is probable. For assets, an assessment is made at each reporting date as to whether there is any indication that 2.7.16 government Grants previously recognised impairment losses may no Grants are recognised where there is reasonable longer exist or may have decreased. If such indication assurance that the grant will be received and all exists, the Company makes an estimate of recoverable attaching conditions will be complied with. When the amount. A previously recognised impairment loss grant relates to an expense item, it is recognised as is reversed only if there has been a change in the income over the period necessary to match the grant estimates used to determine the asset’s recoverable on a systematic basis to the costs that it is intended amount since the last impairment loss was recognised. to compensate. Where the grant relates to an asset, If that is the case the carrying amount of the asset is it is set up as deferred income and are credited to the increased to its recoverable amount. That increased Income Statement on a straight – line basis over the amount cannot exceed the carrying amount that expected lives of the related assets. would have been determined, net of depreciation, had no impairment loss been recognised for the asset in 2.7.17 Retirement Benefit Obligations prior years. Such reversal is recognised in the Income (a) Defined Benefit Plan – Gratuity Statement unless the asset is carried at revalued Gratuity is a post-employment benefit plan. Provisions amount, in which case the reversal is treated as a have been made for retirement gratuity from the first revaluation increase. year of service for all employees in conformity with SLAS 16. However, under the payment of Gratuity Act No. 2.7.14 Non-Current Assets Held for Sale and Discontinued Operations 12 of 1983, the liability to an employee arises only on Non-current assets and disposal Groups classified completion of five years of continued service. The Group as held for sale are measured at the lower of carrying is liable to pay gratuity in terms of relevant statute. In amount and fair value less costs to sell. Non-current order to meet this liability, a provision is carried forward assets and disposal Groups are classified as held for in the Balance Sheet. sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. The employee benefit liability of companies defined This condition is regarded as met only when the sale in Appendix D [1] in SLAS 16 with more than 100 is highly probable and the asset or disposal Group is employees is based on the actuarial valuation carried available for immediate sale in its present condition. out by an Independent Professional Actuary. The Management must be committed to the sale, which employee benefit liability of all other companies in the should be expected to qualify for recognition as a Group are based on the gratuity formula in Appendix E completed sale within one year from the date of of SLAS 16 - Employee Benefits classification. Environmental Resources Investment PLC Annual Report 2011/12 91

The item is stated under other deferred liability in the 2.7.19 Revenue Recognition Balance Sheet. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group Recognition of Actuarial Gains and Losses and the revenue and associated costs incurred or Actuarial gains and losses are recognised as income to be incurred can be reliably measured. Revenue is or expenses when the net cumulative unrecognised measured at the fair value of the consideration received actuarial gains and losses at the end of the previous or receivable net of trade discounts and sales taxes. The reporting period exceeded 10% of the higher of the following specific criteria are used for the purpose of defined benefit obligation and the fair value of plan recognition of revenue. assets at the date. (a) Sale of Goods The gains/losses are recognised over the expected Revenue from the sale of goods is recognised when the average remaining working lives of the employees significant risks and rewards of ownership of the goods participating in the plan. have passed to the buyer, usually on dispatch of the Recognition of Past Service Cost goods. Past service costs are recognised as an expense on (b) Rendering of Services a straight line basis over the average period until the Revenue from rendering of services is recognised in the benefits become vested. If the benefits have already accounting period in which the services are rendered been vested, immediately following the introduction or performed. Fees and commission income relating of, or changes to the plan, past service costs are to specific transactions or events are recognised in recognised immediately. the Income Statement in the period in which they are Funding Arrangements earned. However, when they related to services provided The Gratuity liability is not externally funded. over a period, they are recognised in the Income Statement on the accrual basis. (b) Defined Contribution Plans – Employees’ Provident Fund & Employees’ Trust Fund (c) Interest Income Employees are eligible for Employees’ Provident Fund Interest Income is recognised as the interest accrues Contributions and Employees’ Trust Fund Contributions taking into account the effective yield on the asset in line with the respective statutes and regulations. The unless collectability is in doubt. Company contributes 12% and 3% of gross emoluments (d) Dividends of employees to Employees’ Provident Fund and Dividend income from shares is recognized when Employees’ Trust Fund respectively. the shareholders’ right to receive the payment is established. 2.7.18 Segmental Information A business segment is a distinguishable component of (e) Others an enterprise that is engaged in providing an individual Other income is recognised on an accrual basis. product or service or a Group of related products or services that is subject to risk and returns that are Net Gains and losses of a revenue nature on the different from those of other business segments. disposal of property, plant & equipment and other non current assets including investments have been The accounting policies adopted for segment reporting accounted for in the Income Statement, having are the same accounting policies adopted for preparing deducted from proceeds on disposal, the carrying and presenting Consolidated Financial Statements of amount of the assets and related selling expenses. the Group. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 92 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

2.8 eFFECT OF SRI LANKA ACCOUNTING STANDARDS Income). Component of comprehensive income are ISSUED BUT NOT YET EFFECTIVE: not permitted to be presented in the Statement of Following the convergence of Sri Lanka accounting Changes in Equity. This standard also requires the standards with the International Financial Reporting Group to disclose information that enables users Standards, the Group and the Company will be adopting of its Financial Statements to evaluate the Group’s the new Sri Lanka Accounting Standards comprising objectives, policies and processes for managing LKAS and SLFRS applicable for financial periods capital. commencing from January 1, 2012 as issued by The c) LKAS 16 on ’Property, Plant & Equipment will require Institute of Chartered Accountants of Sri Lanka. the Group to initially measure an item of property, The Group and the Company have commenced plant & equipment at cost, using the cash price reviewing its accounting policies and financial reporting equivalent at the recognition date. If payment is in readiness for the transition. As the Group and the deferred beyond normal credit terms, the difference Company has a March 31 year end, priority has been between the cash price equivalent and the total given for the preparation of an opening Balance Sheet payment is recognised as interest over the period, in accordance with the new SLFRSs as at March unless such interest is capitalised in accordance 31,2011. This will form the basis of accounting for the with LKAS 23 on ‘Borrowing Cost’. new SLFRSs in the future, and is required when the All site restoration costs including other Group and the Company prepares its first new SLFRS environmental restoration and similar costs to be compliant Financial Statements for the year ended estimated and capitalised at initial recognition, in March 31, 2012. Set out below are the key areas where order that such costs can be depreciated over the accounting policies will change and may have an impact useful life of the asset. on the Financial Statements of the Group and the Company. The Group is in the process of quantifying the This standard also requires that significant impact on the Financial Statements arising from such components of an asset be evaluated separately for change in accounting policies. However, the estimated depreciation. impact is made on best effort basis and is subject to an audit. d) LKAS 32 on ‘Financial Instruments: Presentation; LKAS 39 on ‘Financial Instruments: Recognition a) SLFRS 1 on ‘First Time Adoption of Sri Lanka and measurement‘and SLFRS 7 on Financial Accounting Standards’ will require the Group to Instruments: Disclosures’ will result in changes to prepare and present opening new SLFRS Financial the current method of recognising financial assets, Statements at the date of transition to new SLFRS. financial liabilities and equity instruments. These The Group shall use the same accounting policies standards will require measurement of financial in its opening new SLFRS financial statement and assets & financial liabilities and equity instruments. throughout all periods presented in its first new These standards will require measurement of SLFRS Financial Statements. Those accounting financial assets and financial liabilities at fair policies should comply with each new SLFRS value at initial measurement. The subsequent effective as at March 31, 2012. measurement of financial assets classified as fair value through profit or loss and available for sale b) LKAS 1 on ‘Presentation of Financial Statements’ will be at fair value, with the gains and losses routed will require an entity to present, in a Statement through the Statements of Comprehensive Income of Changes in Equity, all owner changes in equity. and Other Comprehensive Income respectively. All non owner changes in equity are required to be presented in one statement of comprehensive Financial assets classified as held to maturity income or in two statements (a separate Income and loans and receivables will be measured Statement and a Statement of Comprehensive Environmental Resources Investment PLC Annual Report 2011/12 93

subsequently at amortised cost. These assets will g) LKAS 12 on ‘Income Taxes’ will require deferred need to be assessed for any objective evidence tax to be provided for in respect of temporary of impairment as a result of one or more events differences which will arises as a result of that occurred after the initial recognition of the adjustments made to comply with the new SLFRS. assets (a ’loss event’)and the loss event (or events) has an impact on the estimated future cash h) LKAS 18 on ‘Revenue’ will require the Group to flows of the Financial Assets that can be reliably measure revenue at fair value of the consideration estimated. As such the current method of assessing received or receivable. It also specifies recognition the impairment will have to be based on the criteria for revenue, and the Group needs to requirements of these new standards. apply such recognition criteria to the separately identifiable components of a single transaction in Financial liabilities will be either classified as fair order to reflect the substance of the transaction. value through profit or loss or at amortised cost. At present, the Group does not identify, categories and measure financial assets and liabilities as per the requirements of the standard and certain derivative instruments are not recognised on the Balance Sheet, and hence require a change in accounting policy. e) SLFRS 3 on ‘Business Combinations’ will require the Group to apply this standard to transactions and other events that meet the new definition of a business i.e. an integrated set of assets and activities which are capable of being conducted and managed to provide a return, as opposed to a mere asset acquisition. Under the new acquisition method of accounting, in addition to recognising and measuring in its Financial Statements the identifiable assets acquired and liabilities assumed, the standard also requires recognition and measurement of any non-controlling interest in the acquirement and re-measuring to fair value any previously held interest which could have an impact on the recognition of goodwill. Subsequent to the acquisition of control, any acquisition or disposal of non-controlling interest without loss of control will be accounted for as equity transactions and cannot be recognised as profit or loss on disposal of investments in the Statement of Comprehensive Income. f) LKAS 32 on ‘Borrowing Cost’ the Group must capitalise borrowing costs in relation to a qualifying asset. Since the current policy is to expense all borrowing costs, this will result in a change in accounting policy. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 94 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

Group Company Year Ended 31 March 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

3. REVENUE 3.1 Summary Gross Revenue 6,085,035,311 2,363,511,469 175,550,875 255,184,781 Less: Turnover Tax - (155,461,785) - - Revenue 6,085,035,311 2,208,049,684 175,550,875 255,184,781

Manufacturing Footwear Manufacturing Porcelain Manufacturing Textile Stock Brokering Investment Pharmaceutical Services Total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Year Ended 31 March Restated Restated Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

3.2 Segment Information Group Total Revenue 1,592,138,817 1,051,043,784 1,157,367,824 777,371,177 2,779,297,479 - 46,680,215 68,335,592 73,274,971 251,993,091 116,895,669 59,306,040 319,380,337 - 6,085,035,311 2,208,049,684

Results - Segment Results 252,766,875 206,342,506 (77,907,342) 6,724,663 (1,260,777) - 6,348,714 46,216,927 123,220,360 497,256,948 78,233,484 7,288,922 (5,601,641) - 375,799,672 763,829,966 Finance Costs (12,726,969) (25,331,924) (13,037,478) (8,323,020) (96,560,861) - - - - - (2,619,206) 142,877 (18,380,289) - (143,324,801) (33,512,067) Impairment Loss on Asset Held for Sale ------(201,026,512) - - - - - (201,026,512) Allowance for Fall in Value of Investment (5,804,167) (96,107) (9,317,866) - - - - - (52,471,620) - - - - - (67,593,653) (96,107) Share of Profits of Associates ------42,043,284 - - - - - 42,043,284 Profit/(Loss) Before Income Tax 234,235,739 180,914,474 (100,262,686) (1,598,356) (97,821,638) - 6,348,714 46,216,927 70,748,740 338,273,720 75,614,278 7,431,799 (23,981,930) - 164,881,218 571,238,564 Income Tax Expense (82,595,623) (68,412,232) 5,955,888 857,474 3,061,087 2,826,233 (12,382,033) (2,105,212) (17,539,686) 7,279,080 6,912,487 2,144,106 - (63,434,441) (90,563,990) Profit/(Loss) for the Year 151,640,116 112,502,242 (94,306,798) (740,882) (94,760,551) - 9,174,947 33,834,894 68,643,528 320,734,034 82,893,358 14,344,286 (21,837,824) - 101,446,777 480,674,574

Equity Holders of the Parent 125,906,657 443,401,536 Minority Interest (24,459,880) 37,273,038 101,446,777 480,674,574

Assets and Liabilities Non-Current Assets 1,371,265,942 646,530,756 501,274,308 483,725,138 1,251,521,074 1,355,668,824 16,468,584 12,448,513 1,550,291,605 4,519,064,767 898,667,866 730,803,564 340,221,927 316,592,630 5,929,711,306 8,064,834,192 Current Assets 1,191,462,777 669,784,376 701,220,004 780,795,124 1,473,117,468 1,737,349,235 157,420,405 190,428,198 3,076,652,546 389,375,271 105,402,497 110,441,922 287,878,656 254,495,649 6,993,154,354 4,132,669,775 Total Assets 2,562,728,719 1,316,315,132 1,202,494,312 1,264,520,262 2,724,638,542 3,093,018,059 173,888,989 202,876,711 4,626,944,151 4,908,440,038 1,004,070,363 841,245,486 628,100,583 571,088,279 12,922,865,660 12,197,503,967

Non-Current Liabilities 147,417,342 128,158,303 94,804,109 114,630,556 115,783,286 165,470,869 1,503,439 718,875 2,193,520 1,964,993 37,556,232 27,435,117 13,934,916 43,533,377 413,192,844 481,912,090 Current Liabilities 193,905,382 145,671,236 390,556,829 361,661,577 1,658,483,022 1,910,066,919 33,064,079 73,731,858 5,924,989 22,711,794 74,967,768 25,251,359 473,971,495 355,631,708 2,830,873,564 2,894,726,451 Total Liabilities 341,322,724 273,829,539 485,360,938 476,292,133 1,774,266,308 2,075,537,788 34,567,518 74,450,733 8,118,510 24,676,787 112,524,000 52,686,476 487,906,409 399,165,085 3,244,066,408 3,376,638,541 Environmental Resources Investment PLC Annual Report 2011/12 95

Group Company Year Ended 31 March 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

3. REVENUE 3.1 Summary Gross Revenue 6,085,035,311 2,363,511,469 175,550,875 255,184,781 Less: Turnover Tax - (155,461,785) - - Revenue 6,085,035,311 2,208,049,684 175,550,875 255,184,781

Equity Holders of the Parent 125,906,657 443,401,536 Minority Interest (24,459,880) 37,273,038 101,446,777 480,674,574

Non-Current Liabilities 147,417,342 128,158,303 94,804,109 114,630,556 115,783,286 165,470,869 1,503,439 718,875 2,193,520 1,964,993 37,556,232 27,435,117 13,934,916 43,533,377 413,192,844 481,912,090 Current Liabilities 193,905,382 145,671,236 390,556,829 361,661,577 1,658,483,022 1,910,066,919 33,064,079 73,731,858 5,924,989 22,711,794 74,967,768 25,251,359 473,971,495 355,631,708 2,830,873,564 2,894,726,451 Total Liabilities 341,322,724 273,829,539 485,360,938 476,292,133 1,774,266,308 2,075,537,788 34,567,518 74,450,733 8,118,510 24,676,787 112,524,000 52,686,476 487,906,409 399,165,085 3,244,066,408 3,376,638,541 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 96 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

4. PROPERTY, PLANT & EQUIPMENT Balance Business Revaluations Additions Disposals/ Balance As At Acquisitions Transfers As At 01.04.2011 31.03.2012 Restated Rs. Rs. Rs. Rs. Rs. Rs. Group 4.1 At Cost or Valuation Freehold Land 737,743,002 - 59,495,824 6,000,000 - 803,238,826 Land Development Cost 20,361,232 - - - - 20,361,232 Building on Freehold & Leasehold Land 528,657,618 116,313,290 (40,937,131) 27,819,336 - 631,853,113 Plant & Machinery 1,447,930,232 75,234,433 - 61,847,171 8,790,039 1,593,801,876 Network Cabling 3,274,646 - - - - 3,274,646 Network Internet 77,081 - - - - 77,081 Server Software 3,695,682 1,455,575 - - - 5,151,257 Server Hardware 250,552 - - - - 250,552 Communication Equipment 11,311,424 - - 53,560 - 11,364,984 Production Equipment 229,872,111 21,186,730 - 24,050,254 (59,500) 275,049,594 Tools & Equipment 3,257,866 - - - - 3,257,866 Office Equipment 50,173,492 1,372,300 - 3,606,131 (83,750) 55,068,172 Furniture, Fixtures & Other Equipment 48,374,761 596,117 - 3,891,532 (519,249) 52,343,161 Electrical Installation 99,897,983 1,301,795 - 253,555 - 101,453,333 Motor Vehicles 291,928,823 3,572,978 - 78,723,374 (78,294,274) 295,930,901 Equipment for Export Shoe Project 1,881,312 - - - - 1,881,312 Kumarimulla River Embankment Project 44,838,651 - - - - 44,838,651 Water Purification Project 40,417,145 - - 336,562 - 40,753,707 Waste Water Project 25,504,771 - - - - 25,504,771 Roadways & Fencing 2,687,404 - - - - 2,687,404 Sound Equipment 181,438 - - - - 181,438 Wells & Tanks 1,621,985 - - - - 1,621,985 Welfare Equipment 2,632,700 - - 138,407 - 2,771,107 Power Supply 19,524,519 - - - - 19,524,519 Security Equipment 114,303 840,750 - 7,550,889 - 8,505,943 Shop Assets 8,835,501 - - 383,255 - 9,218,756 Frankfurt Fair Equipment 2,174,447 - - - - 2,174,447 Kiln Furniture 32,342,135 - - - - 32,342,135 Kiln 386,208,099 - - - - 386,208,099 Computers 112,979,361 2,675,970 - 9,349,622 (17,000) 124,987,953 4,158,750,278 224,549,938 18,558,693 224,003,647 (70,183,735) 4,555,678,821

Environmental Resources Investment PLC Annual Report 2011/12 97

4. PROPERTY, PLANT & EQUIPMENT (Contd.) Balance Business Revaluations Additions Disposals/ Balance As At Acquisitions Transfers As At 01.04.2011 31.03.2012 Restated Rs. Rs. Rs. Rs. Rs. Rs.

Assets on Finance Leases Office Equipment 2,250,470 - - - - 2,250,470 Motor Vehicles 18,905,090 - - - (2,550,000) 16,355,090 Leasehold Building 638,162,150 - (5,032,600) - - 633,129,550 659,317,710 - (5,032,600) - (2,550,000) 651,735,110

In the Course of Construction Factory Equipment Installation 5,310,804 - - 1,901,799 (1,038,806) 6,173,797 Dyeing Machine Installation 54,916,854 - - - (949,479) 53,967,375 Finishing Stenter 5,681,154 - - - - 5,681,154 Chimney Installation 273,287 - - - - 273,287 Capital Work in Progress 8,790,039 - - 1,477,780 (8,790,039) 1,477,780 74,972,138 - - 3,379,579 (10,778,324) 67,573,393 Total Gross Carrying Amount 4,893,040,126 224,549,938 13,526,093 227,383,227 (83,512,059) 5,274,987,324 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 98 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

4. PROPERTY, PLANT & EQUIPMENT (Contd.) Balance Business Revaluations Charge for Disposals/ Balance As At Acquisitions the Period Transfers As At 01.04.2011 31.03.2012 Restated Rs. Rs. Rs. Rs. Rs. Rs. Group 4.2 Accumulated Depreciation At Cost Land Development Cost 10,062,421 - - 2,036,119 - 12,098,540 Building on Freehold & Leasehold Land 24,763,748 6,763,832 (42,926,285) 20,730,394 - 9,331,689 Plant & Machinery 828,574,948 8,278,585 - 122,557,271 - 959,410,805 Network Cabling 3,009,010 - - 172,036 - 3,181,046 Network Internet 77,081 - - - - 77,081 Server Software 3,191,038 1,396,896 - 518,109 - 5,106,043 Server Hardware 250,552 - - - - 250,552 Communication Equipment 9,265,182 - - 607,661 - 9,872,843 Production Equipment 183,171,641 16,650,062 - 13,113,450 (30,364) 212,904,789 Tools & Equipment 3,102,669 - - 83,408 - 3,186,077 Office Equipment 36,025,772 765,028 - 4,153,889 (73,129) 40,871,561 Furniture, Fixtures & Office Equipment 32,793,909 419,792 - 5,825,876 (519,208) 38,520,369 Electrical Installation 88,960,996 434,852 - 8,051,958 - 97,447,806 Motor Vehicles 62,520,617 1,115,538 - 42,861,091 (17,491,700) 89,005,546 Equipment for Export Shoe Project 1,750,400 - - - - 1,750,400 Kumarimulla River Embankment Project 13,482,045 - - 4,483,865 - 17,965,910 Water Purification Project 12,059,382 - - 4,041,714 - 16,101,096 Waste Water Project 7,690,579 - - 2,550,477 - 10,241,056 Roadways & Fencing 1,384,683 - - 67,324 - 1,452,007 Sound Equipment 176,331 - - 1,305 - 177,636 Wells & Tanks 851,470 - - 40,661 - 892,131 Welfare Equipment 2,156,297 - - 107,459 - 2,263,756 Power Supply 6,508,511 - - 392,629 - 6,901,140 Security Equipment 114,303 734,031 - 145,122 - 993,456 Shop Assets 7,547,977 - - 663,750 - 8,211,727 Frankfurt Fair Equipment 2,174,446 - - - - 2,174,446 Kiln Furniture 32,342,135 - - - - 32,342,135 Kilns 334,922,881 - - 7,062,059 - 341,984,940 Computers 97,575,742 2,114,798 - 8,307,640 (17,000) 107,981,181 1,806,506,766 38,673,415 (42,926,285) 248,575,268 (18,131,401) 2,032,697,763 Assets on Finance Leases Office Equipment 1,120,522 - - 225,047 - 1,345,569 Motor Vehicles 3,196,453 - - 3,116,054 (1,983,730) 4,328,777 Leasehold Building 4,479,550 - (14,736,805) 14,736,805 - 4,479,550 8,796,525 - (14,736,805) 18,077,906 (1,983,730) 10,153,896 Total Depreciation 1,815,303,291 38,673,415 (57,663,090) 266,653,174 (20,115,131) 2,042,851,659 Environmental Resources Investment PLC Annual Report 2011/12 99

4. PROPERTY, PLANT & EQUIPMENT (Contd.) 2012 2011 Restated Rs. Rs. 4.3 Net Book Values At Cost or Valuation Freehold Land 803,238,826 737,743,002 Land Development Cost 8,262,692 10,298,811 Building on Freehold Land & Leasehold Land 622,521,424 503,893,870 Plant & Machinery 634,391,071 619,355,284 Network Cabling 93,600 265,636 Network Internet - - Server Software 45,214 504,644 Server Hardware - - Communication Equipment 1,492,141 2,046,242 Production Equipment 62,144,805 46,700,470 Tools & Equipment 71,789 155,197 Office Equipment 14,196,611 14,147,719 Furniture, Fixtures & Office Equipment 13,822,793 15,580,853 Electrical Installation 4,005,527 10,936,987 Motor Vehicles 206,925,355 229,408,206 Equipment for Export Shoe Project 130,912 130,912 Kumarimulla River Embankment Project 26,872,741 31,356,606 Water Purification Project 24,652,611 28,357,763 Waste Water Project 15,263,715 17,814,192 Roadways & Fencing 1,235,397 1,302,721 Sound Equipment 3,802 5,107 Wells & Tanks 729,854 770,515 Welfare Equipment 507,351 476,403 Power Supply 12,623,379 13,016,008 Security Equipment 7,512,487 - Shop Assets 1,007,029 1,287,524 Frankfurt Fair Equipment - - Kiln Furniture - - Kiln 44,223,159 51,285,218 Computers 17,006,772 15,403,619 2,522,981,058 2,352,243,511 Assets on Finance Leases Office Equipment 904,901 1,129,948 Motor Vehicles 12,026,313 15,708,637 Leasehold Building 628,650,000 633,682,600 641,581,214 650,521,185 In the Course of Construction Factory Equipment Installation 6,173,797 5,310,804 Dyeing Machine Installation 53,967,375 54,916,854 Finishing Stenter 5,681,154 5,681,154 Chimney Installation 273,287 273,287 Capital Work in Progress 1,477,780 8,790,039 67,573,393 74,972,138 Total Carrying Amount of Property, Plant & Equipment 3,232,135,665 3,077,736,834 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 100 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

4. PROPERTY, PLANT & EQUIPMENT (Contd.) 4.4 During the financial year the Group acquired Property, Plant & Equipment to the aggregate value of Rs. 225,394,952/- for cash. (2011 - Rs. 300,924,159/-)

4.4.1 Land, Buildings and Plant & Machinery with a carrying amount of Rs. 960,359,439/- (2011 - Rs. 864,090,239/-) of Ceylon Leather Products PLC are subject to a primary mortgage of Rs. 342,000,000/- (2011 - Rs. 342,000,000/-) to secure the overdraft and other banking facilities obtained from Peoples Bank and Hatton National Bank PLC.

4.4.2 Factory buildings and machineries with a carrying amount of Rs. 528,613,963/- (2011 - Rs. 609,022,629/-) of South Asia Textile Industries Lanka (Pvt) Ltd are subjected to a primary mortgage, to secure the overdraft and import facilities obtained from People’s Bank.

4.5 Details of Revalued Assets Group Details of Group Land and Building stated at Valuation are indicated below

Company Property Method of Value Valuers Details Effective Date of Valuation Rs. Valuation

Ceylon Leather Land of Mattakkuliya Open Market Value 448,740,000 Mr. Chulananda Wellappili, 30 March 2012 Products PLC Buildings of Mattakkuliya Method 30,260,000 Independent Incorporated Valuer

Ceylon Leather Land of Balummahara Open Market Value 97,563,750 Mr. Chulananda Wellappili, 30 March 2012 Products PLC Building of Balummahara Method 239,774,250 Independent Incorporated Valuer

Dankotuwa Porcelain Land of Kurunagala Open Market Value 137,400,366 Mr. Chulananda Wellappili, 31 March 2012 PLC Building of Kurunagala Method 231,788,063 Independent Incorporated Valuer

The Colombo Land of Bambalapitiya Open Market Value 113,534,710 Mr. Chulananda Wellappili, 28 March 2012 Pharmacy Company Building of Bambalapitiya Method 8,465,290 Independent Incorporated Valuer PLC

South Asia Textile Land & Building of Open Market Value 628,650,000 Mr. Chulananda Wellappili, 30 March 2012 Industries Lanka Pugoda Method Independent Incorporated Valuer (Pvt) Ltd Environmental Resources Investment PLC Annual Report 2011/12 101

4. PROPERTY, PLANT & EQUIPMENT (Contd.)

4.6 Details of Revalued Assets The carrying amount of revalued assets of the Group that would have been included in the financial statements had that been carried at cost less depreciation is as follows: Ceylon Leather Products PLC The fair values of Land & Buildings of No 64, Belummahara, Mudungoda & 115/1, Kelani Ganga Mill Road, Mattakkuliya determined by means of revaluation during the financial year 2011/ 2012 by Mr. Chulananda Wellappili an incorporated Valuer, in reference to open market value for existing use basis. The results of such revaluation were incorporated in these Financial Statements from its effective date which is 30 March 2012 .The surplus arising from the revaluation was transferred to a revaluation reserve.

Cost. Cumulative Net Carrying Net Carrying Depreciation Amount Amount If Assets Were 2012. 2011. Carried at Cost Rs. Rs. Rs. Rs.

Class of Asset Freehold Land 32,046,453 - 32,046,453 32,046,453 Buildings on Freehold Land 114,276,885 22,076,723 92,200,162 96,256,381 Plant & Machinery 124,077,738 118,943,877 5,133,861 8,833,658 Production Equipment 21,377,692 15,935,970 5,441,722 6,389,851 Shoe Last 13,128,885 9,692,592 3,436,293 3,920,067 304,907,653 166,649,162 138,258,491 147,446,410

Dankotuwa Porcelain PLC The fair value of land and buildings situated at Dankotuwa was determined by means of a revaluation during the financial year 2011/12 by Mr. Chulananda Wellapplli, an independent valuer in reference to market based evidences. The results of such revaluation were incorporated in these Financial Statements from its effective date which is 30 March 2012. The surplus arising from the revaluation, was transferred to a revaluation reserve.

Cost. Cumulative Net Carrying Net Carrying Depreciation Amount Amount If Assets Were 2012. 2011. Carried at Cost Rs. Rs. Rs. Rs.

Class of Asset Land 250,000 - 250,000 250,000 Building - Freehold 162,394,253 60,943,397 101,450,856 105,510,712 162,644,253 60,943,397 101,700,856 105,760,712 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 102 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

4. PROPERTY, PLANT & EQUIPMENT (Contd.) the Colombo Pharmacy Company PLC The fair value of land and buildings situated at Bambalapitiya was determined by means of a revaluation during the financial year 2011/12 by Mr. Chulananda Wellapplli, an independent valuer in reference to market based evidences. The results of such revaluation were incorporated in these Financial Statements from its effective date which is 28 March 2012. The surplus arising from the revaluation was transferred to a revaluation reserve.

Cost. Cumulative Net Carrying Net Carrying Depreciation Amount Amount If Assets Were 2012. 2011. Carried at Cost Rs. Rs. Rs. Rs.

Class of Asset Land 25,802 - 25,802 25,802 Building - Freehold 2,700,321 574,867 2,125,454 2,176,060 2,726,123 574,867 2,151,526 2,201,862

South Asia Textile Industries Lanka (Pvt) Ltd The fair value of land and buildings situated at Pugoda was determined by means of a revaluation during the financial year 2011/12 by Messrs. Mr. Chulananda Wellapplli, an independent valuer in reference to market based evidences. The results of such revaluation were incorporated in these Financial Statements from its effective date which is 30 March 2012. The surplus arising from the revaluation was transferred to a revaluation reserve.

Cost. Cumulative Net Carrying Net Carrying Depreciation Amount Amount If Assets Were 2012. 2011. Carried at Cost Rs. Rs. Rs. Rs.

Class of Asset Building - Leasehold 257,815,813 34,054,146 223,761,667 229,036,647 257,815,813 34,054,146 223,761,667 229,036,647

Balance Additions Disposals/ Balance As At Transfers As At 01.04.2011 31.03.2012 Rs. Rs. Rs. Rs.

Company 4.6 At Cost Furniture, Fixtures & Other Equipment 8,270,883 42,363 - 8,313,246 Computers 6,295,762 1,099,500 - 7,395,262 Motor Vehicles 233,088,655 - (69,696,188) 163,392,467 Total Assets 247,655,300 1,141,863 (69,696,188) 179,100,975 Environmental Resources Investment PLC Annual Report 2011/12 103

4. PROPERTY, PLANT & EQUIPMENT (Contd.)

Balance Charge for Disposals/ Balance As At the Year Transfers As At 01.04.2011 31.03.2012 Rs. Rs. Rs. Rs.

Company 4.7 Depreciation Furniture, Fixtures & Other Equipment 2,924,057 2,246,793 - 5,170,850 Computer 1,614,625 1,730,826 - 3,345,451 Motor Vehicles 9,897,618 33,040,098 (8,897,614) 34,040,102 Total Depreciation 14,436,300 37,017,717 (8,897,614) 42,556,403

2012 2011 Rs. Rs.

Company 4.8 Net Book Values At Cost Furniture, Fixtures & Other Equipment 3,142,396 5,346,825 Computer 4,049,811 4,681,137 Motor Vehicles 129,352,365 223,191,037 Total Carrying Amount of Property, Plant & Equipment 136,544,572 233,218,999 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 104 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

4. PROPERTY, PLANT & EQUIPMENT (Contd.)

2012 2011

4.9 the Useful Lives of the Assets of the Companies in the Group is Estimated as Follows. Land Development Cost 10 Years 10 Years Building on Freehold Land & Leasehold Land 10-40 Years 10-40 Years Plant & Machinery 10 Years 10 Years Network Cabling 5 Years 5 Years Network Internet 5 Years 5 Years Server Software 3 Years 3 Years Server Hardware 3 Years 3 Years Communication Equipment 5 Years 5 Years Production Equipment 8-18.18 Years 8-18.18 Years Tools & Equipment 5 Years 5 Years Office Equipment 4-5 Years 4-5 Years Furniture & Fixtures 4-10 Years 4-10 Years Electrical Installation 5 Years 5 Years Motor Vehicles 4-6 Years 4-6 Years Equipment for Export Shoe Project 10 Years 10 Years Kumarimulla River Embankment Project 10 Years 10 Years Water Purification Project 10 Years 10 Years Waste Water Project 10 Years 10 Years Roadways & Fencing 40 Years 40 Years Sound Equipment 6.67 Years 6.67 Years Wells & Tanks 40 Years 40 Years Welfare Equipment 6.67 Years 6.67 Years Power Supply 50 Years 50 Years Security Equipment 2-6.67 Years 2-6.67 Years Shop Assets 10 Years 10 Years Frankfurt Fair Equipment 6.67 Years 6.67 Years Kiln Furniture 3 Years 3 Years Kilns 15 Years 15 Years Computers 1-4 Years 1-4 Years Market Promotional Equipment 1 Years 1 Years Leasehold Building 50 Years 50 Years

4.10 During the financial year the Company acquired Property, Plant & Equipment to the aggregate value of Rs. 1,141,863/- (2011 - Rs. 238,907,582/-) for cash. Environmental Resources Investment PLC Annual Report 2011/12 105

5. LEASEHOLD PROPERTY 2012 2011 Rs. Rs.

Group At the Beginning of the Year - - Business Acquisition 26,088,000 - Amortisation for the year (81,177) - At the End of the year 26,006,823 -

5.1 The recognised right on the leasehold land of Palla & Company (Pvt) Ltd will benefit the group over the remaining leasehold period of 80 years.

6. INVESTMENT PROPERTY 2012 2011 Rs. Rs.

Group Balance as at the Beginning of the Year 726,344,000 - Business Acquisitions - 726,344,000 Additions 60,078,301 - Net Gain / (Loss) from Fair Value Adjustment 117,327,699 - Balance as at the End of the Year 903,750,000 726,344,000 Investment properties are stated at fair value, which have been determined on the basis of a market value of land and buildings. A professional valuation was performed on the investment property of The Colombo Pharmacy Company PLC (Located at Union Place) and on the investment property of Enterprise Technology (Pvt) Ltd (Located at Bolgoda) by Messrs. Mr. Chulananda Wellappili, incorporated valuer as at 31 March 2012 and 28 March 2012 respectively.

7. INTANGIBLE ASSETS 2012 2011 Restated Rs. Rs.

Group Goodwill (Note 7.1) 1,015,187,616 800,969,234 Computer Software (Note 7.2) 564,838,280 597,921,207 Brand Name (Note 7.3) 33,296,550 35,049,000 Total Intangible Assets 1,613,322,446 1,433,939,441 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 106 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

7. INTANGIBLE ASSETS (Contd.) 2012 2011 Restated Rs. Rs. Group 7.1 Goodwill Balance at the Beginning of the Year 800,969,234 53,243,537 Acquired During the Year 214,218,382 747,725,697 Balance at the End of the Year (Note 7.1.1) 1,015,187,616 800,969,234

7.1.1 Goodwill represents the excess of an acquisition over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition, and is carried at cost less accumulated impairment losses.

Goodwill is not amortized, but is reviewed for impairment annually and whether there is an indication that goodwill may be impaired. For the purpose of testing goodwill for impairment, goodwill is allocated to the operating entity level, which is the lowest level at which the goodwill is monitored for internal management purpose.

2012 2011 Rs. Rs. 7.2 Software Balance at the Beginning of the Year 597,921,207 2,765,000 Business Acquired During the Period - 588,547,117 Additions During the Period - 7,434,457 Amortization During the Period (33,082,927) (825,367) Balance at the End of the Year (Note 7.2.1) 564,838,280 597,921,207

7.2.1 It is estimated that this locally purchased computers Software benefits the Group over a period of 10-20 years, and is being amortized over a period of 10-20 years. Software of the Group represents the locally developed software and the licensed version of the Microsoft Office and internally developed software of Olancom (Pvt) Ltd.

2012 2011 Rs. Rs. 7.3 Brand Name Balance at the Beginning of the Year 35,049,000 - Business Acquisition - 35,049,000 Amortization During the Period (1,752,450) - Balance at the end of the year (Note 7.3.1) 33,296,550 35,049,000

7.3.1 Brand Name of the Group represents the trade mark of “RoomsNet” which belongs to RoomsNet International Limited and is amortised over 20 years. Environmental Resources Investment PLC Annual Report 2011/12 107

7. INTANGIBLE ASSETS (Contd.) 2012 2011 Rs. Rs. Company 7.4 Summary Computer Software (Note 7.4.1) 3,902,027 837,972 3,902,027 837,972 7.4.1 Software Balance at the Beginning of the Year 837,972 - Acquired During the Period 3,500,000 859,458 Amortization During the Period (435,945) (21,486) Balance at the End of the Year (Note 7.4.2) 3,902,027 837,972

7.4.2 It is estimated that this locally purchased Computer Software benefits the company over a period of 10 years and stated at cost less accumulated amortizations.

8. INVESTMENT IN SUBSIDIARIES 2012 2011 2012 2012 2011 2011 Holding Holding Cost Market Cost Market Value Value % % Rs. Rs. Rs. Rs.

Company 8.1 Investments in Equity Securities - Quoted Ceylon Leather Products PLC 86.09% 72.47% 2,528,892,344 2,708,454,101 1,375,764,324 1,630,521,180 The Colombo Pharmacy Company PLC 66.40% 66.40% 555,395,635 649,082,112 555,395,635 2,898,979,886 Dankotuwa Porcelain PLC 58.36% 58.36% 379,474,650 687,256,900 379,474,650 2,525,563,700 3,463,762,629 4,044,793,113 2,310,634,609 7,055,064,766

2012 2011 2012 2012 2011 2011 Holding Holding Cost Directors Cost Directors Value Value % % Rs. Rs. Rs. Rs.

8.2 Investments in Equity Securities - Non - Quoted DNH Financial (Pvt) Ltd 100.00% 100.00% 156,015,923 156,015,923 156,015,923 156,015,923 Olancom (Pvt) Ltd 93.15% 93.15% 200,000,000 200,000,000 200,000,000 200,000,000 356,015,923 356,015,923 356,015,923 356,015,923 Total Carrying Value of Investments 3,819,778,552 2,666,650,532 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 108 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

9. INVESTMENT IN ASSOCIATE 2012 2011 Carrying Proceed Profit Carrying Holding Holding Value from from Value 2011 Disposal Disposal 2012 % % Rs. Rs. Rs. Rs.

9.1 group Non - Quoted Environmental Resources Limited - 23.85% 2,196,196,117 2,168,298,000 (27,898,117) - total Investment in Associate 2,196,196,117 2,168,298,000 (27,898,117) - 9.2 Company Environmental Resources Limited - 23.85% 2,059,324,720 2,168,298,000 108,973,280 - Total Investment in Associate 2,059,324,720 2,168,298,000 108,973,280 -

10. OTHER INVESTMENTS No of Carrying Directors Carrying Directors Shares Value Valuation Value Valuation 2012 2012 2012 2011 2011 Rs. Rs. Rs. Rs.

10.1 Group Ned Lanka (Ceylon) Limited 133,500 1,954,440 3,576,465 1,954,440 3,960,861

10.2 Company Enterprise Technology (Pvt) Ltd* 10,000,000 100,000,000 100,000,000 100,000,000 100,000,000 South Asia Textile Industries Lanka (Pvt) Ltd 60,087,950 160,000,000 160,000,000 160,000,000 160,000,000 260,000,000 260,000,000 260,000,000 260,000,000

* Investment is made in the Preference Shares of the company. Environmental Resources Investment PLC Annual Report 2011/12 109

11. OTHER NON-CURRENT ASSETS 2012 2011 Rs. Rs. 11.1 Group Deposit with Colombo Stock Exchange 7,790,000 7,790,000 Investments in Call & Fixed Deposits 29,336,282 619,474,843 Debenture Investment in Seylan Bank PLC 1,000,000 1,000,000 Debenture Investment in Pan Asia Banking Corporation PLC 108,000,000 - 146,126,282 628,264,843

11.2 Company Investment in Deposit - 600,000,000 - 600,000,000

12. INVENTORIES 2012 2011 Rs. Rs. Group Raw Material 677,642,675 627,854,630 Work in Progress 241,116,170 239,357,341 Finished Goods 349,240,772 348,678,087 Indirect Material 19,981,059 16,428,898 Spare Stock 5,804,228 27,256,848 General Stock 35,320,061 6,668,335 Semi Finished Goods 109,225,375 87,798,435 Packing Material 10,788,639 6,137,237 Network Items 3,183,041 17,700,300 Project in Progress 13,359,535 4,895,613 Others 12,789,566 44,776,428 Pharmaceutical Items 20,075,386 16,927,390 Less : Allowance for Obsolete & Slow Moving Inventories (158,077,539) (180,595,125) 1,340,448,968 1,263,884,417 Consumable and Spares 82,418,164 67,458,152 Goods-In-Transit 66,563,916 63,828,542 1,489,431,048 1,395,171,111 Unrealised Profit (10,319,167) (9,294,473) Total Inventories at the Lower of Cost and Net Realizable Value 1,479,111,881 1,385,876,638

12.1. Inventories are valued at Rs. 778,228,902/- of South Asia Textile Industries Lanka (Pvt) Ltd is pledged as securities for loan facilities obtained from People’s Bank. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 110 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

13. TRADE AND OTHER RECEIVABLES Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. 13.1 Summary Trade Debtors - Related Party (Note 13.2) 458,606,965 366,722,742 - - - Other 1,076,906,246 869,312,570 - - Less: Allowance for Bad & Doubtful Debtors (246,143,840) (151,339,906) - - 1,289,369,371 1,084,695,406 - - Other Receivables - Related Party (Note 13.3) 2,316,767,280 205,939,222 2,330,715,129 113,900,555 - Other 250,624,295 287,146,211 5,572,926 28,517,696 Loan Receivables (Note 13.4) 16,821,489 16,934,839 636,064,782 636,064,782 Advances and Prepayments 287,746,873 239,233,501 11,772,316 16,553,918 Less: Allowance for Bad & Doubtful Debtors (414,095,067) (135,896,604) (21,833,913) (21,833,913) Total Trade and Other Receivables 3,747,234,241 1,698,052,575 2,962,291,240 773,203,038

Relationship 2012 2011 Rs. Rs. 13.2 trade Debtors - Related Party Group JK Apparel (Pvt) Ltd Related Company 132,329,846 112,314,759 South Asia Textile Industries (Pte) Ltd- Singapore Related Company 314,926,199 254,407,983 Lionhart Investments Limited Parent Company 321,585 - Sampath Leasing and Factoring Ltd Related Company 49,694 - International Ceramic Corporation Related Company 9,755,985 - Ceylon Tea Sercices PLC Related Company 1,223,656 - 458,606,965 366,722,742 13.3 Other Receivables - Related Party Group South Asia Laundry Lanka (Pvt) Ltd Related Company 160,664,061 160,664,061 JK Apparel (Pvt) Ltd Related Company 48,716,872 45,275,161 Porton Global Limited Related Company 2,107,386,347 - 2,316,767,280 205,939,222 Company DNH Financial (Pvt)Ltd Subsidiary 17,980,325 17,359,390 Enterprise Technology (Pvt) Ltd Subsidiary 55,687,854 21,848,621 Olancom (Pvt) Ltd Subsidiary 113,644,761 65,692,544 Ceylon Leather Products PLC Subsidiary 19,987,681 9,000,000 The Colombo Pharmacy Company PLC Subsidiary 4,000,000 - Dankotuwa Porcelain PLC Subsidiary 6,000,000 - South Asia Textile Industries Lanka (Pvt) Ltd Subsidiary 6,028,160 - Photon Global Limited. Related Company 2,107,386,347 - 2,330,715,129 113,900,555 Environmental Resources Investment PLC Annual Report 2011/12 111

13. TRADE AND OTHER RECEIVABLES (Contd.)

2012 2011 Rs. Rs. 13.4 loan Receivables 13.4.1 Group D. B. Exim (Pvt) Ltd 12,012,426 12,012,426 Loans to Company Officers 4,809,063 4,922,413 16,821,489 16,934,839

As At Granted During Repayments As At 01.04.2011 the year 31.03.2012 Rs. Rs. Rs. Rs. loans to Company Officers Summary Loans to Company Officers 4,922,413 9,255,476 (9,368,826) 4,809,063 4,922,413 9,255,476 (9,368,826) 4,809,063

Interest Payment on 2012 2011 Rate of Before (On Demand) Rs. Rs. 13.4.2 Company D. B. Exim (Pvt) Ltd 10% 15 July 2013 12,012,426 12,012,426 Olancom (Pvt) Ltd (Formerly known as Roomsnet International (Pvt) Ltd) 12% 28 September 2012 398,510,000 398,510,000 Enterprise Technology (Pvt) Ltd 12% 10 May 2013 225,542,356 225,542,356 636,064,782 636,064,782 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 112 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

14. CURRENT INVESTMENTS 2012 2012 2011 2011 Cost Market Value Cost Market Value Rs. Rs. Rs. Rs. Group 14.1 Investments in Equity Securities - Quoted People’s Merchant Finance PLC 8,938,326 4,907,160 57,434,147 61,107,500 Aitken Spence PLC 61,673,411 35,474,400 59,487,097 48,203,100 Brown & Company PLC - - 4,419,150 6,818,819 CT Holdings PLC 2,564,224 1,606,070 2,564,224 2,140,000 Diesel & Motors Engineering PLC 12,132,813 11,907,964 17,011,133 24,665,280 Distilleries Company of Sri Lanka PLC 12,064,494 9,425,000 12,199,995 11,880,000 Hayleys PLC 2,451,504 2,520,000 2,451,504 2,674,700 Horana Plantations PLC 1,646,460 504,510 1,646,460 1,453,230 Citrus Leisure PLC 10,122,010 5,008,190 10,122,010 11,122,650 LB Finance PLC 28,490,537 25,401,670 37,977,109 43,950,100 Malwatte Valley Plantations PLC 1,145,031 462,000 1,145,030 966,000 Piramal Glass Ceylon PLC 8,254,654 5,238,320 9,085,202 10,547,320 Sampath Bank PLC 10,254,890 6,437,919 8,204,937 8,072,400 Vallibel Finance PLC 1,131,094 1,241,600 1,979,414 2,772,000 ACL Cables PLC 1,447,027 967,500 171,095 171,095 Colombo Dockyard PLC 546,048 483,000 546,048 510,200 Eden Hotel Lanka PLC 429,022 237,160 429,022 394,240 Laugfs Gas PLC 525,824 258,000 525,824 444,000 United Motors Lanka PLC 834,240 540,000 834,240 761,000 Richard Pieris And Company PLC 1,415,680 750,000 1,415,680 1,360,000 Ceylon Guardian Investment Trust PLC 2,775,567 1,848,000 - - Commercial Bank of Ceylon PLC 3,185,355 3,150,000 - - HVA Foods PLC 1,802,187 600,000 - - Textured Jersey Lanka PLC 6,213,000 2,997,050 - - Merchant Bank of Sri Lanka PLC 16,129,113 12,450,127 - - Nation Lanka Finance PLC 1,610,058 1,481,670 - - Colombo Land & Development Company PLC 7,887,380 4,680,000 - - Kalpitiya Beach Resort PLC 467,250 240,300 - - Waskaduwa Beach Resort PLC 351,250 266,950 - - John Keells Holdings PLC 6,006,528 4,168,000 - - Lanka Orix Leasing Company PLC 308,416 137,500 - - 212,803,392 145,390,059 229,649,321 240,013,634 Allowance for fall in value of investment (67,689,760) - (96,107) - Total Carrying Value of Quoted Investment 145,113,633 145,390,059 229,553,214 240,013,634

Environmental Resources Investment PLC Annual Report 2011/12 113

14. CURRENT INVESTMENTS (Contd.) Interest Rate 2012 2011 % Rs. Rs. Group 14.2 Investment in Fixed Deposits DFCC Vardana Bank PLC 8.00 1,608,431 2,707,000 HongKong and Shanghai Banking Corporation Limited 4.75 - 250,000 Pan Asia Banking Corporation PLC 11.25 50,000,000 - National Development Bank PLC 10.50 63,580,311 - Bank of Ceylon 8.00 948,290 - 116,137,032 2,957,000 14.3 Investment in REPO Investment in REPO 59,545,122 - 59,545,122 - Total Carrying Value of Current Investment 320,795,787 232,510,214 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 114 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

14. CURRENT INVESTMENTS (Contd.) 2012 2012 2011 2011 Cost Market Value Cost Market Value Rs. Rs. Rs. Rs. Company 14.4 Investments in Equity Securities - Quoted People’s Merchant Finance PLC 8,938,326 4,907,160 57,434,147 61,107,500 Aitken Spence PLC 59,487,097 33,471,900 59,487,097 48,203,100 Brown & Company PLC - 2,048,908 4,347,000 CT Holdings PLC 2,564,224 1,606,070 2,564,224 2,140,000 Diesel & Motors Engineering PLC 11,087,232 11,037,964 16,101,053 23,755,200 Distilleries Company of Sri Lanka PLC 11,154,414 8,700,000 11,154,414 10,800,000 Hayleys PLC 2,451,504 2,520,000 2,451,504 2,674,700 Horana Plantations PLC 1,646,460 504,510 1,646,460 1,453,230 Citrus Leisure PLC 10,122,010 5,008,190 10,122,010 11,122,650 LB Finance PLC 28,490,537 25,401,670 37,977,109 43,950,100 Malwatte Valley Plantations PLC 1,145,031 462,000 1,145,031 966,000 Piramal Glass Ceylon PLC 6,090,686 4,026,000 6,921,234 8,325,000 Sampath Bank PLC 7,331,132 4,598,564 7,330,956 7,207,500 Vallibel Finance PLC 1,131,094 1,241,600 1,979,414 2,772,000 Ceylon Guardian Investment Trust PLC 2,775,567 1,848,000 - - Commercial Bank of Ceylon PLC 3,185,355 3,150,000 - - HVA Foods PLC 1,174,232 450,000 - - Textured Jersey Lanka PLC 2,221,500 1,066,320 - - Merchant Bank of Sri Lanka PLC 5,009,279 3,662,500 - - Nation Lanka Finance PLC 1,610,058 1,481,670 - - 167,615,738 115,144,118 218,363,561 228,823,980 Allowance for Fall in Value of Investment (52,471,620) - - - Total Carrying Value of Quoted Investment 115,144,118 115,144,118 218,363,561 228,823,980 14.5 Investment in Fixed Deposits Nations Trust Bank PLC 50,000,000 - 50,000,000 - Total Carrying Value of Current Investment 165,144,118 218,363,561 Environmental Resources Investment PLC Annual Report 2011/12 115

15. STATED CAPITAL 2012 2012 2011 2011 Number Rs. Number Rs.

15.1 Fully Paid Ordinary Shares (Note 15.2) 349,367,119 7,724,138,656 312,949,440 6,850,114,360 Fully Paid 7% Non-Cumulative Preference Shares (Note 15.3) 170,625 342,000 170,625 342,000 Total Stated Capital 349,537,744 7,724,480,656 313,120,065 6,850,456,360 15.2 Fully Paid Ordinary Shares Balance at Beginning of the Year 312,949,440 6,850,114,360 139,088,640 2,468,822,200 Issue of Shares for Cash (Note 15.2.1) 36,417,679 874,024,296 173,860,800 4,381,292,160 Balance at End of the Year 349,367,119 7,724,138,656 312,949,440 6,850,114,360 15.2.1 Issue of shares for cash Rights Issue - - 69,544,320 2,086,329,600 Warrant Conversion (Note 15.2.2) 36,417,679 874,024,296 104,316,480 2,294,962,560 36,417,679 874,024,296 173,860,800 4,381,292,160

15.2.2 The exercise date for conversion of 2011 warrants (104,316,480 warrants) was extended to 7 July 2011 and 21 December 2011 from the original date of 03 June 2011 through the resolution passed by shareholders at the EGM held on 16th June 2011. 2,532,590 warrants were exercised on 7 July 2011 and the Company raised Rs. 60,782,160. Option was given to the warrant holders who have not yet exercised, to exercise on 21 December 2011. Accordingly 33,885,089 warrants were exercised and Company has collected Rs. 813,242,136/=.

15.2.3 Through the announcement dated 05th January 2012 made on Colombo Stock Exchange (CSE), the Company proposed the extension of the cut-off date and the expiry date of 2012 warrants to 06th September 2013 and 26th September 2013 respectively from 03rd February 2012 and 24th February 2012 with the approval of shareholders and 2012 warrant holders. However, the Company received a Directive dated 31st January 2012 from Securities and Exchange Commission of Sri Lanka (SEC) stating that the proposed extension of the expiration date of 2012 warrants may be allowed with the approval of the shareholders subject to the restriction on trading of 2012 warrant in the market.

The shareholders and 2012 warrant holders approved the special resolutions set out in the notices of the Extra-Ordinary General Meeting (EGM) and the special resolutions were passed unanimously at the meetings convened for them on 01st February 2012 subject to the terms set out in the SEC Directive. As a consequence, the exercise date for the conversion of 2012 warrants (347,721,600 warrants) was extended to 26th September 2013 from the original date of 24th February 2012 and the 2012 warrants ceased to trade on the CSE after 03rd February 2012.

15.2.4 Details of the Warrants Outstanding at the Balance Sheet Date Warrants Issue; 2012 Warrants:- 347,721,600 warrants at a price of Rs. 33.00 exercise date - 24 February 2012 and extended to 26 September 2013 2014 Warrants:- 347,721,600 warrants at a price of Rs. 36.00 exercise date - 24 February 2014 2015 Warrants:- 347,721,600 warrants at a price of Rs. 39.00 exercise date - 24 February 2015

15.3 Rights, Preference and Restrictions of Classes of Capital The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to have one vote per individual present at meetings of the company. All shares rank equally with regard to the Company’s residual assets.

Shareholders of the Non-Cumulative Preference Shares are entitled for a mandatory preference dividend annually. They are not entitled to vote at a meeting of the company. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 116 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

16. REVALUATION RESERVES Group 2012 2011 Rs. Restated Rs. Group 16.1 Summary Revaluation Reserve 64,389,098 13,849,346 Total Revaluation Reserve 64,389,098 13,849,346

Freehold Land & Buildings of Dankotuwa Porcelain PLC, Ceylon Leather Products PLC, The Colombo Pharmacy Company PLC and South Asia Textile Industries Lanka (Pvt) Ltd which are located at the factory & office premises have been revalued as at 31 March 2012 by Mr. Chulananda Wellapplli, an independent incorporated valuer. The said lands were valued based on open market values on existing use basis. The result of such valuations were incorporated in the financial statements as at 31 March 2012, by transferring the surplus arisen thereon to the revaluation reserve.

17. OTHER RESERVES Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. group / Company Capital Reserve (Note 17.1) 3,100,000 3,100,000 3,100,000 3,100,000 General Reserve (Note 17.2) 220,140 220,140 220,140 220,140 Total Other Reserves 3,320,140 3,320,140 3,320,140 3,320,140

17.1 Capital Reserve represents amounts set aside by the directors for further expenditure to meet any contingencies.

17.2 General Reserve is a revenue reserve and represents amounts set aside by the directors for general application.

2012 2011 Rs. Rs. 17.3 Currency Translation Reserve Group Currency Translation Reserve (18,656,800) - Total Currency Translation Reserve (18,656,800) -

As at the reporting date, the assets and liabilities of Roomsnet International Limited, a indirect subsidiary of the company were translated into the presentation currency at the rate of exchange prevailing at the Balance Sheet date and the Income Statement is translated at the average exchange rate for the period. The exchange differences arising on the translation were taken directly to currency translation reserve, which is classified as part of equity. Environmental Resources Investment PLC Annual Report 2011/12 117

18. INTEREST BEARING LOANS AND BORROWINGS 2012 2012 2012 2011 2011 2011 Amount Amount Total Amount Amount Total Repayable Repayable Repayable Repayable Within 1 Year After 1 Year After 1 Year After 1 Year Rs. Rs. Rs. Rs. Rs. Rs.

Summary - Group Finance Leases (Note 18.1) 7,159,460 58,414,804 65,574,264 7,274,179 65,789,251 73,063,430 Bank Loans (Note 18.2) 562,185,978 20,680,348 582,866,326 335,994,673 82,352,236 418,346,909 Trust Receipt Loans (Note 18.3) 725,699,140 - 725,699,140 778,324,189 - 778,324,189 Bank Overdrafts (Note 30) 341,416,940 - 341,416,940 304,433,715 - 304,433,715 Total Interest Bearing Loans And Borrowings 1,636,461,518 79,095,152 1,715,556,670 1,426,026,756 148,141,487 1,574,168,243

As At Business New Leases Repayment As At 01.04.2011 Acquisition Obtained 31.03.2012 Rs. Rs. Rs. Rs. Rs. 18.1 Finance Leases Lanka Orix Leasing Company PLC 374,592 - - (374,592) - Hatton National Bank PLC 14,293,849 - - (3,210,370) 11,083,479 Orient Financial Services Corporation Ltd 594,989 - - (504,204) 90,785 Board of Investment Sri Lanka 57,800,000 - - (3,400,000) 54,400,000 73,063,430 - - (7,489,166) 65,574,264

Gross Liability 76,842,945 67,805,822 Finance Charges Allocated to Future Periods (3,779,515) (2,231,558) Net Liability 73,063,430 65,574,264

NOTES TO THE FINANCIAL STATEMENTS

18. INTEREST BEARING LOANS AND BORROWINGS (Contd.) Interest Balance Business Loans Repayment Exchange Balance Rate As At Acquisition Obtained Gain/(Loss) As At 01.04.2011 31.03.2012 % Rs. Rs. Rs. Rs. Rs. Rs.

Group 18.2 Bank Loans Hatton National Bank PLC (18.2.1) 12 43,912,031 - - (43,912,031) - - People’s Bank (Block Loan VIII) (18.2.2) LIBOR+3 33,850,734 - - (33,933,721) 82,987 - People’s Bank (Block Loan IX) ( 18.2.3) LIBOR+3 111,675,060 - - (75,789,276) 6,943,966 42,829,750 National Development Bank PLC (E-Friendly Loan)(18.2.4) 6.5 17,531,434 - - (10,017,986) - 7,513,448 Bank of Ceylon - Term Loan (18.2.5) 13.5 22,069,301 - 2,464,035 (16,866,665) - 7,666,671 Bank of Ceylon - Import Loan (18.2.6) 0.125-0.15 30,801,440 - 118,619,261 (123,099,855) - 26,320,846 Sampath Bank PLC - Import Loan (18.2.7) 0.25-0.125 13,753,733 - 46,092,859 (51,757,190) - 8,089,402 Sampath Bank PLC - Term Loan (18.2.8) AWPLR+1 5,963,750 - - (1,233,750) - 4,730,000 Standard Chartered Bank Limited (18.2.9) 8.62-9.00 73,634,422 - - - 11,592,455 85,226,877 Bank of Ceylon - Packing Credit Loan (18.2.10) LIBOR +6 51,405,919 - 272,656,961 (282,529,047) 7,325,943 48,859,776 Sampath Bank PLC- Packing Credit Loan (18.2.11) AWPLR/LIBOR+2 8,956,498 - 114,429,298 (93,535,872) 3,800,475 33,650,399 Bartleet Finance Limited 36 3,644,974 - - - - 3,644,974 Peoples Leasing Finance PLC 26 1,147,613 - - (1,147,613) - - National Development Bank PLC 8.25 - 16,901,171 64,664,905 (23,253,259) - 58,312,816 Bank of Ceylon - Export Bill Discount (18.2.12) - - 109,699,891 (96,399,524) - 13,300,367 Bank of Ceylon - Hypothecation Loan (18.2.13) 13.5 - - 5,221,000 - - 5,221,000 Pan Asia Banking Corporation PLC - Block Loan (18.2.14) 10.5 - - 380,000,000 (142,500,000) - 237,500,000 Total Bank Loans 418,346,909 16,901,171 1,113,848,210 (995,975,789) 29,745,826 582,866,326

18.2.1 Security: 1. Primary floating mortgage bond for Rs. 191 million over land and building depicted in lots 1 & 2 in plan no. 3560 dated 22 January 2008 made by L. Goonesekera situated in Belummahara has been kept as security in order to acquire the loan by Ceylon Leather Products PLC. loan Repayment Terms: The loan repayment is equated on a monthly instalment basis of Rs. 3,017,617 (Interest & Capital) into 36 months.

18.2.2 Security: 1. Machineries, Leasehold Building and Inventory were pledged against the bank facility by South Asia Textile Industries Lanka (Pvt) Ltd. loan Repayment Terms: The loan repayment is equated on a monthly instalment basis of USD 28,500 per month.

18.2.3 Security: 1. Machineries, Leasehold Building and Inventory were pledged against the bank facility by South Asia Textile Industries Lanka (Pvt) Ltd. loan Repayment Terms: The loan repayment is equated on a monthly instalment basis of USD 55,500 per month.

18.2.4 Security: 1. Machineries were pledged as security by South Asia Textile Industries Lanka (Pvt) Ltd. loan Repayment Terms: The loan repayment is equated on a monthly instalment basis of Rs. 834,842 per month. Environmental Resources Investment PLC Annual Report 2011/12 119

18. INTEREST BEARING LOANS AND BORROWINGS (Contd.) 18.2.5 Security: 1. Relative Bills of Exchange, Shipping document, accepted bills of exchange and underlying goods of Dankotuwa Porcelain PLC under the bank’s constructive control.

2. Additional Mortgage over stocks and assignment over book debts of Dankotuwa Porcelain PLC.

loan Repayment Terms: The loan repayment period is 18 instalments.

18.2.6 Security: 1. Relative Bills of Exchange, Shipping document, accepted bills of exchange of Dankotuwa Porcelain PLC under the bank’s constructive control.

loan Repayment Terms: The loan repayment is due on the accepted date.

18.2.7 Security: 1. Relative Bills of Exchange, Shipping document, accepted bills of exchange and DC agreement of Dankotuwa Porcelain PLC under the bank’s constructive control.

loan Repayment Terms: The loan repayment is due on the accepted date.

18.2.8 Security: 1. Dankotuwa Porcelain PLC has signed a promissory note amounting to Rs. 9.87 million.

loan Repayment Terms: The Loan repayment is 96 instalments with the grace period of two years.

18.2.9 Security: 1. Inventory and debtors were pledged as security by South Asia Textile Industries Lanka (Pvt) Ltd.

loan Repayment Terms: Repayment period ranges from 60 days to 120 days.

18.2.10 Security: 1. Floating Hypothecation Bond has been signed by Dankotuwa Porcelain PLC.

loan Repayment Terms: The loan repayment period is three months.

18.2.11 Security: 1. Promissory note for Rs. 50,000,000. 2. Promissory note for USD 500,000 3. Additional mortgage bond for USD 500,000 over stocks and book debts of Dankotuwa Porcelain PLC.

loan Repayment Terms: The loan repayment period is three months.

18.2.12 Security: 1. Shipping documents and underlying goods of Dankotuwa Porcelain PLC under the bank’s constructive control.

NOTES TO THE FINANCIAL STATEMENTS

18. INTEREST BEARING LOANS AND BORROWINGS (Contd.) 18.2.13 Security: 1. Floating Hypothecation Bond has been signed by Dankotuwa Porcelain PLC.

loan Repayment Terms: The loan repayment period is four months.

18.2.14 Security: 1. Fixed deposit of Ceylon Leather Products PLC was pledged as security.

loan Repayment Terms: The loan repayment is equated on a monthly instalment basis of Rs. 47,500,000 (Interest & Capital) into eight months.

Interest Rate Balance Loans Repayment Exchange Balance As At Obtained Gain/(Loss) As At 01.04.2011 31.03.2012 % Rs. Rs. Rs. Rs. Rs.

18.3 trust Receipt Loans People’s Bank 6.5 378,232,312 1,710,861,459 (1,584,529,356) 83,516,107 588,080,522 Hatton National Bank PLC 12.0 4,773,877 117,628,865 (122,402,742) - - Pan Asia Banking Corporation PLC 10.5 395,318,000 644,749,760 (902,223,964) (225,178) 137,618,618 Total Trust Receipt Loans 778,324,189 2,473,240,084 (2,609,156,062) 83,290,929 725,699,140

Security: a) Mortgage over land, building and immovable machinery at Kelani Ganga Mills Road, Mattakkuliya of Ceylon Leather Products PLC. b) Deposit of confirmed orders from Government Forces, departments and other reputed Institutions of Ceylon Leather Products PLC. c) Machineries, leasehold buildings and inventory were pledged as securities by South Asia Textile Industries Lanka (Pvt) Ltd and fixed deposit of Ceylon Leather Products PLC has pledged as security.

loan Repayment Terms: Each short term loans under the limit should be repaid within a period of 150 days. Environmental Resources Investment PLC Annual Report 2011/12 121

19. DEFERRED TAX LIABILITY/ (ASSET) Asset Liability 2012 2011 2012 2011 Restated Restated Rs. Rs. Rs. Rs. 19.1. Group At the Beginning of the Year (398,517) (7,199,217) 157,505,513 70,720,214 New Business Acquisitions (Note 31) - (11,038,186) 12,242,126 88,071,187 Transfer from/(to) Income Statement (6,017,133) 17,838,886 (6,307,153) (1,285,888) Transfer from/(to) Equity Statement - - 435,701 - At the end of the year (6,415,650) (398,517) 163,876,187 157,505,513

The Closing Deferred Tax Asset and Liability Balances Relate to the Following; Revaluation of Land and Building to Fair Value 23,171,894 - 146,523,920 159,219,863 Accelerated Depreciation and Amortisation for Tax Purposes 24,792,817 4,388,424 35,481,313 47,537,907 Employee Benefit Liability (17,913,224) (4,786,941) (14,010,588) (24,749,802) Losses Available for Offset Against Future Taxable Income (18,668,259) - (4,118,458) (2,683,730) Provisions (17,798,878) - - (22,242,895) Others - - - 424,170 (6,415,650) (398,517) 163,876,187 157,505,513

Liability 2012 2011 Rs. Rs. 19.2 Company At the Beginning of the Year 1,242,493 (5,189,122) Transfer from/(to) Income Statement (Note 19.2.1) (608,973) 6,431,615 At the End of the Year 633,520 1,242,493 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 122 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

19. DEFERRED TAX LIABILITY/ (ASSET) (Contd.) 19.2.1 DEFERRED TAX (ASSETS)/LIABILITIES

Company Balance Sheet Income Statement 2012 2011 2012 2011 Rs. Rs. Rs. Rs. Deferred Tax Liability Accelerated Depreciation for Tax Purposes 1,070,320 1,444,793 (374,473) 969,416 Deferred Tax Assets Defined Benefit Plans (436,800) (202,300) (234,500) (202,300) Losses Available for Offset Against Future Taxable Income - - - 5,664,499 Deferred Income Tax Reversal/(Expense) (608,973) 6,431,615 Net Deferred Tax Liability/(Asset) 633,520 1,242,493

20 OTHER DEFERRED LIABILITIES Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. expense on Defined Benefit Plan Current Service Cost 16,662,001 (8,310,433) 1,050,000 722,500 Interest Cost on Benefit Obligation 15,944,935 8,365,320 47,750 - Net Actuarial (Gain) / Loss (1,245,615) 470,461 (260,250) - Total Expenses 31,361,321 525,348 837,500 722,500 Defined Benefit Obligation Balance as at 1 April 155,560,340 30,329,723 722,500 - Transitional Provision (3,925,283) 470,461 - - 151,635,057 30,800,184 722,500 -

Current Service Cost 16,662,001 (8,310,433) 1,050,000 722,500 Interest Cost on Benefit Obligation 15,944,935 8,365,320 47,750 - Actuarial Losses / (Gain) on Obligation 2,679,670 - (260,250) - Benefit Paid (28,037,820) (11,913,881) - - Transferred to/(from) During the Year - - - - Business Acquisitions During the Year (Note 31) 8,834,918 136,619,150 - - Balance as at 31 March 167,718,760 155,560,340 1,560,000 722,500 Environmental Resources Investment PLC Annual Report 2011/12 123

20 OTHER DEFERRED LIABILITIES (Contd.) 20.1 The employee benefit liability of companies defined in Appendix D [1] in SLAS 16 with more than 100 employees is based on the actuarial valuation based on the projected unit credit method carried out by an Independent Professional Actuary of Messrs Actuarial & Management Consultants (Pvt) Limited. The employee benefit liability of all other companies in the group are based on the gratuity formula in Appendix E of SLAS 16 - Employee Benefits.

2012 2011

Discount Rate 10.0%-11.0% 10.5% - 9.5% Salary Increment Rates Used 10% - 5% 10% - 5% Retirement Age 55 Years 55 Years

21. DEFERRED INCOME 2012 2011 Rs. Rs. Group Balance at the Beginning of the Year 2,925,750 - Acquired During the Year - 3,172,500 Amortization for the Year (423,005) (246,750) Balance at the End of the Year 2,502,745 2,925,750

The Waste Water treatment project of Dankotuwa Porcelain PLC was completed in March 2008 & it is capitalized under the relevant classification of Property, Plant & Equipment. Hence corresponding grant component is reflected under Deferred Income -Grant, amortized over the useful life of (10 years), which is the estimated life of the asset.

22. TRADE AND OTHER PAYABLEs Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Trade Payables - Other 446,424,228 772,698,945 - - - Related Parties(Note 22.1) 33,261,322 109,201 - - Other Payables - Other 129,563,946 241,863,312 5,537,485 11,557,997 - Related Parties(Note 22.2) 1,507,868 1,673,161 729,692 7,353,726 Sundry Creditors Including Accrued Expenses 506,740,412 389,898,558 - - Total Trade and Other Payables 1,117,497,776 1,406,243,177 6,267,177 18,911,723 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 124 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

22. TRADE AND OTHER PAYABLE (Contd.)

Relationship 2012 2011 Rs. Rs. 22.1 trade Payables to Related Parties Group Sampath Leasing & Factoring Ltd Related Company 37,231 - International Ceramic Inc (Japan) Related Company 33,224,091 - J.K Apparels (Pvt) Ltd Related Company - 109,201 33,261,322 109,201

22.2 Other Payable -Related Parties Group Sasia Net (Pvt) Ltd Related Company 1,507,868 1,673,161 1,507,868 1,673,161

Company DNH Financial (Pvt)Ltd Subsidiary - 7,330,956 Dankotuwa Porcelain PLC Subsidiary 254,692 22,770 Senit Technologies (Pvt) Ltd Subsidiary 475,000 - 729,692 7,353,726

23. NON INTEREST BEARING LOANS & BORROWINGS 2012 2012 2012 2011 2011 2011 Amount Amount Total Amount Amount Total Repayable Repayable Repayable Repayable Within 1 Year After 1 Year Within 1 Year After 1 Year Rs. Rs. Rs. Rs. Rs. Rs. Group Loans granted by Related Parties* Mr. Eric B. Wikramanayake 4,658,990 - 4,658,990 4,658,990 4,658,990 Mr. S. Wikramanayake 20,488,000 - 20,488,000 - 17,779,000 17,779,000 Total Non Interest Bearing Loans & Borrowings 25,146,990 - 25,146,990 4,658,990 17,779,000 22,437,990

* The above loans were granted by the Director of Olancom (Pvt) Ltd & his relative to Olancom (Pvt) Ltd. Environmental Resources Investment PLC Annual Report 2011/12 125

23. NON INTEREST BEARING LOANS & BORROWINGS (Contd.)

Balance Business New Loans Repayments Exchange Balance As At Acquisition (Gain)/ Loss As At 01.04.2011 31.03.2012 Rs. Rs. Rs. Rs. Rs. Rs. 23.1 loans granted by Related Parties Mr. Eric B. Wikramanayake 4,658,990 - - - - 4,658,990 Mr. S. Wikramanayake 17,779,000 - - - 2,709,000 20,488,000 Mr. Mark Fanning - 14,580,720 - (14,580,720) - - Mr. W. A. Carington - 228,830,593 - (228,830,593) - - Nan Tai Group - 55,230,000 - (55,230,000) - - 22,437,990 298,641,313 - (298,641,313) 2,709,000 25,146,990

24. DIVIDEND PAYABLE Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Dividend Payable 387,506 387,506 387,506 387,506 Total Dividend Payable 387,506 387,506 387,506 387,506

25. OTHER INCOME Group Company 2012 2011 2012 2011 Restated Rs. Rs. Rs. Rs.

Interest Income 71,210,575 26,105,209 - - Profit from Disposal of Property, Plant & Equipment 13,933,397 3,842,520 3,001,426 - Profit from Sale of Investment 652,335 16,386,577 - - Sundry Income 12,790,884 15,981,772 - - Rent Income 7,546,520 13,010,189 15,435,960 14,617,980 Commission Received on Initial Public Offerings 178,268 107,247 - - Profit/ (Loss) from Sale of Associate (27,898,117) - 108,973,280 - Negative Goodwill Arising from Acquisition 133,402 90,225,512 - - Exchange Gain 283,498,312 5,041,104 278,058,825 - Service Charges 68,563 - 800,000 - Dividend Income 301,752 - - - Fair Value Gain on Investment Property 117,327,699 - - - Other Income 95,431,860 - - - Total Other Income 575,175,451 170,700,130 406,269,491 14,617,980 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 126 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

26. FINANCE COST Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Bank Overdraft Interest 22,884,301 1,484,989 - - Lease Interest 1,547,958 1,155,370 - - Loan Interest 118,892,542 30,871,708 - - Total Finance Cost 143,324,801 33,512,067 - -

27. INCOME TAX EXPENSE Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. Current Income Tax Current Tax Expense on Ordinary Activities for the Year (Note 27.2) 63,823,684 76,823,049 741,814 15,775,786 Under/(Over) Provision of Current Taxes in Respect of Prior Years 11,083,648 (4,999,662) (34,557) (4,667,715)

Deemed Dividend Tax Deemed Dividend Tax Charge for the year 851,395 2,187,605 - -

Deferred Income Tax Deferred Taxation Charge/(Reversal) (Note 19) (12,324,286) 16,552,998 (608,973) 6,431,615 Income tax Expense Reported in the Income Statement 63,434,441 90,563,990 98,284 17,539,686

27.1 Reconciliation Between Current Tax Expense and the product of Accounting Profit Accounting Profit/(Loss) Before Tax from Operations 164,881,218 571,238,564 327,573,570 110,542,505 Aggregate Disallowed Items 888,489,790 131,503,097 121,688,292 41,204,898 Aggregate Allowable Credits (830,793,901) (337,628,880) (441,843,724) (89,827,874) Trade Profit/(Loss) 222,577,107 365,112,781 7,418,138 61,919,529

27.2 taxable Profit 222,577,107 365,112,781 7,418,138 61,919,529 Interest Income 56,729,305 17,949,151 - - 279,306,412 383,061,932 7,418,138 61,919,529 Less : Carried Forward Tax Loss Utilized (21,824,199) (94,153,776) (17,511,967) Taxable Income 257,482,213 288,908,156 7,418,138 44,407,562

Applicable Tax Rate (2012 -10% 2011 - 35%) 4,373,166 74,393,892 741,814 15,542,646 Applicable Tax Rate -15% - 1,426,494 - - Applicable Tax Rate -12% 299,727 - - - Applicable Tax Rate -28% 59,150,791 - - - Social Responsibility Levy - 1.5% (2011 - 1.5%) - 1,002,663 - 233,140 Total Current Tax Expense on Ordinary Activities for the Year 63,823,684 76,823,049 741,814 15,775,786 Environmental Resources Investment PLC Annual Report 2011/12 127

27.3 Details of Income Tax Exemptions/Concessions Granted Under the Board of Investment Law.

27.3.1 South Asia Textile Industries Lanka (Pvt) Ltd. Pursuant to agreement dated 02 March 2004 entered into with the Board of Investment of Sri Lanka under Section 17 of the Board of Investment Law, the company is exempt from income tax from the business of manufacturing and exporting of knitted fabrics, for a period of 10 years from year 2004. Thereafter the Company is required to pay income tax at the rate of 15%.

Currently, the company is liable to pay income tax on local sales at the rate as specified under Inland Revenue Act.

27.3.2 Olancom (Pvt) Ltd. In terms of section 10 of the agreement which the company entered into with the Board of Investments of Sri Lanka, the profit and income from the business of the development of computer software for clients engaged in the business of E-commerce, internet and extranet for the parent is exempt from income tax for a period of eight (08) years with effect from 01 January 2001, which expired on 31st December 2008. Further more, immediately succeeding the last date of the aforesaid tax exemption period, the income tax in respect of the profit and income of the company will be charged at 15% for a period of twelve (12) years. Thereafter, the provisions of the Inland Revenue Laws for the time being in force shall apply to the company.

27.3.3 enterprise Technology (Pvt) Ltd. Pursuant to the agreement dated 22nd July 2010 which the company entered into with the Board of Investments of Sri Lanka under Section 17 of the Board of Investment Law No. 4 of 1978, the profits and income from the business of providing credit card services and acquiring IT platforms to facilitate e-commerce services for export is exempt from income tax for a period of three (03) years with effect from 11th August 2010. Further more, immediately succeeding the last date of the aforesaid tax exemption period the income tax in respect of the profits and income of the Company will be charged at 10% for a period of two (2) years. Thereafter, the provisions of the Inland Revenue Laws for the time being in force shall apply to the Company.

27.3.4 Dankotuwa Porcelain PLC. As per the BOI agreement No 261 supplemented by agreement No 32 & 303 the export profits and income from the “export business” is chargeable to tax at a concessionary rate of 12% (2011-15%) and that from local sales and other business income are chargeable to income tax at 28% under the Inland Revenue Act No.10 of 2006 and subsequent amendments there to.

The company entered in to a supplementary agreement with Board of Investment of Sri Lanka (BOI) on 30 December 2009 and the company has been permitted to maintain its local sales at up to twenty percent (20%) of the quantity exported as an average for the cumulative local sales for a period of five (05) years commencing from year 2009 and ending in year 2013, subject to the payment of customs duty and other applicable levies, subject to the terms and conditions stipulated in the agreement.

27.3.5 palla and Company (Pvt) Ltd. Pursuant to letter dated 31 August 2010, issued by Board of Investment of Sri Lanka, the company is exempt from paying tax on the business of manufacturing shoes for exports for a period covering the years from 2006/2007 to 2008/2009.

Further, company has obtained a tax certificate from Board of Investment confirming the tax holiday entitlement for the years 2009/2010. With regard to 2010/2011 the company is required to obtain tax certificates from Board of Investment confirming the tax holiday entitlement, which will be issued by the Board of Investment on reviewing the performance of the Company.

After the expiration of the said tax period, the company is liable to pay income tax at the rate of 10% for a period of 2 years (2011/2012 and 2012/2013).

NOTES TO THE FINANCIAL STATEMENTS

28. PROFIT/(LOSS) BEFORE TAX FROM OPERATIONS Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. Stated after Charging/(Crediting) Included under Cost of Sales - Depreciation 192,880,967 43,238,593 - - - Amortization 1,617,281 - - - - Salaries 306,974,075 213,606,584 - - - Bonus 4,606,789 5,924,636 - - - Defined Benefit Plan Costs - Gratuity 21,430,555 1,998,973 - - - Defined Contribution Plan Costs - EPF & ETF 50,851,921 - - - - Other Staff Costs 60,113,494 41,088,537 - - - Allowance for Obsolete & Slow Moving Inventories 52,109,431 2,706,979 - - Included under Administration Expenses - Depreciation 62,470,755 21,254,480 37,017,717 13,589,348 - Amortization 33,102,571 416,486 435,945 21,486 - Directors’ Remuneration 83,089,914 41,188,472 48,740,000 7,435,000 - Salaries 175,529,370 56,956,849 29,310,000 16,670,000 - Bonus 9,339,740 1,339,961 8,145,000 - - Defined Benefit Plan Costs - Gratuity 8,660,823 525,348 837,500 722,500 - Defined Contribution Plan Costs - EPF & ETF 31,944,024 9,669,568 6,259,272 2,965,500 - Other Staff Costs 37,923,492 11,796,616 18,273,129 2,500,000 - Allowance for fall in value of investment 67,593,653 96,107 52,471,620 - - Auditors Remuneration 4,555,503 3,028,439 600,000 475,000 Included under Selling & Distribution Expenses - Depreciation 11,301,452 292,638 - - - Amortization 115,525 408,881 - - - Salaries 15,255,425 7,532,125 - - - Defined Benefit Plan Costs - Gratuity 1,269,942 - - - - Defined Contribution Plan Costs - EPF & ETF 2,076,275 1,062,896 - - - Other Staff Costs 4,394,174 1,566,128 - - Profit /(Loss) from Disposal of Property, Plant & Equipment 13,933,397 4,380,973 3,001,426 - Allowance for Doubtful Receivables 334,699,484 24,399,011 - 21,833,913 Environmental Resources Investment PLC Annual Report 2011/12 129

29. EARNINGS PER SHARE 29.1 Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and the previous year are adjusted for events that have changed the number of ordinary shares.

Group 2012 2011 Rs. Restated Rs.

29.2 the Following Reflects the Income and Share Data Used in The Basic Earnings Per Share Computations. Amount Used as the Numerator: Net Profit/(Loss) Attributable to Ordinary & Preference Shareholders 125,906,657 443,401,536 Less: Preference Dividend - (23,940) Net Profit/(Loss) Attributable to Equity Holders of the Parent for Basic Earnings/(Loss) Per Share 125,906,657 443,377,596

Group 2012 2011 Number Number

Number of Ordinary Shares Used as Denominator: Ordinary Shares at the Beginning of the Year Adjusted for the Rights Issue 312,949,440 15,098,438 Weighted Average Number of Shares with the Rights Issue - 191,246,880 Weighted Average Number of Shares on Warrant Conversion 10,370,715 86,930,400 Weighted Average Number of Ordinary Shares for Basic Earnings Per Share 323,320,155 293,275,718

Effect of Dilution: Share Warrants - 629,272,634 Weighted Average Number of Ordinary Shares Adjusted for The Effect of Dilution 323,320,155 922,548,352

30. CASH AND CASH EQUIVALENTS Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

30.1 Favourable Cash and Cash Equivalents Balance Cash and Bank Balances 1,434,564,104 816,230,348 765,594,378 130,463,606 1,434,564,104 816,230,348 765,594,378 130,463,606

30.2 Unfavourable Cash and Cash Equivalents Balance Bank Overdraft (Note 18) (341,416,940) (304,433,715) - - Cash & Cash Equivalents at the End of the Year for the Purpose of Cash Flow Statement 1,093,147,164 511,796,633 765,594,378 130,463,606 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 130 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

31. ACQUISITION OF SUBSIDIARIES DURING THE YEAR

Acquisition of Palla & Company (Pvt) Ltd. On 02 December 2011, Ceylon Leather Products PLC, which is a group company, acquired a 60% stake in Palla & Company (Pvt) Ltd. Increase in Stake in holdings during the period Ceylon Leather Products PLC The increase of 13.62% in the stake in Ceylon Leather Products PLC during the year has resulted from the additional purchase of 2,168,100 shares and subscription to 9,186,751 shares on the warrant conversion. Dankotuwa Porcelain PLC & South Asia Textile Industries Lanka (Pvt) Ltd As a result of the increase in the stake in Ceylon Leather Products PLC, the effective holding of Dankotuwa Porcelain PLC & South Asia Textile Industries Lanka (Pvt) Ltd have increased by 7% and 1% respectively. Acquisition of Palla & Company (Pvt) Ltd The values of the identifiable assets and liabilities of Palla & Company (Pvt) Ltd., as at the date of acquisition, were:

Palla & Company (Pvt) Ltd

Property, Plant and Equipment 185,876,523 Leasehold Property 26,088,000 Deferred Tax Asset/(Liability) (12,242,126) Inventories 164,010,488 Trade and Other Receivables 13,227,254 Cash and Cash Equivalents 26,242,645 Retirement Benefit Liability (8,834,918) Trade and Other Payables (79,672,915) Non - Interest Bearing Loans and Borrowings (298,641,313) Interest Bearing Loans Borrowings (16,901,171) Total Identifiable Net Assets (847,531) Net Assets Acquired (847,531) Goodwill/(Negative Goodwill) 127,443,545 Cash Consideration Paid on the Acquisition of Subsidiary 126,596,013 Net Cash Outflow from the Acquisitions 100,353,368

31.1 The assets and liabilities as at the acquisition date are stated at their provisional fair values and may be amended in accordance with SLAS 25 - Business Combination. Environmental Resources Investment PLC Annual Report 2011/12 131

32 EFFECT ON ACQUIREE’S IDENTIFIABLE ASSETS,LIABILITIES AND CONTINGENT LIABILITIES AND THE COST OF THE BUSINESS COMBINATION As reported in the previous year, some of the assets of the acquiree were provisionally determined and accounted for in the last year. During the financial year, the Group has identified the fair value of those assets and accounted for them, from the acquisition date and accordingly, comparative information presented previously has been restated. The effect on the Financial Statements is disclosed below.

As Reported Effect on Value Restated Previously Increase/ Balance Note 31.03.2011 (Decrease) 31.03.2011 Rs. Rs. Rs. Balance Sheet Property, Plant & Equipment (Land & Building) 4.1 4,517,173,339 375,866,787 4,893,040,126 Accumulated Depreciation 4.2 1,951,563,056 (136,259,765) 1,815,303,291 Intangible Assets 7 1,637,142,029 (203,202,588) 1,433,939,441 Deferred Tax Asset 19 12,622,261 (12,223,744) 398,517 Deferred Tax Liability 19 104,791,499 52,714,014 157,505,513 Revaluation Reserves 16 76,835,182 (62,985,836) 13,849,346 Minority Interest 1,204,716,466 243,986,204 1,448,702,670 Retained Earnings 441,551,074 62,985,836 504,536,910 Income Statement Other Income 107,714,294 62,985,836 170,700,130

33. COMMITMENTS AND CONTINGENCIES

33.1 Capital Expenditure Commitments The Company and the Group do not have significant capital commitments which require disclosures as at the Balance Sheet date. 33.2 Contingencies Group Ceylon Leather Products PLC An amount of Rs. 14,037,898/- being turnover taxes in dispute in respect of the quarters in 1991/1992 through 1993/1994 had been credited to the income statement during the year ended 31 March 2004, by reference to the Inland Revenue (Special Provisions) Act No. 10 of 2003. Due to subsequent changes in legislations, there may a possibility of crystallising this liability. However, management is of the view that this liability will not crystallise, due the fact that all returns in respect of respective years were submitted and payments finalised accordingly.

Letters of Credit and Bank Guarantees The Company, in its normal course of business opens letters of credit with banks favouring suppliers in respect of material procurement and gives guarantees issued by banks on the Company’s behalf favouring customers. Respective balances outstanding as at the Balance Sheet date are given below: 2012 2011 Rs. Rs.

NOTES TO THE FINANCIAL STATEMENTS

33. COMMITMENTS AND CONTINGENCIES (Contd.) South Asia Textile Industries Lanka (Pvt) Ltd A case No: DDR/143/2011 has been filed by Standard Chartered Bank Sri Lanka against the company for the recoverability of loan amounting to Rs. 80,527,163/-. The possible interest and other related expenditure has not been provided for in the Financial Statements. Although there can be no assurance, the Directors believe, based on the information currently available, that the ultimate resolution of such procedures are not likely to have a material adverse effect on results of operations, financial position or liquidity.

Dankotuwa Porcelain PLC Three cases filed by three non-executive ex-employees and two case filed by two executive ex-employee on termination of employment were pending at the Labour tribunal. A case filed by a supplier and case filed against one executive ex-employee are pending at the District Courts, and three appeal cases pending at the Supreme Court and two at the High Courts on termination of employment as at 31 March 2012. Outcome of these cases which were pending as at 31 March 2012 cannot be quantified as at the Balance Sheet date.

Olancom (Pvt) Ltd The company has letter of credits open for the purpose of payment to hotel suppliers as given below:

2012 2011

Letter of Credit - Negotiable - Usance GBP 5000 EUR 350,000 Letter of Credit - Negotiable - Sight GBP 50,000 GBP 50,000 Import LC - Non-Revolving - NDB Bank PLC - USD 38,685 Gurantees - Others EUR 290,000 -

Company The Company does not have significant contingencies as at the Balance Sheet date. Environmental Resources Investment PLC Annual Report 2011/12 133

34. ASSETS PLEDGED Group The Company has underlined the Rs. 50 million worth of fixed deposit for the corporate guarantee given to DNH Financial (Pvt) Ltd, Olancom (Pvt) Ltd & also for the bonds provided to Enterprise Technology (Pvt) Ltd, assisting them to obtain trade finance facilities. The Company does not have any other assets that are pledged as security for liabilities. However, the subsidiaries of the Group have pledged the following assets.

34.1 Assets Pledged by Ceylon Leather Products PLC Nature of Assets Nature of Liability Carrying Amount Pledged Included under 2012 2011 Rs. Mn Rs. Mn Immovable Properties Floating Mortgage for 826.33 779.36 Property, Plant & Loans and Borrowings Equipment Leased Assets Charge over Leased Assets on 12.93 16.84 Property, Plant & Finance Lease Liabilities Equipment Plant & Machinery Other Than Leased Floating Mortgage for 133.01 84.73 Property, Plant & Loans and Borrowings Equipment

34.2 Assets Pledged by South Asia Textile Industries Lanka (Pvt ) Ltd Nature of Assets Nature of Liability Carrying Amount Pledged Included under 2012 2011 Rs. Mn Rs. Mn Buildings Primary Mortgage for 223.76 229.00 Property, Plant & Loans and Borrowings Equipment Machineries Primary Mortgage for 432.84 519.34 Property, Plant & Loans and Borrowings Equipment Raw Material, Finished Goods & Work in Primary / Concurrent Mortgage for 778.23 829.09 Inventories Progress Loans and Borrowings Trade Debtor Primary / Concurrent Mortgage for 879.07 753.30 Trade & Other Receivables Loans and Borrowings

34.3 Assets Pledged by Olancom (Pvt ) Ltd Nature of Assets Nature of Liability Carrying Amount Pledged Included under 2012 2011 Rs. Mn Rs. Mn Fixed Deposit Pledged Against HSBC Credit Card 0.25 0.25 Cash & Cash Equivalents Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 134 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTES TO THE FINANCIAL STATEMENTS

35. RELATED PARTY DISCLOSURES Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Details of significant related party disclosures are as follows: 35.1 transaction with Related Entities 35.1.1 Parent Issue of shares - 3,476,032,280 - 3,476,032,280 Sale of Goods 321,585 - - - 35.1.2 transaction with /Between Subsidiaries & Subsidiaries of the Parent Company Balance as at 01 April - - 732,349,184 (6,000,000) Nature of Transaction - - - Sale of Goods - - - (629,474) Purchase of Goods - - (741,005) Rendering of Services - - - (1,699,520) Purchase of Intangible Assets - - (3,500,000) - Rent Income - - 10,816,061 15,898,481 Rent Income Receivable - - - 6,817,980 Rental Income from Motor Vehicles - - 5,894,784 1,962,128 Interest Income on Loans form Olancom Group - - 75,091,451 74,261,403 Sale of Property, Plant & Equipment to CLPL* - - 71,456,000 3,040,174 Allocation of Expenses - - (158,419) 4,648,533 Loans Converted to Related Party Loans - - - 404,550,478 Loans Granted - - - 845,099,807 Repayments of Loans - - - (605,207,452) Purchase of Shares - - - (263,434,688) Settlement of Dues - - (109,420,315) 251,291,334 Advance Payment - - - 1,750,000 Receipts of Services - - (340,000) - Management Fees - - 5,140,800 - Reimbursement of Promotional Expenses - - 5,500,000 - Dividend Income Received - - 1,757,141 - Warrant Conversion Handling Charges - - 913,920 - Financial Assistance - - 10,000,000 - Reimbursement of Contribution Made to Commonwealth Games - - 40,000,000 - Balance as at 31 March - - 844,759,602 732,349,184

*Ceylon Leather Products PLC Environmental Resources Investment PLC Annual Report 2011/12 135

35. RELATED PARTY DISCLOSURES (Contd.) Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs. 35.1.3 Associates Share of Profit from Associate - 42,043,284 - 42,043,284 Loan Repayment - 7,901,331 - - Investment in Associate - 2,059,324,720 - 2,059,324,720 35.1.4 Others Receivable/(Payable) as at 01 April 570,879,602 (33,000,000) - - Payments Made - 33,000,000 - - Disposal of Associate ** 2,446,356,825 - 2,446,356,825 - Receipt on Disposal of Associate (338,970,479) - (338,970,479) - Additions Made During the Year 62,339,106 - - Net Payable on Business Acquisitions - 570,879,602 - - Receivable/(Payable) as at 31 March 2,678,587,533 570,879,602 2,107,386,346 - Transaction, arrangements and agreements involving Key Management Personnel (KMPs) and their Close Family Members (CFMs), and Entities which are controlled, jointly controlled or significantly influenced by the KMP’s and their CFMs or shareholders who have either control, jointly control or significant influence over the entity.

Other Related Parties Includes; JK Apparel (Pvt) Ltd South Asia Textile Industries (Pte) Ltd- Singapore Sampath Leasing and Factoring Ltd International Ceramic Corporation Ceylon Tea Services PLC South Asia Laundry Lanka (Pvt) Ltd Photon Global Limited International Ceramic Inc (Japan) Sasia Net (Pvt) Ltd ** During the financial year the Group has disposed its investment in associate to Photon Global Limited, BVI, and ultimate beneficiary being Lionhart Investments Limited who is the major shareholder of the Company. 35.1.5 transactions with Key Management Personnel of the Company The key management personnel of the Company are the members of its Board of Directors.

Group Company 2012 2011 2012 2011 Rs. Rs. Rs. Rs.

Key Management Personnel Compensation Short-Term Employee Benefits 83,089,914 41,188,472 48,740,000 7,435,000

36. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE No circumstances have arisen since the Balance Sheet date, which would require adjustments to or disclosure in the Financial Statements except for the followings; DNH Financial (Pvt) Ltd allotted and issued 5,000,000 ordinary shares to the sole shareholder of Environmental Resources Investment PLC at a price of Rs. 10/= each for a consideration of Rs. 50,000,000 on 16th May 2012. The Company has invested Rs. 6,919,162 to acquire additional 91,003 shares of Ceylon Leather Products PLC in the month of June 2012. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 136 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

Supplementary INFORMATION

Shareholder Information

Ordinary Share Analysis of Shareholders According to the Number of Shares as at 31 March 2012

Shareholdings Resident Non Resident Total Number of No of Percentage Number of No of Percentage Number of No of Percentage Shareholders Shares (%) Shareholders Shares (%) Shareholders Shares (%) 1 to 1000 Shares 4,074 1,739,469 0.50 49 26,101 0.01 4,123 1,765,570 0.51 1001 to 10,000 Shares 3,055 11,219,619 3.21 44 200,600 0.06 3,099 11,420,219 3.27 10001 to 100,000 Shares 876 23,542,177 6.74 22 773,339 0.22 898 24,315,516 6.96 100001 to 1000,000 Shares 89 18,926,384 5.42 2 361,700 0.10 91 19,288,084 5.52 Over 1,000,000 Shares 6 12,523,701 3.58 5 280,054,029 80.16 11 292,577,730 83.75 Total 8,100 67,951,350 19.45 122 281,415,769 80.55 8,222 349,367,119 100

List of 20 Major Shareholders - Ordinary Based on their Shareholdings as at 31 March 2012

Shareholding % Shareholding % Name of the Shareholder 2012 2011 1 Lionhart Investments Limited 260,517,901 74.57 267,976,701 85.63 2 Mercator Associates LLC 8,852,800 2.53 2,934,600 0.94 3 Dr. Nader Kasim 6,668,920 1.91 3,000,020 0.96 4 Seylan Bank PLC/Capital Trust Holdings (Pvt) Ltd 3,872,537 1.11 - - 5 Knight Trade (Private) Limited 2,920,164 0.84 2,460,164 0.79 6 Mr. Amorik Singh 2,107,908 0.60 294,300 0.09 7 Pan Asia Banking Corporation PLC./Mr. Mohottallage Nihal Ranasinghe 2,040,000 0.58 965,000 0.31 8 Mr. Nithiabala Balasingam 1,906,500 0.55 614,200 0.20 9 National Wealth Corporation Limited 1,516,000 0.43 - - 10 Mr. Duraisamy Ganeshamoorthy Joint Mr. Periyasaamipilai Anandaraja 1,125,000 0.32 - - 11 Pan Asia Banking Corporation PLC./Mr. Hiyare Hewage Anura Chandrasiri 1,050,000 0.30 634,200 0.20 12 Mr. Mark Melville Sarath Kumara Rajapakse 954,600 0.27 - - 13 Sampath Bank PLC/Capital Trust Holdings Private Limited 879,300 0.25 - - 14 Pan Asia Banking Corporation PLC/Mr. Ravindra Erle Rambukwelle 750,000 0.21 1,123,000 0.36 15 Mr. Mohamed Illyas Mohamed Rizly Joint Mrs. Fathima Ruzna Hassan 604,700 0.17 - - 16 Mr. Kurukulasuriya Vitalis Patricious Fernando 523,900 0.15 - - 17 Waldock Mackenzie Limited/Mr.L.P. Hapangama 519,900 0.15 625,200 0.20 18 Mrs. Gnanasekaraiyer Vasunthara 385,350 0.11 - - 19 Bank Of Ceylon No. 1 Account 385,000 0.11 - - 20 Mr. Rosanth Percival Leo Eheliyagoda 378,759 0.11 300,000 0.10 Other 51,407,880 14.71 Total 349,367,119 100.00 Environmental Resources Investment PLC Annual Report 2011/12 137

Preference Share Analysis of Shareholders According to the Number of Shares as at 31 March 2012

Shareholdings Resident Non Resident Total Number of No of Percentage Number of No of Percentage Number of No of Percentage Shareholders Shares (%) Shareholders Shares (%) Shareholders Shares (%) 1 to 1000 Shares 44 24,956 14.63 6 2,354 1.38 50 27,310 16.01 1001 to 10,000 Shares 30 96,011 56.27 8 28,688 16.81 38 124,699 73.08 10001 to 100,000 Shares 1 18,616 10.91 - - - 1 18,616 10.91 100001 to 1000,000 Shares ------Over 1,000,000 Shares ------Total 75 139,583 81.81 14 31,042 18.19 89 170,625 100

List of 20 Major Shareholders - Preference Based on their Shareholdings as at 31 March 2012

Shareholding % Shareholding % Name of the Shareholder 2012 2011 1 Standard Finance Ltd 18,616 10.91 18,616 10.91 2 Mr. G. C. W. De Silva 9,484 5.56 9,484 5.56 3 Mr. M. V. Theagarajah 8,744 5.12 8,744 5.12 4 Life Insurance Corporation of India 8,146 4.77 8,146 4.77 5 Mr. K. Theagarajah 8,000 4.69 8,000 4.69 6 Mrs. B. L. Macrae 6,658 3.90 6,658 3.90 7 Mr. A. L. Clarke 6,658 3.90 6,658 3.90 8 Mr. M. V. Theagarajah 6,447 3.78 6,447 3.78 9 Shalsri Investment Ltd 5,000 2.93 5,000 2.93 10 The Land & House Property Company Ltd 4,500 2.64 4,500 2.64 11 The Administratrix of The Estate of Pietro Fernando 4,000 2.34 4,000 2.34 12 Mr. S. Sivalingam Attorney For Mrs. R. Sivaraman Widow of Late 3,672 2.15 3,672 2.15 13 Mr. M. B. Muthunayagammahesweri Brito 3,500 2.05 3,500 2.05 14 Mr. B. Selvanayagam 3,000 1.76 3,000 1.76 15 Ms. A. M. Felsinger 2,684 1.57 2,684 1.57 16 Ms. K. N. Woutersz 2,684 1.57 2,684 1.57 17 Mr. Navarathnam Sumanathiran 2,682 1.57 - - 18 Mr. M. G. Sabaratnam 2,500 1.47 2,500 1.47 19 Mr. S. A. Scharenguivel 2,450 1.44 2,450 1.44 20 Mr. P. S. Wijewardenephilip Seevali 2,194 1.29 2,194 1.29 Others 59,006 34.58 Total 170,625 100 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 138 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

Supplementary INFORMATION

Shareholder Information (Contd.)

Warrant 2012 Analysis of Warrant Holders According to the Number of Warrants as at 31 March 2012

Warrant Holding Resident Non Resident Total Number of No of Percentage Number of No of Percentage Number of No of Percentage Shareholders Shares (%) Shareholders Shares (%) Shareholders Shares (%) 1 to 1000 Shares 2,283 798,483 0.23 7 3,100 0.00 2,290 801,583 0.23 1001 to 10,000 Shares 1,316 5,123,820 1.47 4 21,800 0.01 1,320 5,145,620 1.48 10001 to 100,000 Shares 351 9,683,981 2.78 7 240,400 0.07 358 9,924,381 2.85 100001 to 1000,000 Shares 25 4,939,494 1.42 3 1,087,540 0.31 28 6,027,034 1.73 Over 1,000,000 Shares 2 9,835,800 2.83 1 315,987,182 90.87 3 325,822,982 93.70 Total 3,977 30,381,578 8.74 22 317,340,022 91.26 3,999 347,721,600 100

List of 20 Major Warrant Holders - Warrant 2012 Based on their Warrant Holdings as at 31 March 2012

Shareholding % Shareholding % Name of the Warrant Holder 2012 2011 1 Lionhart Investments Ltd 315,987,182 90.87 321,168,682 92.36 2 Mr. S. H. M. Rishan 7,207,000 2.07 - - 3 Knight Trade (Private) Ltd 2,628,800 0.76 2,628,800 0.76 4 Mercator Associates LLC 656,200 0.19 670,200 0.19 5 Seylan Bank PLC/Jayantha Dewage 549,900 0.16 - - 6 Mr. W. D. J. Ruwan Silva 361,000 0.10 - - 7 Dr. N. Kasim 325,740 0.09 555,440 0.16 8 Mr. M. A. Rehmanjee 305,000 0.09 - - 9 Mr. J. A. S. Piyawardena 300,000 0.09 - - 10 Mr. K. O. D. Jayaratne 300,000 0.09 - - 11 A.T. Cooray (Pvt) Ltd 232,600 0.07 - - 12 Mr. K. G. D. Sumanasena 232,000 0.07 - - 13 Mr. J. H. M. U. Lalantha Herath 224,900 0.06 - - 14 Piere Lanka Exports Private Ltd 224,300 0.06 - - 15 Mr. R. B. C. Alles 220,000 0.06 - - 16 Mr. M. M. Hashim 200,000 0.06 - - 17 Mr. S. M. Masoor 194,572 0.06 304,872 0.09 18 Merchant Bank Of Sri Lanka PLC/Mr. Kamal Raja Upali Gunawardena 192,000 0.06 - - 19 Mr. K. S. H. Mawellage 170,500 0.05 - - 20 Mr. A. V. A. Deepal Rushantha 151,000 0.04 - - Other 17,058,906 4.91 Total 347,721,600 100 Environmental Resources Investment PLC Annual Report 2011/12 139

Warrant 2014 Analysis of Warrant Holders According to the Number of Warrants as at 31 March 2012

Warrant Holding Resident Non Resident Total Number of No of Percentage Number of No of Percentage Number of No of Percentage Shareholders Shares (%) Shareholders Shares (%) Shareholders Shares (%) 1 to 1000 Shares 1,675 634,334 0.18 2 2,000 0.00 1,677 636,334 0.18 1001 to 10,000 Shares 1,243 4,796,240 1.38 4 27,000 0.01 1,247 4,823,240 1.39 10001 to 100,000 Shares 333 8,930,135 2.57 5 102,410 0.03 338 9,032,545 2.60 100001 to 1000,000 Shares 24 5,630,099 1.62 2 874,500 0.25 26 6,504,599 1.87 Over 1,000,000 Shares 1 2,628,800 0.76 3 324,096,082 93.21 4 326,724,882 93.96 Total 3,276 22,619,608 6.51 16 325,101,992 93.49 3,292 347,721,600 100

List of 20 Major Warrant Holders - Warrant 2014 Based on their Warrant Holdings as at 31 March 2012

Shareholding % Shareholding % Name of the Warrant Holder 2012 2011 1 Lionhart Investments Ltd 321,118,982 92.35 321,270,482 92.39 2 Knight Trade (Pvt) Ltd 2,628,800 0.76 2,628,800 0.76 3 HSBC International Nominees Ltd-Ssbt-Deustche Bank Ag Singapore A/C 01 1,733,800 0.50 1,851,900 0.53 4 Redwin Holdings Ltd 1,243,300 0.36 1,173,200 0.34 5 Mercator Associates LLC 700,000 0.20 700,000 0.20 6 Mr. Sulaiman Mohamed Masoor Joint Mrs. Razana Mashur 698,872 0.20 447,572 0.13 7 Waldock Mackenzie Limited/Mr. S. M. De Zoysa 592,300 0.17 592,300 0.17 8 Mr. Pituwala Kankanamalage Don Gamini Jayananda 509,065 0.15 300,000 0.09 9 Sampath Bank PLC/Mr. S. A. Cooray 400,000 0.12 400,000 0.12 10 Mr. Koruwage Shantha Rohan Fernando 348,000 0.10 234,700 0.07 11 Seylan Bank PLC/Jayantha Dewage 300,000 0.09 200,000 0.06 12 Pan Asia Banking Corporation PLC/Mr. Mohottallage Nihal Ranasinghe 280,000 0.08 300,000 0.09 13 Mr. Fuad Mushtaq Mohamed 275,100 0.08 275,000 0.08 14 Mr. Dandunna Arachchige Dasantha Primal 230,700 0.07 - - 15 Mr. Bhagwan Wassiamal Kundanmal 215,100 0.06 215,100 0.06 16 Mr. Khalifa Mattar Abdul Rahaman Khalfan Almuhairi 174,500 0.05 - - 17 Mr. Ubayasena Maddugoda 166,100 0.05 - - 18 Mr. Dambagaskumbure Gedara Anura Jayatilake 156,300 0.04 - - 19 Mr. Brindly Vishantha Hettithanthrige 152,400 0.04 - - 20 Mr. Conganige Earney Marrot Weninsius Fernando 141,975 0.04 - - Other 15,656,306 4.50 Total 347,721,600 100.00 Balance Sheet | Income Statement | Statement of Changes In Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 140 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

Supplementary INFORMATION

Shareholder Information (Contd.)

Warrant 2015 Analysis of Warrant Holders According to the Number of Warrants as at 31 March 2012

Warrant Holding Resident Non Resident Total Number of No of Percentage Number of No of Percentage Number of No of Percentage Shareholders Shares (%) Shareholders Shares (%) Shareholders Shares (%) 1 to 1000 Shares 2,026 836,306 0.24 - - - 2,026 836,306 0.24 1001 to 10,000 Shares 1,507 5,936,192 1.71 3 22,600 0.01 1,510 5,958,792 1.71 10001 to 100,000 Shares 359 9,375,362 2.70 3 136,840 0.04 362 9,512,202 2.74 100001 to 1000,000 Shares 22 5,573,218 1.60 2 1,308,000 0.38 24 6,881,218 1.98 Over 1,000,000 Shares 1 2,628,800 0.76 1 321,904,282 92.58 2 324,533,082 93.33 Total 3,915 24,349,878 7.00 9 323,371,722 93.00 3,924 347,721,600 100

List of 20 Major Warrant Holders - Warrant 2015 Based on their Warrant Holdings as at 31 March 2012

Shareholding % Shareholding % Name of the Warrant Holder 2012 2011 1 Lionhart Investments Ltd 321,904,282 92.58 322,103,582 92.63 2 Knight Trade (Pvt) Ltd 2,628,800 0.76 2,628,800 0.76 3 Mr. Sulaiman Mohamed Masoor Joint Mrs. R. Razana Mashur 988,672 0.28 811,772 0.23 4 Hsbc International Nominees Ltd-Ssbt-Deustche Bank Ag Singapore A/C 01 809,000 0.23 995,100 0.29 5 Redwin Holdings Ltd 499,000 0.14 475,600 0.14 6 Sampath Bank PLC/Mr. S.A. Cooray 450,000 0.13 450,000 0.13 7 Mr. Shaluka Shayam Abhayawickrama 394,100 0.11 - - 8 Mr. Rosanth Percival Leo Eheliyagoda 344,100 0.10 - - 9 Mr. Polwatte Gamage Piyasiri 323,486 0.09 - - 10 Mr. Bhagwan Wassiamal Kundanmal 282,500 0.08 282,500 0.08 11 Mr. Shermal Hemaka Jayasuriya 237,800 0.07 - - 12 A.T. Cooray (Pvt) Ltd 234,900 0.07 169,900 0.05 13 Waldock Mackenzie Limited/ Mr. S. M. De Zoysa 230,200 0.07 230,200 0.07 14 Mr. Jayakody Pathirannehelage Chandra Jayakody 223,300 0.06 - - 15 Mr. Dissanayake Mudiyanselage Prashantha Disanayake 219,300 0.06 - - 16 Seylan Bank PLC/Jayantha Dewage 200,000 0.06 200,000 0.06 17 Mr. Hetti Arachchige Gamini Wijeyabandara 190,000 0.05 200,000 0.06 18 Mrs. Anne Hyacinth Silva 172,100 0.05 - - 19 Capital Trust Holdings (Pvt) Ltd 162,600 0.05 - - 20 Mr. Brindly Vishantha Hettithanthrige 156,600 0.05 - - Other 17,070,860 4.91 Total 347,721,600 100.00 Environmental Resources Investment PLC Annual Report 2011/12 141

Public Shareholding and Warrant holdings 31.03.2012 31.03.2011 The Percentage of Public holdings as at % % Ordinary Shares 24.60 13.58 2011 Warrants - 4.97 2012 Warrants - 6.88 2014 Warrants 6.89 6.85 2015 Warrants 6.67 6.61

Closing Price (Rs.) The Percentage of Public holdings as at Quarter Year 31.03.2012 31.12.2011 30.09.2011 30.06.2011 31.03.2012 31.03.2011 Ordinary Shares High 41.20 64.90 75.00 82.00 82.00 118.90 Low 13.50 33.30 55.20 55.10 13.50 75.00 Close 16.80 40.10 63.60 71.10 16.80 77.30

2012 Warrant - Exercise price Rs. 33/- High - 29.80 39.50 42.80 - 35.00 Low - 10.00 26.00 23.00 - 63.00 Close - 16.90 29.50 36.00 - 36.10

2014 Warrant - Exercise price Rs. 36/- High 19.40 27.80 35.10 37.00 37.00 60.00 Low 3.30 11.20 22.70 22.60 3.30 32.00 Close 6.40 19.00 27.00 30.30 6.40 32.40

2015 Warrant - Exercise price Rs. 39/- High 19.30 26.00 33.50 35.90 35.90 59.50 Low 3.50 11.30 22.00 21.00 3.50 32.00 Close 6.50 18.90 25.20 30.00 6.50 32.40 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 142 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

Supplementary INFORMATION

Shareholder Information (Contd.)

Categories of Share and Warrant Holders Normal Preference Warrants 2012 Warrants 2014 Warrants 2015 Category No of No of No of No of No of No of No of No of No of No of Share- Shares Share- Shares Share- Shares Share- Shares Share- Shares holders holders holders holders holders Individual 7,915 58,729,975 2 2,932 3,842 25,668,292 3,169 17,092,778 3,796 18,769,291 Institutional 307 290,637,144 87 167,693 157 322,053,308 123 330,628,822 128 328,952,309 Total 8,222 349,367,119 89 170,625 3,999 347,721,600 3,292 347,721,600 3,924 347,721,600

Trading Statistics

Shares Traded Turnover Generated

17% 13%

43% 58% 10% 14%

Ordinary Shares 190,927 Ordinary Shares 9,318,079 2011 Warrants 2,919 2011 Warrants 195,365 2012 Warrants 109,787 2012 Warrants 2,945,652 2014 Warrants 61,015 18% 2014 Warrants 1,601,485 2015 Warrants 75,643 25% 2015 Warrants 2,155,126 1% 1%

Share Performance

10,000,000 500,000,000

8,000,000 400,000,000

6,000,000 300,000,000

4,000,000 200,000,000

2,000,000 100,000,000

0 0 Jul 2010 Jul 2011 Apr 2011 Apr 2010 Feb 2011 Feb 2011 Feb Jan 2011 Jan 2011 Jun 2010 Jun 2011 Nov 2010 Nov 2011 Nov Aug 2010 Dec 2010 Aug 2011 Dec 2011 Mar 2011 Mar 2012 Sep 2010 Oct 2010 Sep 2011 Oct 2011 May 2010 May 2011

Number of Shares Turnover Environmental Resources Investment PLC Annual Report 2011/12 143

Decade at a Glance

In Rs. ‘000 Group Company Year Ended 31 March 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Operating Results Revenue 6,085,035 2,208,050 233,722 1,614 121,515 96,314 343,359 352,343 362,491 305,908 Profit Before Taxation 164,881 571,239 134,718 26,553 (12,250) (13,606) 9,662 13,673 9,086 7,102 Profit After Taxation 101,447 480,675 108,814 13,680 (12,955) (12,955) 5,886 9,706 9,086 7,102

Attributable to: Equity Holders of the Parent 125,907 443,402 103,801 13,680 (12,955) (12,955) 5,886 9,706 9,086 7,102 Minority Interest (24,460) 37,273 5,013 ------101,447 480,675 108,814 13,680 (12,955) (12,955) 5,886 9,706 9,086 7,102

Capital Employed Stated Capital 7,724,481 6,850,456 2,469,164 382,835 35,113 35,113 35,113 35,113 35,113 35,113 Reserves 49,052 17,169 3,320 3,320 3,406 3,385 3,320 3,320 3,320 3,320 Retained Earnings 620,344 504,537 71,347 (12,611) (26,850) (9,151) (9) (1,380) (7,561) (16,623) Minority Interest 1,284,922 1,448,703 439,073 ------9,678,799 8,820,865 2,982,904 373,544 11,669 29,347 38,424 37,053 30,872 21,810

Assets Employed Non-Current Assets Excluding Deferred Tax 5,923,296 8,064,435 952,407 118 2,152 3,324 4,663 4,947 4,758 3,947 Current Assets 6,993,154 4,132,670 2,444,574 384,636 74,416 74,159 85,565 121,190 127,681 122,984 Deferred Tax 6,416 399 7,199 - - 651 - - - - 12,922,866 12,197,504 3,404,180 384,754 76,568 78,134 90,228 126,137 132,439 126,931

Liabilities Non-Current Liabilities 413,193 481,912 150,179 - 1,929 1,882 13,045 26,236 30,064 33,951 Current Liabilities 2,830,873 2,894,727 271,097 11,210 62,970 46,905 38,759 62,848 71,503 71,170 3,244,066 3,376,639 421,276 11,210 64,899 48,787 51,804 89,084 101,567 105,121

Key Indicators Basic Earnings Per Share (Rs.) 0.39 1.51 0.57 0.63 (0.68) (0.53) 0.44 0.56 0.52 0.41 Net Assets Per Share (Rs.) 24.03 23.56 21.45 10.74 0.67 1.66 2.21 2.13 1.78 1.25 Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information 144 | Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

Supplementary INFORMATION

Details of Group Properties

The details of the extents, locations, valuations and the number of buildings pertaining to the land holding of the Group are as follows;

The Colombo Pharmacy Company PLC Property Location Extent No. of Buildings Cost/Valuation Freehold Land & Building Union Place 117.75p 2 767,850,000 Freehold Land Bambalapitiya 17.39p N/A 113,534,710 Freehold Building Bambalapitiya 5356sq.ft 1 8,465,290

Ceylon Leather Products PLC Property Location Extent No. of Buildings Cost/Valuation Freehold Land & Building Mattakkuliy 760p 15 479,000,000 Freehold Land & Building Belummahara 474p 10 337,338,000 Freehold Land & Building Mattakkuliy 6P 1 10,016,250

Dankotuwa Porcelain PLC Property Location Extent No. of Buildings Cost/Valuation Freehold Land Dankotuwa 7,481p - 137,400,366 Freehold Building Dankotuwa 260,015sq.ft 29 231,788,063

Enterprise Technology (Pvt) Ltd Property Location Extent No. of Buildings Cost/Valuation Freehold Land & Building Piliyandala 485p 1 135,900,000

South Asia Textile Industries Lanka (Pvt) Ltd Property Location Extent No. of Buildings Cost/Valuation Building on Leasehold Land Pugoda 405,430sq.ft 24 628,650,000

Palla & Company (Pvt) Ltd Property Location Extent No. of Buildings Cost/Valuation Building on Leasehold Land Katunayake 59,485sq.ft 5 117,549,260 Environmental Resources Investment PLC Annual Report 2011/12 145

GLOSSARY OF FINANCIAL TERMS

Accrual Basis EBIT Net Working Capital Recording revenues and expenses in the Earnings before interest and tax (includes Current assets minus current liabilities period in which they are earned or incurred other operating income). regardless of whether cash is received or Operating Margin disbursed in that period. EBITDA Operating profit as a percentage of total Earnings before interest, tax, depreciation sales. Capital Employed and amortisation. Shareholders’ funds plus minority interest Price Earnings Ratio and long-term debt. Earnings Per Share Market price per share over earnings per Net profit attributable to equity holders share. Contingent Liabilities of the parent divided by the weighted A condition or situation existing at average number of ordinary shares in Price to Book Ratio the Balance Sheet date due to past issue during the period. Market price per share over net asset events, where the financial effect is not value per share. recognized, because: Enterprise Value Market capitalisation plus debt, minority Quick Ratio 1. The obligation is crystallized by the interest and preferred shares, minus total Cash plus short-term investments plus occurrence or non-occurrence of one cash and cash equivalents. receivables divided by current liabilities. or more future events, or 2. A probable outflow of economic Enterprise Value Multiplier Return on Assets resources is not expected, or Enterprise Value divided by EBITDA. Profit after tax divided by the total assets. 3. It is unable to be measured with Interest Cover Return on Capital Employed sufficient reliability. Consolidated profit before interest and tax Consolidated profit before interest and tax as a percentage of capital employed. Current Ratio over finance expenses. Current assets divided by current Long-Term Gearing Ratio Return on Equity liabilities. Long-term debt as a percentage of Profit attributable to shareholders as a percentage of shareholder’s funds Debt-Equity Ratio shareholders’ funds and minority interest. including minority interest. Debt as a percentage of shareholders’ Market Capitalization funds, including minority interest. Number of shares in issue at the end of Shareholders’ Funds Total of stated capital, capital reserves Derivative period multiplied by the market price at and revenue reserves. Is a financial instrument - or more simply, end of period. an agreement between two people or two Net Assets Total Debt parties - that has a value determined by Total assets minus current liabilities, Long-term loans plus short-term loans the price of the underlying. minus long-term liabilities, minus minority and overdrafts. interest. Diluted Earnings Per Share (DPS) Total Equity Profit attributable to equity holders of the Net Assets Per Share Shareholders’ funds plus minority interest. parent divided by the weighted average Net assets as at the particular financial number of ordinary shares in issue during year divided by the number of shares in the period adjusted for options granted issue as at the current financial year end. but not exercised. Net Profit Margin Dividend Payout Ratio Profit after tax divided by turnover Dividend as a percentage of company inclusive of share of associate company profits adjusted for non-cash gains items. turnover. Balance Sheet | Income Statement | Statement of Changes in Equity | Cash Flow Statements | Notes to the Financial Statements | Supplementary Information | 146 Glossary of Financial Terms | Notice of Annual General Meeting | Form of Proxy

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Annual “RESOLVED that Mr. Heen Banda Note: General Meeting of Environmental Dissanayake who has attained the i. A member entitled to attend and vote Resources Investment PLC will be held at age of 75 years be and is hereby re- at the Meeting is entitled to appoint Samudra Ball Room, Taj Samudra on 19 elected as a Director of the Company, a Proxy or Proxies to attend and vote day of September 2012 at 3.00 p.m. for and is hereby declared that the age instead of him/her. A Proxy need not the following purposes: - limit of 70 years referred to in Section be a member of the company. 210 of the Companies Act No. 7 1. To receive and consider the Annual ii. A form of proxy accompanies this of 2007 shall not apply to the said Report of the Board of Directors along notice. Director”. with the financial statements of the iii. The completed form of proxy should Company for the year ended 31 March 6. To re-appoint M/s Ernst & Young, be deposited at the registered office 2012. Chartered Accountants, as Auditors of the company at 16th Floor, West of the Company and to authorize 2. To re-elect Dr. Kosala Heengama who Tower, World Trade Center, Echelon the Directors to determine their retires by rotation in terms of Article Square, Colombo 01 (not less than 48 remuneration on behalf of the 25 (6) of the Articles of Association of hours before the time appointed for Company. the Company. the holding of meeting). 7. To authorize the Directors to 3. To re-elect Mr. Kelly T Ehler who was determine and make payments for appointed during the financial year charitable and other purposes for and retires in terms of Article 25 (2) the year 2012/2013 as set out in the of the Articles of Association of the Companies Donation Act (CAP147). Company.

4. To re-elect Mr. Lalith Heengama who By order of the Board of retires in terms of Section 210 of the Environmental Resources Investment PLC Companies Act No. 7 of 2007 as a Director of the Company and to adopt the following resolution :- Sgd. “RESOLVED that Mr. Lalith Heengama P W Corporate Secretarial (Pvt) Ltd who has attained the age of 73 years Secretaries be and is hereby re-elected as a Colombo Director of the Company, and is hereby declared that the age limit of 70 15 August 2012 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director”

5. To re-elect Mr. Heen Banda Dissanayake who retires in terms of Section 210 of the Companies Act No. 7 of 2007 as a Director of the Company and to adopt the following resolution :- Environmental Resources Investment PLC Annual Report 2011/12 147

FORM OF PROXY

I/We ...... of

...... being a member/members of the above named Company, hereby appoint

...... of ...... or failing him/her Mr. Lalith Heengama of Colombo or failing him Dr. Kosala Heengama of Colombo or failing him Mr. Gregory Scott Newsome of Colombo or failing him Mr. Heen Banda Dissanayake of Colombo or failing him Mr. Gamini Sarath Munasinghe of Colombo of failing him Mr. Kelly T. Ehler of Colombo as my/our proxy to represent me/us and to speak and vote for me/us on my/our behalf at the Annual General Meeting of the company to be held on the 19 day of September 2012 at 3.00 p.m. at the Samudra Ball Room, Taj Samudra and at any adjournment.

FOR AGAINST i. To receive and consider the Report of the Directors and the Statement of Audited Accounts for the year ended 31 March 2012 together with the Report of the Auditors thereon. ii. To re-elect Dr. Kosala Heengama who retires by rotation in terms of Article 25 (6) of the Articles of Association of the Company. iii. To re-elect Mr. Kelly T. Ehler who was appointed during the financial year and retires in terms of Article 25 (2) of the Articles of Association of the Company, iv. To re-elect Mr. Lalith Heengama who retires in terms of Section 210 of the Companies Act No. 7 of 2007 as a Director of the Company and to adopt the following resolution :- “RESOLVED that Mr. Lalith Heengama who has attained the age of 73 years be and is hereby re-elected as a Director of the Company, and is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director” v. To re-elect Mr. Heen Banda Dissanayake who retires in terms of Section 210 of the Companies Act No. 7 of 2007 as a Director of the Company and to adopt the following resolution:- “RESOLVED that Mr. Heen Banda Dissanayake who has attained the age of 75 years be and is hereby re-elected as a Director of the Company, and is hereby declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director” vi. To re-appoint M/s Ernst & Young, Chartered Accountants, as Auditors of the Company and to authorize the Directors to determine their remuneration on behalf of the Company. vii. To authorise the Directors to determine and make payments for charitable and other purposes for the year 2012/2013 as set out in the Companies Donation Act (CAP147).

Signed on this ...... day of ...... 2012...... Signature Please furnish following information:

Share Certificate No. CDS A/C No.

NIC No. No of Shares Note: i. A member entitled to attend and vote at the meeting is entitled to appoint a Proxy or Proxies to attend and vote instead of him/her. A proxy need not be a member of the company. ii. A form of proxy accompanies this notice. iii. The completed form of proxy should be deposited at the registered office of the Company at 16th Floor, West Tower, World Trade Centre, Echelon Square, Colombo 01 (not less than 48 hours before the time appointed for the holding of meeting). iv. A body corporate which is a shareholder, may appoint a representative to attend a meeting of shareholders or any class of shareholders on its behalf by resolution of its Directors or other governing body. v. Where two or more persons are registered as the holder of a share, the vote of the person named first in the share register and voting on a matter shall be accepted to the exclusion of the votes of the other joint holders. Corporate Information

Name of the Company Registered Office Environmental Resources Investment PLC 16th Floor, West Tower, World Trade Center, Legal Form Echelon Square, Public Limited Liability Company incorporated Colombo 01, in Sri Lanka on 29 December 1910. Sri Lanka. Listed on the Colombo Stock Exchange from 1970 to present. Contact Details Telephone: +94 11 5700700 Company Registration Number Fax: +94 11 2472443 PQ 26 Email: [email protected] Internet: www.erlanka.com Director Board Lalith Heengama - Chairman Secretaries Kosala Heengama - Director P W Corporate Secretarial (Pvt) Ltd Gregory Scott Newsome - Director 3/17, Kynsey Road, Gamini Sarath Munasinghe - Director Colombo 08, Heen Banda Dissanayake - Director Sri Lanka. Kelly T. Ehler - Director Telephone: +94 11 4640360 Fax: +94 11 4740588 Audit Committee Kelly T. Ehler (Chairman) Registrars Gamini Sarath Munasinghe SSP Corporate Services (Pvt) Ltd Heen Banda Dissanayake No. 101, Inner Flower Road, Colombo 03, Remuneration Committee Sri Lanka. Gamini Sarath Munasinghe (Chairman) Heen Banda Dissanayake Auditors Lalith Heengama Ernst & Young Chartered Accountants Bankers P.O. BOX 101, Deutsche Bank Colombo Colombo, Nations Trust Bank PLC Sri Lanka. Pan Asia Banking Corporation PLC

Designed & Produced by Digital Plates by Imageline (Pvt) Ltd Printed by Printage (Pvt) Ltd Environmental Resources Investment PLC Annual Report 2011/12 Environmental Resources Investment PLC Investment Resources Environmental Tower 16, West Level Center Trade World Colombo 01 Sri Lanka www.erlanka.com