A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 1

Our Mission

We are committed to delivering to our Shareholders the best ever returns a listed Company

has given over the first seven years of listing. For our Employees, we are committed to

creating exciting new opportunities and a rising share of wealth. For our Business Partners,we will be a winner to grow with. To our Customers, from all quarters, we will deliver

excellence... every time. We are a responsible corporate citizen close to the lives of the

Community. To the State, we are a future winner with the nation at heart.

Our Core Values

• Passion for customer

• Obsession for performance

• Driven by innovation

• Concern for people

Group Profile 2

Operational Highlights 4

Financial Highlights 5

CEO’s Review 6

Members of the Board 8

Group Management Committee 10

Review of Operations 13

Financial Review 14

FMCG Sector 16

Healthcare Sector 18

Leisure Sector 19

Transportation Sector 20

Strategic Investments 21

Sustainability Reporting 23

Hemas Tsunami Response Plan 24

Piyawara Programme 26

The Hemas Team 28

Financial Statements 29

5 Year Summary 70

Shareholder Information 71

Glossary 72

Notice of Meeting 73

Form of Proxy 75

Contents

Group ProfileIt was a far thinking entrepreneur Sheikh Hasannally Esufally (MBE) who, in 1948, saw the promise oftrading in pharmaceuticals and chemicals in a newly independent country. Naming his trading enterpriseHemas (Drugs) Limited, seeing more opportunities emerge in the 1960s, the company diversified into themanufacture of toiletries in collaboration with a French multinational company. With the liberalisation ofthe economy in the late 1970s, the Group decided to venture into travel and tourism, commodity exports,apparel, power and transport.

Along the way, the Group has chartered many a course as a dynamic industry leader, never losing sight ofits vision and goals, coming to be known among competitors and counterparts alike as a Group built onsolid values, futuristic vision, strength of innovation, commitment to quality and a dedication to care.

FMCG SectorThe largest business within the Group, this sector is engaged in the development, manufacture, marketingand distribution of FMCG products with sights set on expanding its presence overseas as well. Rankedsecond in the country for personal care products, our portfolio comprises well known names that are aneveryday presence in Sri Lankan households. Fully equipped R&D facilities enhance product developmentwith manufacturing done at an ISO 9001 accredited production facility. Our distribution reach across theisland is aided by state of the art technology.

Healthcare With over half a century’s experience in the field of pharmaceuticals, we have expanded on our keystrengths to become the largest importer of pharmaceutical products in the private sector. Our portfolio ofagencies, which amount to more than 35, represent global R&D based pharmaceutical companies andleading suppliers of medical equipment, surgicals and diagnostics.

LeisureWith primary business activities in this sector being destination management services, operation of travelcentres and ownership & management of hotels, Hemas is a preferred choice among world renowned traveland tour operators working within the region. Serendib, Dolphin, Sigiriya and Lihiniya Surf are the hotelsthat come under the umbrella of Hemas, while new developments are on the cards.

Transportation Our portfolio in this sector comprises airline representation, travel retailing and air & sea logisticssolutions. In a highly competitive industry, Hemas has held fast to its market share improving year onyear through strategic customer focus initiations and value additions. Our strong relationships withprincipals has helped us better our expectations. Through a comprehensive and innovative internet portaland constantly expanding services, the travel arm is on par to compete in a highly aggressive market. Ourvalue added services, focus on niche markets and representation of global networks have helped thebusiness of freight management grow significantly in the recent past.

Strategic InvestmentsPowerHemas made a strategic investment into the power sector in order to boost national infrastructuredevelopment through Heladhanavi, a joint venture between the Company and Lakdhanavi to construct andoperate a 100MW Thermal Power Plant. Having constructed the plant ahead of schedule, Hemas was ableto begin commercial operations earlier than expected. The company also signed a landmark Interest RateSwap Agreement in June 2004, deemed the largest such transaction hitherto in the country. Working onthis success, we are now pursuing further opportunities in the power sector.

GarmentsAs one of the preferred suppliers for international brand names like Nike, Tesco and Next, the Company hasexpanded considerably given the demand for its services. The Company is expected to grow fastersubsequent to the strategic tie-up with The Fielding Group in March this year.

PropertyHemas Developments has achieved a healthy growth year on year. Even though faced with a challengingenvironment of an over abundance of office space within the commercial capital, the Company remainsconfident that its efficient service imparted to its prestigious clientele at Hemas House will allow the fulloccupancy levels it has enjoyed thus far, to be carried into the future.

• Hemas was adjudged the Winner of the OverallNational HRM Award for Group of Companies in theManufacturing Sector

• Acquisition of the ‘Fems’ brand of sanitary napkins

Operational HighlightsJu

ne ‘0

4Ju

ly ‘0

4Se

ptem

ber

‘04

Octo

ber

‘04

1

3

4

Nove

mbe

r ‘0

4

Aug

ust

‘04

Mar

ch ‘0

5

• Signing of Heladhanavi Ltd Power Project InterestRate Swap Agreement, the largest such transactionhitherto in the country

• Setting up of an ultra modern e-resource centre incollaboration with Sri Lankan Medical Association to support doctoral education

May

‘04 • Germguard Toothpaste was launched offering a

Triclosan based germ fighting formulation for the first

time to the Sri Lankan consumer.

• Sector exited its distribution agreement with Proctor& Gamble due to increased conflicts within theproduct portfolio

• 70% of the apparel business was acquired by TFG(The Fielding Group), a UK based apparel supplier

• We signed an agreement to acquire the operatingassets and liabilities of Nimesha Enterprises and itskey brand Nimex.

• Acquisition of Bristol Mayers Squibb (BMS) agencyfor the pharmaceutical business

• GSA for Malaysia Airlines celebrated their ten yearpartnership with the Airline

• Our joint venture, Heladhanavi commenced supplies tothe national grid ahead of schedule. A short term powerpurchase agreement was signed with the CEB coveringthe period 29th September to 7th December 2004.

• Corporate Travel division of Hemas Travels enteredinto a strategic partnership with Business TravelInternational (BTI)

Febr

uary

‘05

5

6

• Hemas entered the large toilet soap market withVelvet Skincare Soap 2

1 2 3

4 5 6

Financial Highlights

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 5

Group Revenue

2003 2004 2005

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000Rs' Mn.

5,29

0

6,48

5

8,79

8

Profit attributableto the Group

0

100

200

300

400

500

600

700

800

900Rs' Mn.

401

613

804

2003 2004 2005

Cash from Operations

0

200

400

600

800

1,000

1,200Rs' Mn.

357

574

1,18

2

2003 2004 2005

Shareholders Funds & ROE

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000Rs' Mn.

1,68

5

2,62

8

3,54

2

2003 2004 2005

5

10

15

20

25

30

0

26.2%

28.4%25.9%

ROEShareholders Funds

%

Year Ended 31st March 2005 2004 % Change 2003

Operating Results

Group Revenue Rs'000s 8,797,881 6,485,422 35.7 5,290,102

Profit before Interest and Tax Rs'000s 1,180,220 882,824 33.7 597,418

Profit before Taxation Rs'000s 1,024,678 834,184 22.8 556,030

Profit after Taxation Rs'000s 799,535 654,116 22.2 422,786

Profit attributable to the Group Rs'000s 803,973 612,514 31.3 401,199

Dividends Rs'000s 213,466 147,500 44.7 100,000

Cash from Operations Rs'000s 1,182,366 574,317 105.9 357,025

Balance Sheet Highlights

Total Assets Rs'000s 9,651,969 7,873,459 22.6 4,048,269

Total Shareholders’ Funds Rs'000s 3,541,973 2,627,888 34.8 1,685,538

No. of shares '000s 79,130 78,000 1.45 40,000

Debt to Equity % 82.6 97.6 - 24.5

Shareholder Information

Return on Equity % 25.9 28.4 - 26.2

Earnings per Share Rs. 10.1 8.3 21.7 5.7

Dividends per Share Rs. 3.0 2.5 20.0 3.3

Dividend Payout % 26.7 24.1 - 24.9

Net Asset per Share Rs. 44.8 33.7 32.9 21.6

Market Capitalisation Rs'000s 8,625,121 6,883,500 25.3 -

Price Earnings Ratio Times 10.8 10.7 - -

Market Price as at 31st March Rs. 109.00 88.25 23.5 -

I have pleasure in presenting to you the Annual Report andAudited Accounts of your Company for the year ended 31 March2005. In an environment where businesses were faced with manychallenges, I am happy to report that your Company did well indifficult conditions, delivering record Profits and continuing tocreate exceptional value to shareholders.

A GDP growth of 5.4% in 2004 as against 6.0% in 2003 indicatesa slowdown in overall economic activity in the country. Economicgrowth last year had been mainly driven by the services sectorwhich grew by 7.6%. Consumer demand suffered during the

financial year under review, due to increasing inflation on theback of increasing world oil prices, and this had a significantimpact on the FMCG business, our largest sector.

The promise of peace and improved security conditions in SriLanka paved the way for a robust and growing tourism industry.As anticipated the number of tourist arrivals to Sri Lanka grew ata healthy rate until late December when the devastating tsunamitook place. Whilst the tsunami waves took away thousands ofhuman lives, and displaced almost 3% of our population, it alsohad a devastating impact on the peak period of tourism in SriLanka with severe repercussions on the Leisure Sector. Some ofour other businesses such as FMCG and Healthcare were alsoimpacted, albeit to a lesser degree.

Despite these challenges, your Company has been able to sustainits growth momentum with the Group recording a revenue of Rs8.8 billion, and a net profit of Rs 804 million, reflecting a top-linegrowth of 35.7% and a bottom-line growth of 31.3%. For the thirdyear in succession, we have been able to deliver returns onshareholders’ funds of greater than 25%, on a fast growing equitybase. Our emphasis on sustainable earnings as the key driver ofshareholder value ensures that bottom-line focus is notcompromised when growth is being pursued.

During the year under review, Hemas share price increased by23.5%, from Rs 88.25 to Rs 109.00. When dividends are taken into

account, this reflects an overall return of 26.9%. Investors whopurchased Hemas shares at the initial public offer, and held tillthe year end, have made a total return of 129%.

Sector performance… Ups and downs

The FMCG Sector, which accounts for 33% of Group revenue and44% of Group profits, saw its turnover decline marginally.However its core branded business performed well, under diffcultconditions, maintaining its market share intact. Due to improvedprofitability, as a result of a favorable sales mix and careful

monitoring of expenses, the Sector has recorded a healthy profitgrowth. During the year, the FMCG Sector consolidated itsposition in its existing market segments through new productsand brand re-launches, while entering allied segments throughbrand acquisitions and takeovers. In August 2004, the Sectorexited its distribution agreement with Proctor & Gamble due toincreased conflicts within the product portfolio which wereincompatible with its future growth strategy.

The Healthcare Sector has shown excellent growth in bothturnover and profits during the year, and was able to reinforce itsleadership position in the private pharmaceutical market, closingthe year with a market share of 15.8%. The Sector was able toattract the agency of Bristol Mayers Squibb (BMS) to its portfolioof principals, which currently amounts to more than 35. In itsquest to become an industry leader, the Sector has startedventuring into new areas in healthcare, in addition to itsmainstream business of pharmaceutical distribution.

Hemas Transportation Sector which consists of AirlineRepresentation, Travel Agency Business and Freight Forwarding,recorded a healthy growth in profits, in an industry whichcontinues to be increasingly competitive. For the nine monthsending December 2004 the Leisure Sector, which consists ofDestination Management, Travel Centre operations and Hotels,was seeing an excellent growth, but, consequent to the tsunamiits profits were washed away during the last quarter of the

CEO’s Review

H E M A S H O L D I N G S L I M I T E D6

For the third year insuccession, we have beenable to deliver returns onshareholders’ funds ofgreater than 25%, on a fastgrowing equity base.

financial year. We perceive the setback due to the tsunami to bea short-term phenomenon, and we are in the process ofcompleting our blueprint for the Leisure Sector strategy in viewof the long-term growth prospects of this Sector.

Our joint venture, Heladhanavi commenced supplies to the nationalgrid on 29 September 2004 and a short term power purchaseagreement was signed with the CEB covering the period 29September to 7 December 2004. During this period the plantperformed satisfactorily, supplying energy of 147,120 MWh to thenational grid. At the conclusion of this period, on 8 December 2004,the 10 year power purchase agreement took effect. Whilst delays inCEB payments cause concern for the whole industry, we take theview that this is a short-term issue and hope that the Governmentwill soon resolve the energy crisis which is very necessary not justfor our business, but, also for the nation at large.

After a period of mediocre performance, the Apparel Businessshowed much improved results with the managementrestructuring that took place in August 2004. The search for astrategic partner was successfully concluded in March this yearwhen 70% of the business was acquired by The Fielding Group, aUK based apparel supplier. We believe this strategic move wouldhelp the business grow faster as a result of wider exposure tointernational buyers, technical expertise and increased focus.

People, values and change…

We realize that it is the power of our people that has been thekey to our continued success over the years. As a growingorganization, we are committed to creating exciting careersbacked by the right rewards, to the right people.

The introduction of the new Performance Management System(PMS) will bring closer alignment between Company andIndividual performance, whilst helping to identify and developfuture leaders based on past performance and other criteria suchas future potential and adherence to Hemas values.

As an organization which has reinvented itself over the years, weunderstand the importance of organizational change to surviveand thrive over time. This ethos runs deep within theorganization and we strive to constantly challenge ourselves andbring in the paradigm shifts which we believe are necessary tosustain our forward momentum.

In this context of perpetual change, some things need to beconstant and here, your Company places much emphasis on itsculture and values. Our core values, namely, passion for customer,obsession for performance, driven by innovation, and, concern forpeople are the timeless pillars on which the organization rests.Over the last year, much work was done to inculcate these valuesacross all employees of the Group.

Helping to rebuild…

The events following the devastating Tsunami on 26 December2004 has had a profound impact on the country and yourCompany took up the position that we have a sharedresponsibility to help the country rebuild. Subsequent to our

immediate relief efforts in the form of consumer goods andpharmaceuticals in the aftermath of the December tsunami, wehave embarked on a pre-school project in collaboration with theMinistry of Social Welfare. This project proposes to buildapproximately 20 pre-schools in the affected areas. All facilitiesincluding educational equipment, specialized training forteachers, parental awareness campaigns etc will be provided. Theknowledge and experience gained during the past two yearsthrough our ‘Piyawara’ program has given us the confidence toinitiate and undertake a project of this nature. In order to financethis exercise we have set up a special fund, to which we aretargeting to collect a sum of Rs 100 million through contributionsfrom our staff, business partners and well wishers. The companyhas committed a contribution of Rs 25 million towards thistarget. The Tsunami Relief Committee of Hemas which hasundertaken this project consists of high level resource personnelin the organization and is headed by one of our Board members.

The year ahead…

Operating in a macro-environment that is not entirely conduciveto our core businesses, we foresee challenging times ahead, witha consumer market that is expected to further slowdown on theback of rising inflation, a tsunami-hit tourism industry thatwould take time to revive, and the intensifying competition ingeneral, faced by all our businesses. However, from a new businessdevelopment perspective, we have identified long-term highgrowth areas in all our key sectors – selected FMCG categories,healthcare services, high-end resorts and logistics/maritimeindustry – and this year we plan to allocate more resources toeffectively structure and support investment in these areas.

Being an organization that is committed to long-term success, wehave undertaken several key initiatives for the year ahead, witha view to enhancing customer focus, driving a performanceculture, improving process & cost efficiencies, and extractingsynergies within the Group. Further, we envisage that ProjectGenesis (our ERP implementation initiative) will play a significantrole in all these endeavors.

In conclusion, I wish to extend my special thanks to the entireHemas Team and my fellow Board members for their commitmentand support, without which these results would not have beenpossible. I take this opportunity to thank all our stakeholders forthe trust and confidence placed in us, whilst assuring them of ourbest endeavors in our mission to deliver exceptional value.

Husein EsufallyDirector and Chief Executive Officer

Colombo20th May 2005

CEO’s Review

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 7

Members of the Board

H E M A S H O L D I N G S L I M I T E D8

Husein EsufallyDirector and Chief Executive Officer

Mr. H.N. Esufally holds a Bachelor of Science (Honours)

degree in Electronics from the University of Sussex, U.K. He

was appointed as the Chief Executive Officer in 2001 and has

management experience of over 20 years. He was

instrumental in building the FMCG business to its current

status.

Serena FonsekaDirector and Group Finance Director

Ms. M.S. Fonseka is a Fellow of the Chartered Institute of

Management Accountants, U.K. and a Member of the

Certified Management Accountants, Australia. She has

management experience of over 20 years, both in Sri Lanka

and overseas. She is also the Managing Director of Hemas

Corporate Services, the company providing centralised

services to the Group.

Abbas EsufallyDirector

Mr. A.N. Esufally is a Fellow of the Institute of Chartered

Accountants of England and Wales, an Associate of the

Institute of Chartered Accountants of Sri Lanka and an All

Island Justice of Peace. He is the Head of the Leisure Sector

and Chairman of Serendib Hotels Ltd. He has experience of

over 25 years in Sri Lanka and overseas and has been in the

forefront of the leisure industry in Sri Lanka. He is the

Honorary Consul General of Bhutan in Sri Lanka.

lmtiaz EsufallyDirector

Mr. I. A. H. Esufally holds a Bachelor of Arts (Honours)

degree in Accounting and Economics from the University of

Kent, UK. He heads the Group’s Transportation Sector. He

has over 20 years sector specific experience in Sri Lanka and

overseas. He is one of the Past Presidents of the

International Association of Travel Agents and has held

many industry related positions.

From left to right : Imtiaz Esufally, Maithri Wickremesinghe, Husein Esufally, Debu Bhatnagar, Serena Fonseka,Abbas Esufally, Simon Scarff, Lalith de Mel and Murtaza Esufally

Members of the Board

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 9

Debu Bhatnagar Director

Mr. D. Bhatnagar is a Graduate in Mechanical Engineering

from the Indian Institute of Technology, Kanpur, India with

an MBA in Marketing from the Indian Institute of

Management, Calcutta, India. He has over 25 years of

experience with multinational companies such as Unilever,

Benckiser, Phillips and ICI. He heads the FMCG Sector of the

Group.

Murtaza EsufallyDirector

Mr. M.A.H. Esufally holds a Bachelor of Law degree from

University of Essex, UK. He is a Barrister-at-Law (Lincoln’s

Inn) and is an Attorney-at-Law of the Supreme Court of

Sri Lanka. He has over 10 years experience in the Apparel

Industry. He is a Council Member of the Sri Lanka Apparel

Exporters Association, and a Director of the Centre for

Poverty Analyisis.

Lalith de MelNon Executive Director

Mr. L. de Mel has a Master of Arts Degree from Cambridge

University, UK. He has significant experience having served

as a Director of several companies in Sri Lanka and in the

United Kingdom. He has served most of his career at Reckitt

Benkiser Plc, UK and was the Global Director

-Pharmaceuticals before his retirement in 1999. He has

served as the Chairman of the Board of Investment and the

Chairman of Sri Lanka Telecom Limited. He holds

directorships in many other companies and is a Senior

Advisor to the Ministry of Finance & Planning.

Simon ScarffNon Executive Director

Mr. S. Scarff is a British National with wide international

experience in several multinational companies operating in

the consumer/healthcare business. He has served as

Managing Director of Glaxo Smithkline Consumer Health

Care Ltd, India. He was awarded the MBE in 1984 for his

services to the British community and an OBE in 1999 for his

service to British industry. He continues to serve on the

boards of several other companies and trusts.

Maithri WickremesingheNon Executive Director

Mr. M. E. Wickremesinghe is an Honours Graduate in Law

from the University of Colombo, an Attorney-at-Law of the

Supreme Court of Sri Lanka and a Fellow of the Chartered

Institute of Management Accountants of the United

Kingdom. He is a practicing Attorney-at-Law specialising in

Corporate Law with extensive experience in Corporate

Finance and Financial Structuring. He has lectured at the

Faculty of Law of the University of Colombo, at the

University of Moratuwa and the Kotalawela Defence

Academy.

Group Management Committee

H E M A S H O L D I N G S L I M I T E D10

Abbas Esufally

Director

Profile on page 8

Debu Bhatnagar

Director and Managing Director - Hemas Marketing (Pte) Ltd and

Hemas Manufacturing (Pte) Ltd

Profile on page 9

Edward Fernando

Managing Director – Hemas International Freight (Pte) Ltd

Mr E Fernando holds a Professional Postgraduate Diploma in

Marketing (CIM – UK). He counts 15 years of sales &

marketing experience in the Airline industry both locally and

overseas, and 3 years in the freight management industry . He

is a member of the Executive Committee of the Sri Lanka

Freight Forwarders’ Association, and the past Deputy

Chairman of the Sri Lanka Association of Airline

Representatives.

Harshini Wickrema

Company Secretary and Head of Group Legal

Ms H Wickrema is an Attorney-at-Law of the Supreme Court

of Sri Lanka and holds a Diploma in Intellectual Property

Law from the Sri Lanka Law College in collaboration with the

Asia Pacific Legal Institute, Washington DC, USA. She also

holds a Certificate in Marketing from CIM, UK. She has

previous experience as a practicing Attorney.

Husein Esufally

Director and Chief Executive Officer

Profile on page 8

Imitiaz Esufally

Director

Profile on page 8

From left to right : Abbas Esufally, Debu Bhatnagar, Edward Fernando, Harshini Wickrema, Husein Esufally, Imtiaz Esufally,Irshad Halaldeen and Kishantha Nanayakkara

Group Management Committee

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 11

Irshad Halaldeen

Director – Group Human Resources

Mr I Halaldeen holds an MSc in Industrial Management

specializing in Organizational Development, from the

Norwegian University of Science and Technology. He has

over 15 years experience in the Manufacturing and Financial

Services industries. He is also a member of the Association

of Human Resource Professionals in Sri Lanka.

Kishantha Nanayakkara

Managing Director – Hemas Power (Pte) Ltd

Mr K Nanayakkara is a Fellow of the Chartered Institute of

Management Accountants (CIMA), UK, and holds an MSc in

Finance from the Birmingham Business School of the

University of Birmingham, UK. He has held several senior

management positions in companies ranging from

manufacturing to financial services. He also heads the

Corporate Venture Fund of the Group.

Malinga Arsakularatne

Business Strategist

Mr M Arsakularatne is a CFA Charterholder and an Associate

Member of CIMA, UK. He also holds an MSc in Investment

Management from the City University Business School, UK,

and a BSc in Computer Science & Engineering from the

University of Moratuwa, Sri Lanka. He has 8 years of

experience in the fund management industry, and is a Board

Member & the University Liaison Chair of CFA Sri Lanka.

Manoj Arora

Chief Information Officer

Mr. M Arora is a Post Graduate in Computer Science and

holds an MBA from the University of Delhi, India. He has 15

years of experience in the field of Information Systems

Management including SAP (ERP) implementation in India

and across Asia-Pacific with multinational companies such

as Becton Dickenson & Lucent Technologies.

From left to right : Malinga Arsakularatne, Manoj Arora, Murtaza Esufally, Neville Ruwanpathirana, Serena Fonseka, SrilalMitthapala, Stuart Chapman and Victor Abeyesekera

Group Management Committee

H E M A S H O L D I N G S L I M I T E D12

Murtaza Esufally

Director

Profile on page 9

Neville Ruwanpathirana

Director – New Business Development

Mr N Ruwanpathirana holds an MBA from the University of

Colombo and a BSc (Special Degree in Chemistry) from the

University of Peradeniya. He holds a Diploma from the

Chartered Institute of Marketing, UK and is also a Chartered

Chemist. He has over 25 years of management experience

ranging from Technical, Marketing to Sales both in Hemas

and in Unilever.

Serena Fonseka

Director and Group Finance Director

Profile on page 8

Srilal Mitthapala

CEO – Serendib Leisure Management Ltd

Mr S Mitthapala holds a BSc (Electrical Power Engineering)

from the University of Moratuwa. He is a Chartered Electrical

Engineer and a member of the Institute of Electrical

Engineers, London and British Institute of Management. He

has over 20 years of management experience in the

mercantile sector in Sri Lanka at several senior management

positions and directorships.

Stuart Chapman

Managing Director – Hemas Pharmaceuticals (Pte) Ltd and

Hemas Healthcare (Pte) Ltd

Mr S Chapman holds an MBA from the University of Colombo.

He is a Chartered Marketer and a Diplomate of the Chartered

Institute of Marketing UK. He holds a Diploma in Life

Insurance Sales and Marketing from the Life Underwriters’

Training Council of USA. He is a Member of the Institute of

Management UK. He has over 25 years of experience in

leading multinational and Sri Lankan companies spanning

FMCG, Financial Services and Healthcare.

Victor Abeysekera

Managing Director – Hemtours (Pte) Ltd

Mr V Abeysekera holds an MBA from the University of Sri

Jayawardenapura, an Advanced Diploma in Business

Administration from the UK. He is also a member of the

Chartered Institute of Marketing, UK (MCIM), and the

Association of Business Executives, UK (MABE). He has 22

years of experience in the travel and tour industry. He is the

Chairman of the Leisure Group for the Sri Lankan Region of

the Chartered Institute of Marketing, and a Director of the

Institute of Strategic Management, Sri Lanka.

Review of Operations

Financial Review 14

FMCG Sector 16

Healthcare Sector 18

Leisure Sector 19

Transportation Sector 20

Strategic Investments 21

Financial Review

H E M A S H O L D I N G S L I M I T E D14

Company Status

The year under review was the first complete financial year as a public company

after the listing on the Colombo Stock Exchange on 15th October 2003. During the

year 1,129,550 shares were issued to employees as a result of them exercising their

share options and the issued share capital was increased to Rs. 791,295,500 as at

the year end. The Hemas share was selected to be included in the Milanka Index

and achieved the 10th position in terms of market capitalization as at 31st March

2005.

Joint Venture

The company owns 50% of Heladhanavi Ltd in a joint venture with Lakdhanavi Ltd.

The interest in this joint venture is accounted for by proportionate consolidation,

whereby the venturer’s 50% share of each of the assets, liabilities, income and

expenses are combined on a line by line basis with similar items in the

consolidated financial statements.

Revenue

The group achieved a consolidated revenue of Rs. 8.8 billion for the year ended

March 2005 recording a growth of 35.7% over the previous year. The main factor

for higher growth was the contribution to revenue from Heladhanavi Limited which

commenced commercial operations in the supply of power to Ceylon Electricity

Board in September 2004.

Operating Profits

Earnings before interest and tax (EBIT) grew by 33.7% to Rs. 1,180 million, as a

result of the revenue growth coupled with improvement in performance efficiencies

in most of the sectors. Profit after tax was Rs. 800 million, an increase of 22% over

the previous year.

Performance

Earnings per share (EPS) for the year under review was Rs. 10.11. The company’s

Price/Earnings (PE) ratio was 10.8 at the year end share price of Rs. 109. The

comparative market PE of the diversified sector as published by the Colombo Stock

Exchange ratio was 17.7.

Segmental Contribution Rs. Mn.

Turnover Profit after tax

FMCG 2,898 353

Healthcare 2,144 103

Leisure 445 19

Transportation 353 54

Strategic Investments 2,958 271

8,798 800

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Capital Employed

Average Minority InterestAverage BorrowingsAverage Shareholders Fund

1,18

083

848

7

1,31

439

948

5

1,53

240

749

5

2,15

71,

489

527

3,08

52,

746

614

20052004200320022001

Rs' Mn.

Segmental ContributionTurnover

32.9%

FMCG

24.4%

Healthcare

5.1%

Leisure

4.0%

Transportation

33.6%

Strategic Investments

Financial Review

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 15

Taxation

Group provision for taxation for the year under review increased to Rs. 225 million

from Rs. 180 million in the previous year. The dividend tax on the dividends paid

by the subsidiary companies amounted to Rs. 30 million, which is included in the

group tax expense. Excluding the dividend tax, the effective rate of taxation on

profits reduced from 21.5 % last year to 19.1%. Effective tax rate including

dividend tax, was marginally increased to 21.9% from 21.6%. The tax free profits

from strategic investments contributed to the reduction in effective rate of tax for

the year under review. The group was also able to claim tax exemptions from

investment relief, and certain expansion profit exemptions under the Inland

Revenue Amendment Act.

Dividends

A first interim dividend of Rs. 1.25 per share was paid in November 2004 and a

second interim dividend of Rs. 1.75 per share was declared on 29th March 2005 and

paid in April 2005. The dividend cover is 3.7 times against 4.2 times in the previous

year.

Investments / Divestments

The group invested Rs. 63 million in acquiring a 56% stake in exchange & Finance

Investments Ltd and increasing the shareholding in Peace Haven Resorts Ltd and

Associated Hotels Ltd. Hemas Holdings divested 70% of the shareholding in Hemas

Garments, for Rs. 123 million.

Cash Flows

Net Cash Flow from operating activities was Rs. 1182 million recording a 105.9%

increase over the previous year.

Funding & Liquidity

The total borrowings of the Group increased from Rs. 2565 million to Rs.

2927 million over the year under review decreasing the Group Debt to Equity ratio

to 82.6% from 97.6% the previous year. The consolidation of the financial

statements (50% Joint Venture) of Heladhanavi Ltd, has increased the total debt

of the group. The loans obtained by Haladhanavi is encumbered only on the project

assets. The proportion of borrowings of Heladhanavi as at 31 March 2005,

amounted to Rs. 2450 million. Excluding same, the total borrowings of the group

stood at Rs. 477 million.

The trade receivables excluding Heladhanavi receivables of Rs. 727 million,

amounts to Rs. 1468 million compared to Rs. 1582 million as at the previous year

end.

Segmental ContributionProfit

44.1%

FMCG

12.9%

Healthcare

2.3%

Leisure

6.8%

Transportation

33.9%

Strategic Investments

Return on Equity (%)

Earning Per Share (Rs.)

0

5

10

15

20

25

30

2001 2002 2003 2004 2005

2.97

2.91

5.73

8.28

17.6

15.5

26.2

28.4

Earnings per Share& Return on Equity

10.1

125

.9

H E M A S H O L D I N G S L I M I T E D16 H E M A S H O L D I N G S L I M I T E D

Hemas FMCG (Fast Moving Consumer Goods) Sector, which is the largest businesswithin the Group, is engaged in the development, manufacture, marketing anddistribution of FMCG products, the bulk of which belong to the Personal Carecategory. Whilst the Sector primarily distributes its products to the local market,we have a small but growing presence in overseas markets.

Ranked second in the country for Personal Care products, ourproduct portfolio includes several household names, notably, BabyCheramy, Clogard, Goya and Dandex. New products developedover the last three years account for more than 20% of thebusiness, signifying our ability to be proactive to market changesand our drive for innovation. New product development is backedby a fully equipped R&D facility and a modern production facilitywith ISO 9001 accreditation. Our distribution reach, which coversalmost the entire nation, is enabled by the latest availabletechnology, which electronically links our Distributors to theCompany. With the implementation of SAP in the coming year, weexpect to have a total supply chain that is more effective andstreamlined.

The performance of the Sector during the financial year under review was impactedby a slow down in market growth due to a steep increase in the cost of living,affecting the purchasing power of the consumer. Inflation in input factors due toadditional taxation (excise duty on fragrances, cess on imports), high oil pricesand depreciation in the local currency led to inevitable price increases, withresultant impact on demand. During the latter part of the year,markets were further hit by the tsunami, resulting in a short-termimpact on revenues, and additional costs were incurred on therehabilitation of our distributors and retailers. In addition, theSector made a strategic move to exit from the distribution agreementwith Proctor & Gamble in view of the conflicts within our productportfolio. Although this move led to a loss of revenue during thesecond half of the financial year, the profitability of the sales mixwas improved.

We managed to maintain a profit growth of 18.2% despite a 1.6% drop in revenue,as a result of improved profitability due to an improved sales mix and processes &procedures that were put in place to improve cost efficiencies.

Our flagship brand, Baby Cheramy, operating in a slow growth market, has donewell to maintain market share in view of increasing competition. The ‘SuwaSingithi Wasana Baby Contest’ was run for the second time this year. The brand wasextended into the herbal area with the launch of Aloe Vera soap and cream whilethe Petals range offered greater consumer choice in Baby Cologne and Talc. In theOral Care segment, Clogard maintained market share in the face of severecompetition and a new variant, Germguard waslaunched, offering a Triclosan based germ fightingformulation for the first time to the Sri Lankanconsumer. Growth in the Fragrances sector wasimpacted by the imposition of heavy excise dutywhich led to price increases. In an effort to retain ourconsumer franchise, the Company introduced singleuse perfume tissues under the Goya brand, which have had an excellent reception

FMCG Sector

New productsdeveloped over thelast three yearsaccount for more than20% of the business,signifying our abilityto be proactive tomarket changes andour drive forinnovation.

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 17

FMCG Sector

in the market. In the Hair care category, we continue to lead the male hairgrooming segment through Pro Sport and Gold hair

gel, whilst the relaunch of Kumarika shampoo hasbeen well received.

In line with its strategy to diversify into relatedcategories, the Sector entered the Paper categoryacquiring the Fems brand of sanitary napkins inOctober 2004. Towards the end of the year, we signedan agreement to acquire the operating assets andliabilities of Nimesha Enterprises and its key brand

Nimex, which sells paper serviettes, toilet rolls and other related products. Thesestrategic acquisitions give the Sector a sound platform from which to grow in thisfast growing category.

Consequent to the investment of a toilet soap plant during the previous financialyear, the Sector launched Velvet Skincare Soap in February2005. The launch has been well received and, together withBaby Cheramy soap, the Sector now has a significantpresence in the Personal Wash category.

As internal initiatives during the year, we have redone themanufacturing layout in the Welisara factory with a view toincreasing productivity and margins. Further, the proprietarysales automation system, which links the distributors to thecompany, was fully rolled out to all territories.

Looking forward, we are not optimistic that market growth rates will improvesignificantly given the multitude of challenges facing the government inaccelerating growth and combating inflation. With effect from 1st April2005, the government has legislated that 50% of all advertisingexpenditure will be disallowed for tax. We see this as a retrogrademeasure which will ultimately hurt consumers and local companies.The industry has made several representations urging the authoritiesto repeal or at least amend the statute, and we are hopeful that someconsideration to these appeals will be given in due course.

In the coming year, continued focus and market share growth of ourcore brands would be a key priority. Ensuring the success of newly launched brandssuch as Diva and Velvet, along with the emphasis on new product development andacquisitions with a view to entering allied segments, would be our key strategiesfor long-term growth.

H E M A S H O L D I N G S L I M I T E D18

Healthcare Sector

The Healthcare Sector Vision is to be the leading and most sought after provider ofhealthcare products and services. While its core activity over the past 50 years hasbeen the distribution of Pharmaceuticals which continues to grow, this new Visionenvisages greater focus on entering potential new businesses in the widerHealthcare industry.

For the year under review the Healthcare Sector achieved excellent results withturnover growing by 26.2 % to reach Rs 2.14 billion and Profit after tax growingby 20.3 % to reach Rs 103.1 million. The Sector consolidated its status as theleading distributor of Pharmaceuticals, increasing its market share from 15.0% to15.81% in 2004 (IMS Q4 2004) which is noteworthy in this highly fragmentedmarket. Hemas continues to be regarded as the best sales & distribution andintegrated logistics provider for Pharmaceutical businesses in Sri Lanka.

Hemas passion towards bringing the most up to date quality solutions to Patientsis represented through its portfolio of prestigious global R&D based Pharmaceuticalprincipals. A significant addition to the portfolio was Bristol Mayers Squibb (BMS)in July 2004, after a competitive evaluation of key Pharmaceutical Distributors inSri Lanka by their global evaluation team. New product introductions by areagencies accounted for an impressive 8 % of turnover. Some of the significant newproduct launches that added value to patients during the year were Lumigan,Crestor, Alphagan P, Cialis, Voluven, Fexet Tabs and Iodosorb.

During the year there was greater focus directed to the development of the Surgicalbusiness. Working closely with surgeons, several new alliances were entered into inorder to bring in the latest Surgical products and techniques.

The Sector continues to support and add value to the medical profession whereverpossible and November 2004 saw the setting up of an ultra modern Hemas e-resource centre in collaboration with the Sri Lanka Medical Association to supportthe education needs of Doctors in different specialities. We are happy to reportthat the centre is well used by Doctors both young and old. We also continue tosupport the various medical colleges in their key activities pertaining to theeducation of Medical Professionals.

With increasing pressure on patients’ disposable incomes the company realizes theneed to maintain prices that give patients value for money and towards this endwe are continuously focusing on bringing such solutions to patients. The companyhas also looked internally and is targeting to improve the cost effectiveness of itslogistics through the introduction of SAP in the new financial year which will alsoprovide greater value to principals and customers.

While the medium to long term outlook is good for the sector, there is a possibilityof a short term impact from the drop in sales to the government sector which hasreceived substantial amounts of medicines to support the Tsunami victims. A keystrategy in the coming years will be to build on our long standing associationswithin the industry and the medical profession to enter other areas of theHealthcare industry.

Hemas continues to beregarded as the bestsales & distributionand integratedlogistics providerfor Pharmaceuticalbusinesses in Sri Lanka.

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 19

Leisure Sector

The primary business activities of the Hemas Leisure Sector are destinationmanagement, travel centre operation, and hotel ownership & management.

Hemtours (Pte) Ltd, which is a fully owned subsidiary of Hemas Holdings Ltd, isengaged in destination management and travel centre operations. In destinationmanagement, the majority of the business is generated through internationallyprominent tour operators and travel agents. Direct selling to foreign travellersthrough the web, although marginal at present, is a fast growing and highlyprofitable segment. We carryout our travel centre operations from several keyhotels, offering the entire range of leisure services to the customer.

We make our presence felt in the hotel industry through our subsidiary, SerendibGroup, and our associate company, Associated Hotels Ltd. The Serendib Groupowns and manages Serendib Hotel, Hotel Sigiriya and Hotel Club Dolphin, whereasAssociated Hotels Ltd owns Lihiniya Surf Hotel.

The first nine months of the financial year saw our turnover and profits grow at ahealthy rate on the back of a tourism industry which was thriving in an improvedpolitical environment. Whist a record year was anticipated for the industry interms of growth and profitability, the momentum was brought to a halt with theunfortunate events on December 26th. At present, the challenge for the Sri Lankanleisure industry is to rebuild the damaged properties, whilst restoring tourists’confidence in Sri Lanka. One of the major achievements for the industry this yearwas the approval of the Tourism Act by the Cabinet, an important legislation thatenvisages the restructuring of the institutions governing the industry.

Despite the setback due to tsunami, most of our tour operators have flown downto get a first hand feedback of the ground situation and have recommencedoperations in Sri Lanka. Their positive approach to establishing our country as aleading long-haul destination is an encouragement to the whole industry.

Subsequent to the refurbishments last year, Serendib Hotel was enjoying highoccupancy levels till December. Although the hotel suffered heavily from thetsunami, it recommenced operations on January 22 as a result of a phenomenaleffort by the entire Serendib team. From July onwards, Hotel Sigiriya would be ableto offer greater customer satisfaction with the completion of the new restaurantand the ayurvedic centre along with the refurbishments in public areas. Significantdevelopments have taken place at Hotel Club Dolphin with the addition of the newbeach front and 28 new rooms which opened in early December thereby enhancingits value proposition to the customer.

Despite the short-term setback towards the latter part of the financial year, wemaintain a positive outlook for the Sector, which continues to offer high-growthbusiness prospects over the long term.

Despite the setback dueto tsunami, most of our

tour operators haveflown down to get a

first hand feedback ofthe ground situation

and have recommencedoperations in Sri Lanka.

H E M A S H O L D I N G S L I M I T E D20

Transportation Sector

The portfolio of businesses in the Transportation Sector continues to offer acomprehensive service range in the field of Aviation Marketing through thestrategic selection of Airline Principals, Travel Agency retailing and LogisticSolutions in Air and Sea Freight. Over the year, the sales throughput reached Rs6.5 billion, a growth of 29%. Whilst the tsunami had a limited impact on thebusiness for a short period of time, the resilience of the sector ensured that themomentum did not lose steam.

On the Airline Representation segment, there was an overall growth on bothpassenger and cargo businesses. In order to facilitate the growing business ofEmirates, we initiated a complete refurbishment and expansion program. Anexclusive Emirates Sky Cargo office was developed to support the growing cargobusiness and the plush Passenger Sales Office incorporates a range of newamenities. These include a "Travel Shop", a dedicated counter for Travel Agents, anexclusive booking and information counter for Emirates Holidays and a separatecounter for First & Business Class passengers and for Gold & Silver members ofSkywards - the airline's Frequent Flyer program. During the year the GSA forMalaysia Airlines celebrated its ten year relationship with the airline, and reacheda record sales throughput of Rs. 1 billion. To facilitate growth, the GSA invested ina state of the art mid and back office system, thus giving the team timelyinformation for decision making. Investment in Automatic Call Distributionfacilities was implemented to ensure that consistent service levels are maintained.During the year, the Sector entered into a strategic partnership with Exchange andFinance Investment Limited, the GSA for passenger and cargo for Alitalia andKenya Airways, seeing growth in overall turnover & distribution and enhancing themarketability of the airlines.

Hemas Travels, the travel agency operation performed admirably in a severelycompetitive market. The consistent focus on customer service was enhancedthrough an extensive ‘Service Excellence Program’ for the whole company, whichblueprinted processes, customer contact points and overall service standards. Thecompany continued with its product development strategies for its customersthrough the partnership with Gulliver’s Travels, bringing new global products tosupport the Corporate and Leisure segments. Whilst the internet portal,www.hemastravels.com, continued to generate a growing interest as could bejudged from the increasing number of business generated, the Corporate Traveldivision further expanded its services through the strategic partnership withBusiness Travel International (BTI), one of the largest global corporate travelorganizations.

The Freight Management business continued to grow in volume, turnover andprofits. Although the core business of Air and Ocean Freight sees intensecompetition, the initiatives taken by the team to focus on value added logisticssolutions saw a significant growth in contribution from special projects and vesselchartering which had a positive impact on the overall performance of the company.During the year the Company was able to secure several international networks.Their networks and the interest in this region is expected to enhance the growthof ocean freight business for the company in the coming year and is also expectedto support our expansion plan in the West Asia region.

During the year theGSA for MalaysiaAirlines celebrated itsten year relationshipwith the airline, andreached a record salesthroughput of Rs. 1 billion.

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 21

Strategic Investments

Power

As reported in our last annual report, construction work of Heladhanavi powerplant commenced in September 2003 under a total turnkey contract. Frominception, it is pertinent to note that the work continued at a commendable paceand the completed plant, ready to be commissioned, was handed back toHeladhanavi in September 2004, three months ahead of schedule. In addition, allother conditions stipulated in the project agreement on the engineering andenvironmental aspects were fully met.

Heladhanavi also signed a landmark Interest Rate Swap Agreement in June 2004,the largest such transaction hitherto in the country. The power plant thereby wasready to commence commercial operations ahead of schedule.

This favourable time frame allowed for Heladhanavi to sign up for a short termPower Purchase Agreement (PPA) with the Ceylon Electricity Board (CEB),commencing commercial operations on 29 September 2004. The Short term PPA wasterminated on 7 December 2004 having met all our obligations. Heladhanavirecommenced commercial operations on 8 December 2004 under the main projectagreement.

The plant has been operating satisfactorily and has consistently dispatched overand above the Minimum Guaranteed Energy Amount stipulated in the PPA.

Considering the successful entry into this sector, the Group is currently looking atnew opportunities in the sector.

Apparel

The Apparel business is now reaping the benefits of the expansion plan put intoplace last year and the high concentration on continuous improvementmethodologies to increase efficiency levels, on-time delivery, higher productivityand quality drives. Two more production lines were put into place in the Thihariyaplant to meet the increased demand. We have seen marked improvement inoperational performance, especially in the second half of the year in the areas ofefficiency, material usage and customer satisfaction. These have all contributedtowards the significant growth in sales from all our major customers in the EU andthe USA, especially Nike, Tesco and Next.

A strategic decision taken during the year was the tie-up with TFG (The FieldingGroup), a UK based apparel supplier, which introduced into the business the threeimperatives of scale, design skills and focus at the highest level of decision making.

Property

During the year Hemas House, operated under Hemas Development (Pte) Ltd,achieved an overall occupancy level of 98%.

The Company has a prestigious list of corporate clients and will continue to beselective in its efforts to deliver a unique quality and style to its clientele.External signage was erected in order to give visibility to our clients housed atHemas House.

With full occupancy levels being achieved during the year under review, theCompany is expecting its healthy performance to be continued in the coming year.

Sustainability Reporting

Hemas Tsunami Response Plan 24

The Piyawara Programme 26

The Hemas Team 28

Hemas Tsunami Response Plan

H E M A S H O L D I N G S L I M I T E D24

26 December 2004 will go down as a fateful day in Sri Lanka’s history - a date thatno Sri Lankan will ever forget. As the worst earthquake in 40 years broke out offthe coast of Sumatra, it created a tsunami, the magnitude of which no livinggeneration has ever witnessed. Within a few horrifying hours the lives of SriLankans, especially those inhabiting the southern and eastern coastal belts,changed dramatically as thousands of people were swept to sea, and infrastructure& buildings collapsed under the force of the waves. Children were the hardest hitby the tsunami. Statistics reveal that approximately 42,407 children have been

adversely affected, through the loss of one or both parents, through the trauma of witnessing the terrifying events. 16,962 ofthese children are of a pre-school age.

Hemas Holdings immediately identified the importance of reaching out to this vulnerable section of the population. Pre-schoolchildren are still at an age where their verbal communication skills are limited, and they are therefore restricted in their abilityto voice out their emotions. Hemas Holdings realised that over 100 pre-schools on the southern and eastern coasts had beendamaged and destroyed. The Company therefore took upon itself the task of constructing schools to provide these children withan opportunity to return to a setting in which they would feel comfortable.

For the past two years Hemas has been actively involved in working with pre-school children, under an Early Childhood Careand Development (ECCD) program titled Piyawara. For this purpose we have liaised with the Ministry of Social Welfare, andcreated a successful project that binds the students, teachers and parents towards the goal of total childhood development.

HEMAS HOLDINGS RESPONSE PLAN

Hemas Holdings adopted a two pronged approach to the construction of pre-schools in the tsunami affected regions.

Phase I - Establishment of thirty makeshift pre-schools in refugee camps

During the first phase Hemas set up 27 make-shift pre-schools atcamps housing displaced persons. Studies have shown thatestablishing some semblance of normalcy is essential to theprocess of healing. By setting up these temporary pre-schools wehave provided approximately 1400 students the opportunity toreturn to school, and re-engage in learning and play.

Funds were utilised to purchase furniture, educational material,stationery, in addition to the monthly allowances paid to theteachers. Hemas Holdings selected and trained the pre-schoolteachers. At the end of February the teachers of the temporary pre-schools were brought to Colombo for a five-dayresidential training program on Trauma Counselling. The program was conducted by the University of Colombo. Hemasalso encouraged members of the community, parents, and teachers to participate in building small play areas within thecamps using eco-friendly material. This gesture proved to be immensely therapeutic as it provided a sense of belongingand positive psychological stimulation.

Fund Commitment:

US $20,000 for 27 temporary pre-schools

No. of children benefiting:

1,400

Project status:

Operational aspects complete.

27 temporary pre-schools are beingoperated in makeshift camps.

Trauma Counsellors have been appointedfor the Pre-schools.

Hemas Tsunami Response Plan

25

Hemas Tsunami Disaster Relief Task Force and the Hemas Tsunami Foundation

Hemas Holdings Ltd has appointed a task force comprising directors from the Group’s subsidiaries to serve asthe Executive Committee to the project. Ernst & Young Chartered Accountants have been appointedauditors to the Fund. A Trust, which will function as an independent entity, has also beenestablished to manage the Fund. The trustees comprise of directors ofHemas Holdings as well as external experts. The trustees are:

• Dr Pramilla Senanayake – Former Assistant Director General,of the International Planned Parenthood Federation

• Sue Scarff – Former Marketing Professional at A T Kearney

• Serena Fonseka – Director, Hemas Holdings

• Abbas Esufally – Director, Hemas Holdings

• Murtaza Esufally – Director, Hemas Holdings

Shiromi Masakorala, the Group’s CSR Manager has beenappointed to work fulltime on the project along with anewly recruited Project Manager.

Phase II - Construction of 20 new pre-schools to replace those destroyed or damaged

Fund Commitment:

US $1 million with US $ 250,000 committed by the Hemas Group.The balance has been pledged by business partners and friends.

No. of children benefiting

2,000

Project status:

20 schools allocated to Hemas, our friends and our business partners

14 tracts of land allocated in the Southern Province

Design and Structural Plan finalised

Seminars and workshops conducted jointly with the

Ministry of Social Welfare for Local Government

authorities on importance of ECCD

Foundation stones will be laid beginning in the second week of May 2005

The second phase involves the construction of 20 new pre-schools to replace those that were destroyed or damaged by thetsunami. In coordination with the Ministry of Social Welfare Hemas selected towns and villages in the districts of Ampara,Galle, Hambantota and Matara. Each of the pre-schools will cater to 100 students, thereby providing 2000 childrenbetween the ages of 2 and 5 the opportunity to obtain an education. Major donors will have pre-schools constructed intheir names, thereby establishing a life-long relationship between the two parties.

Hemas has been working in close co-operation with the Authorities to accelerate the process of allocating land and havebeen successful in obtaining 14 blocks of land in the Southern province. The East Coast, however, still poses a delay andwe envisage that the Government might take a further period of two months to provide us with land. In the event thatstate land is not provided, the Trustees of the Hemas Tsunami Foundation have decided to purchase private property.

After completion of the project, the buildings will be handed over to the Local Government Authority. However, in orderto ensure that good standards are maintained, Hemas Holdings Ltd, Ministry of Social Welfare and the Local GovernmentAuthority will sign an MOU, which will be monitored under our CSR project ‘Piyawara’. This will no doubt guarantee thesustainability of this project.

Piyawara Programme

H E M A S H O L D I N G S L I M I T E D26

Early Childhood Care &Development (ECCD)

The Piyawara programme is the dedicated CSR mission for

Hemas Holdings in association with the Ministry of Social

Welfare.

From Birth to 5 years are the most critical years in the lifecycle of a child since it is in this period that the fullpotential of the child is established and foundation for thedevelopment of the human being is laid. The Pre school isthe first ever experience a child has with society and it isvital to have proper learning practices at this stage.

Piyawara programme works in 4 stages:

1. Providing a safe, caring, and conducive environment bydeveloping infrastructure and creating child friendlypreschools.

2. Regularly training the care givers.

3. Creating the right home environment through parentalawareness campaigns.

4. Mobilising and empowering caregivers,Parents and society at large.

By year 2004 we set up 9 ‘model pre schools’islandwide by developing infrastructure, playareas, providing educational equipment andtraining the teachers. These schools wereidentified by the Ministry of Social Welfare. Theyear under review saw the implementation ofstage 2, 3 & 4 .

Training teachers became a primary focus last year. Hemastogether with the Ministry trained over 100 teachers fromeach district that houses Piyawara centres. It has beenemphasised by the participating teachers that theworkshops have been intensive and useful, spurring theteachers to employ different styles and methodologies inteaching. As a result of these workshops, some teachers haveinitiated the concept of ‘learning corners’ stimulating themind, senses and physical activities of children using propsbrought from children’s homes.

Due recognition for pre school teachers is an important aspect.We are happy to note that some of the teachers from Piyawaracentres have been given due recognition by the localGovernment authorities. They have been given specialappointments to train and over look other pre schools in thearea.

Parental awareness is a key to the success of this project. Achild needs a conducive environment in the home front thatis vital for the early years of growing. This year, Hemas

What we have done has created a learning culture for the children through wordsand deeds. It is not totally a classroom atmosphere. Through the training wereceived, which could be termed revolutionary because the entire teachingmethods have been transformed, the child is drawn into learning througheffective interaction. Even the building is attractive to a child and we have triedto make children enjoy school. “We learnt so much but have still not been ableto completely use everything that was taught to us. It was intensive that I amcontinuously looking for ways to improve my teaching methods to give mystudents an even better start in education.”

- Binari Kokila Kumarasinghe Head Teacher, Polonnaruwa.

Our MissionTo create child friendly pre schools island wide

for children between the ages of 3-5 years in

order to provide a sound foundation for life

long learning.

Piyawara Programme

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 27

initiated a training programme for parents in all Piyawaracentres enlightening them to the importance of goodparenting, health and nutrition, affect of domestic violence,child abuse, domestic communication and mother migration.These programmes proved to be highly successful with fullattendance. There is now an enthusiastic participation ofparents and a more decisive relationship with the teacherfocusing on a child who enjoys going to school. This is oneof the fundamental cornerstones of this project. There isnow a clamour by the parents for more such traininginitiatives.

What is unique about the Piyawara programme is that it hasspurred a behavioural change not only among parents andteachers but among the community as well. There has beencomplete community involvement in the project with senior

citizens and the entire village communityassisting the schools whenever a need arises. Ithas brought a sense of belonging andattachment. Community involvement is vital forthe sustainability of a project of this nature.

Working with a government Ministry successfully has alsobroken the myth about the lack of partnership between thepublic and private sectors with unparalleled dedication andcommitment displayed by the members of the Children’sSecretariat. The Ministry participation has led to the projectbeing monitored and coordinated by the district secretariatsand provincial councils.

The coming year will see a few more districts being added tothe Piyawara project. We also plan to cluster 3 more preschools to the already existing Piyawara centres and spreadour conceptual practices to the other schools in the area.

Piyawara aims to bring together the three prongedrelationship of parenncher and child in order to create asound foundation for life long learning.

“ Earlier, there was never a link between the teachers and theparents. We just dropped off our children and picked them up.Today, it is totally different. We parents are constantly calledupon to assist in school activities and we gladly do it becauseit is for our children. We have collectively donated variousitems needed for the school, we organise events and in fact,there have been awareness workshops conducted by theMinistry and Hemas to teach parents, how to be ‘goodparents’.”

- B G Wijedeva, Parent and President of the Parent TeacherAssociation of the Matale Piyawara Pre-school.

“A child’s first five years are the most formative years and it is during this timethat we as adults have a responsibility to shape his/her childhood, adolescenceand adulthood. ECCD focuses on laying the foundation for children to achievetheir fullest potential for life long learning and social skills. I am most gratefulto Hemas for the support we have received in getting this programme off theground, because although we had the ideas and even drew up the National Policyon ECCD based on the Ministry’s Study on Childcare Provision in Pre Schools onan initiative by UNICEF, we didn’t have the wherewithal to get about making theseplans a reality.”

- Vinitha Weerasekera, Director Children’s Secretariat, Ministry of Social Welfare.

PiyawaraAnagathayata Peragamanak

wkd.;hg fmr.ukla

Other CSR Initiatives:

1. Educate a Child Programme in Kalutara – Donation ofRs.300,000/- was made available for this project in order toprovide computers for beach kids who are now being educatedby Dr. Pramilla Senanayake.

2. Donation of an eResource Centre to Sri Lanka MedicalAssociation. This will serve as a ‘knowledge centre’ formembers of SLMA allowing them to access many internationalmedical journals & important medical sites with the latestinnovations and findings in the medical field.

3. Heladhanavi Ltd has initiated many community projects in thearea. Developing the Maduragama Temple, water supplyprojects in Maduragama area and construction of a buildingfor pre natal clinics in the area to mention a few.

4. Our subsidiary, Serendib Group is involved in many CSRactivities in the areas that we operate our hotels. Variousinitiatives have been taken to protect the environment,provide English education for children, maintaining wards inselected hospitals and promoting Sri Lankan Culture.

The Hemas Team

H E M A S H O L D I N G S L I M I T E D28

Our team has always been the cause celebre of our successthrough the years. Ultimately it is the competence anddynamism of our people that allow us to set better standardsof excellence in serving our customers and stakeholders.With an increasing number of businesses now coming underthe main umbrella of Hemas Holdings, we recognize theimportance of a shared culture and values in bringing ustogether as a single team. Whilst we grow, we seek to retainthe personal touch which has hitherto given us the edge inforging a work environment that is both competitive andcaring.

Aligning Individual Performance with Group Visionand Values…

As an employer that is committed to creating exciting newopportunities and a rising share of wealth to its employees,Hemas understands the importance of being able totranslate its vision down to individual performance. Further,being a Group that is committed to adhering to its values tothe highest level, it is essential that our core values arereflected in the day to day activities of our employees.

The Group and Sector Visions are translated to BusinessGoals during the Annual Corporate Planning process, andour Performance Management System (PMS) ensures thatthese Business Goals are clearly translated into IndividualGoals at all levels. Whilst the PMS attempts to improveemployee performance by maintaining healthy competitionand benchmarking, the Personal Development Plan seeks todevelop each employee to his/her full potential

A Learning Culture…

Investment in training and development is part of thelearning culture that we promote at Hemas. Our present &future business needs are matched with employeecapabilities to provide the key inputs to our training anddevelopment initiatives.

The development of frontline staff across the Group is astrategically important area for us, and in this respect, theHemas Academy in association with the Sri Lanka Instituteof Marketing conducts a Diploma programme in SalesManagement.

In addition to internal training, selected managerial staffare regularly sent for executive development programs, bothlocal and overseas, based on business and personaldevelopment plans.

Having the Right People…

Our recruitment process is focused on attracting the bestcandidates and selecting those of the highest quality for therequired job. At the managerial level, candidates have toundergo a rigorous process before getting selected.

The Group believes in identifying, nurturing and developingthose individuals who have the potential to become futureleaders. The Project Fast Track is an HR initiative thatmanages the career development of High Flyers within theGroup, with a view to placing them in leadership positionswithin 3 to 4 years.

To be the Best in what we do…

Our quest to become the best in what we do also extends to

our HR activities. In this respect, we achieved a significantmilestone in October 2004 when Hemas was adjudged theWinner of the Overall National HRM Award for Group ofCompanies in the Manufacturing Sector. The awardrecognized the best HR practices of the Hemas Group, whichfurther cemented our objective of treading the correct pathin developing HR for our people, to suit their individualcareer aspirations in tandem with our Group Vision.

Financial Statements

Financial Statements

Corporate Governance 30

Risk Management 31

Report of the Directors 32

Statement of Directors’ Responsibilities 34

Auditors’ Report 35

Income Statement 36

Balance Sheet 37

Statement of Changes in Equity 38

Cash Flow Statement 39

Notes to the Financial Statements 40

Corporate Governance

H E M A S H O L D I N G S L I M I T E D30

Commitment to the highest standards of ethics and integrity has been an uncompromising principal of the Hemas Group acrossthe different Sectors and among all levels. The role of the parent company, Hemas Holdings Ltd is to manage the diverse businessportfolio of investments in its subsidiaries and associate companies in order to ensure that Corporate objectives are met, whilstmaintaining an appropriate risk profile. The Board of Directors of Hemas Holdings Ltd provides policy and strategic direction tothe Group and this is implemented through the Executive Management of the Group.

Board of Directors

The Board consists of three Non-executive Directors and six Executive Directors, one of whom is the Chief Executive Officer. TheBoard is fully accountable to shareholders and takes ultimate responsibility for the activities of the Group. The profiles of thedirectors are given on pages 8 and 9 of this report.

The Non-executive Directors are respected individuals who have, or are, currently holding senior positions in their respectiveprofessions, industries or government. The value addition from the Non-executive Directors comes from the expertise they bringin from their respective disciplines and enrich Board deliberations through their knowledge and independence.

The Board as a whole decides on the appointment of Directors and the election of the Chief Executive Officer. The Directors soappointed retire at the next Annual General Meeting and seek election by shareholders. The performance of the Chief ExecutiveOfficer is subject to evaluation by the Board of Directors.

Board responsibilities are discharged either directly or through various committees. The Board meets regularly, at least six timesa year and has a formal schedule of matters reserved for it. The Annual Business Plan is approved by the Board and reviewedperiodically for corrective action. Directors are given appropriate and timely information so that they can maintain full andeffective control over strategic, financial, operational, compliance and governance issues. Both Executive and Non-executiveDirectors devote adequate time to serve the interests of the Company.

Group Management Committee (GMC)

The day to day affairs of the Group are carried out by the Group Management Committee consisting of the Chief Executive Officer,Executive Directors and other senior Directors of subsidiaries. Their profiles are listed on pages 10 and 11 of this report. The GMCmeets every month to review Corporate and SBU performance against the Annual Business Plan and ensure that businessdirection is in line with the vision and goals.

Directors’ Remuneration

The Remuneration Committee consists of one Non-Executive Director and the Chief Executive Officer. The purpose of theRemuneration Committee is to assist the Board in the establishment of remuneration policies and practices in relation tocompensation packages of the Company’s Chief Executive Officer and Executive Directors of the Board. In doing so, theCommittee provides oversight of broad policies to ensure that Shareholder and Employee interests are aligned, and, the abilityof the Group to attract and retain superior management talent.

Accountability and Audit

The Audit Committee consists of two Non- Executive Directors. The Chief Executive Officer and the Group Finance Director areinvited to attend the Audit Committee meetings. The External Auditors and Internal Auditors attend meetings when theirpresence is necessary.

The purpose of the Audit Committee is to assist the Directors to fulfill their responsibility with regard to best corporategovernance practices in audit and risk management. The Audit committee is empowered to examine any matter relating to thefinancial affairs of the Company and its subsidiaries. The Audit Committee receives direct reports from the External Auditors ontheir audit findings and reviews the External Auditor’s Management Letter and examines action taken. The Committee is briefedabout the Group’s Risk management system and actions taken to prevent or mitigate same.

Investor relations

The Company strives to have good communication with its institutional and individual shareholders including employeeshareholders. The Chief Executive Officer and other Executive Directors maintain a healthy dialogue with shareholders, analystsand brokers through regular contact and meetings. The Board ensures that this contact does not result in the disclosure of anyprice sensitive information.

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 31

Risk Management

Being a diversified group exposed to many areas of business, we realize the importance of having an effective Risk ManagementFramework in place, in order to manage the various types of risks such as strategic, operational, financial and hazard risks. Theeffective management of risk through a systematic framework results in an improved risk profile, which enhances theshareholder value.

Risk management at Hemas is intertwined with the strategic and business planning framework. The key objective of riskmanagement at Hemas is to improve decision making and hence Group profitability by having a framework, which ensures thatonly justifiable risks are taken whilst unjustifiable risks are avoided. This mechanism also ensures that the speed of decisionmaking is not adversely affected by unnecessary controls.

The risk management process of the Group covers the areas of business strategy & operations, finance, legal & regulatory, creditmanagement, treasury management, human resource management and information technology, and consists of the following keycomponents:

• Risk identification and assessment at the annual planning stage

• Review of policy, processes & compliance reporting by the Internal Audit Division

• Centralized treasury function to monitor and manage exposures of interest rate and exchange rate risks

• A provisioning policy to adequately provide for doubtful realization of current assets

• A central function to ensure that Group assets are properly insured

• A process to ensure the security and reliability of IT systems

As the Hemas Group looks to diversify into new areas whilst maintaining a steady growth in its current businesses, and giventhe increasing dynamism in the business environment, we strive for continuous improvements in our risk management processwith a view to delivering better value to our stakeholders.

Report of the Directors

H E M A S H O L D I N G S L I M I T E D32

DIRECTORS’ REPORT

The Directors of Hemas Holdings Limited present their Report together with the Audited Financial Statements of the companyand its subsidiaries for the year ended 31st March 2005.

GROUP ACTIVITIES AND BUSINESS REVIEW

The group is engaged in several diverse business activities which are described on pages 16 to 21 of this report. The principalactivities of the Holding Company is disclosed in the financial accounts, note 1.2 on page 40. A review of Group’s operationsduring the year with the comments on operational results and future prospects is contained in the CEO’s statement, SectorReports and the Financial Review.

GROUP TURNOVER & PROFITS

The turnover of the group excluding associate companies was Rs. 8.8 billion. An analysis of which is given in Note 3 to thefinancial statements. The group profit excluding the share of profits of associate companies amounted to Rs. 1,021 million.The group profit before taxation was Rs. 1,025 million and after taxation, extra ordinary items & minority interest the netprofit attributable to the group was Rs. 804 million.

The sector contributions to the group turnover and net profit is stated in the Financial Review on page 14.

DIVIDENDS

The company paid a 1st interim dividend of 12.5% in November 2004 and 2nd interim dividend of 17.5% in April 2005.

PROPERTY, PLANT & EQUIPMENT

The details relating to the movement in property, plant & equipment are given in Note 10 to the financial statements.

INVESTMENTS

The information relating to the investments is given in notes 12, 13 & 14 to the financial statements and the FinancialReview.

SHARE CAPITAL

During the year, the issued share capital of the company was increased from Rs 780,000,000 to Rs 791,295,500 comprising of79,129,550 ordinary shares with a par value of Rs 10/-. The increase in share capital is attributable to options exercised inrespect of 1,129,550 shares.

RESERVES

The total group reserves amounted to Rs. 2.75 billion, the details are disclosed in the Statement of Changes in Equity on page38.

SHARE INFORMATION

Information relating to earnings, dividends, net assets, market value per share is disclosed in the Financial Highlights, in thisreport.

DIRECTORS

Names and profiles of the Directors of the company as at the end of the financial year, appear on pages 8 and 9 of this report. Mr Lalith De Mel, Mr Simon Scarff and Mr Maithri Wickremesinghe are non executive directors. All the directors held officethroughout the year.

Report of the Directors

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 33

DIRECTOR’S SHAREHOLDING

Direct and indirect shareholdings of Directors of the Company and their spouses are as follows:

Hemas Holdings Ltd As at 31/03/05 As at 31/03/04

H N Esufally 16,323,366 16,323,366

A N Esufally 17,026,960 17,022,860

I A H Esufally 16,255,600 16,225,000

M A H Esufally 16,224,907 16,224,907

M S Fonseka 125,000 100,000

S J Scarff Nil Nil

D Bhatnagar 4,000 Nil

M E Wickremesinghe 1,800 1,800

L De Mel 4,400 4,400

EMPLOYEE SHARE OPTION PLAN (ESOP)

Details of the ESOP is disclosed in note 2.6 to the financial statements.

EVENTS AFTER THE BALANCE SHEET DATE

There are no material post balance sheet events, that have arisen which would require adjustments to the financialstatements as at 31st March 2005.

GOING CONCERN

On the basis of current financial projections and facilities available, the Directors are confident that the company hasadequate resources to continue business operations. Accordingly the Directors consider that it is appropriate to adopt thegoing concern basis in preparing the financial statements.

AUDITORS

The retiring auditors M/s Ernst & Young are seeking re-appointment and in accordance with the companies Act No. 17 of 1982a resolution proposing their re-appointment as auditors of the company will be submitted at the Annual General Meeting.

By Order of the Board

Hemas Corporate Services (Pte) Ltd

Secretaries

20th May 2005

Statement of Directors’ Responsibilities

H E M A S H O L D I N G S L I M I T E D34

The responsibilities of the directors in relation to the financial statements of the company and the Group differ from theresponsibilities of the Auditors which are set out in their report appearing on page 35.

The Companies Act No. 17 of 1982 requires the Directors to prepare financial statements for each financial year, giving a trueand fair view of the state of affairs of the Company and the Group as at end of the financial year, and of the Profit or Loss ofthe Company and the Group for the financial year. In preparing the financial statements, appropriate accounting policies havebeen selected and applied consistently, reasonable and prudent judgements and estimates have been made and applicableaccounting standards have been followed.

The Directors are responsible for ensuring that the companies within the Group keep sufficient accounting records to disclosewith reasonable accuracy the financial position of the Company and the Group and for ensuring that the financial statementshave been prepared and presented in accordance with the Sri Lanka Accounting Standards and provide the information requiredby the Companies Act No. 17 of 1982. They are also responsible for taking reasonable measures to safeguard the assets of theGroup, and in that context to have proper regard to the establishment of appropriate systems of internal control with a view tothe prevention and detection of fraud and other irregularities.

The Directors are confident that they have discharged their responsibilities as set out in this statement. The directors alsoconfirm that to the best of their knowledge, all statutory dues payable by the Group as at the Balance Sheet date have beenpaid or where relevant, provided for.

By Order of the Board

Hemas Corporate Services Pte Limited

Secretaries,

36, Bristol Street, Colombo 1.

20th May, 2005

Auditors’ Report

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 35

AUDITORS’ REPORT TO THE MEMBERS OF HEMAS HOLDINGS LIMITED

We have audited the Balance Sheet of Hemas Holdings Limited as at 31 March 2005, the Consolidated Balance Sheet of the

Company and its Subsidiaries as at that date, and the related statements of Income, Cash Flows and Changes in Equity for the

year then ended, together with the Accounting Policies and Notes as set out on pages 36 to 69.

Respective Responsibilities of Directors and Auditors

The Directors are responsible for preparing and presenting these financial statements in accordance with the Sri Lanka

Accounting Standards. Our responsibility is to express an opinion on these financial statements, based on our audit.

Basis of Opinion

We conducted our audit in accordance with the Sri Lanka Auditing Standards, which require that we plan and perform the audit

to obtain reasonable assurance about whether the said financial statements are free of material misstatements. An audit includes

examining, on a test basis, evidence supporting the amounts and disclosures in the said financial statements, assessing the

accounting principles used and significant estimates made by the directors, evaluating the overall presentation of the financial

statements, and determining whether the said financial statements are prepared and presented in accordance with the Sri Lanka

Accounting Standards. We have obtained all the information and explanations, which to the best of our knowledge and belief

were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, so far as appears from our examination, the Company has maintained proper books of account for the year ended

31 March 2005, and to the best of our information and according to the explanations given to us, the said balance sheet and

related statements of income, cash flows and changes in equity and the accounting policies and notes thereto, which are in

agreement with the said books and have been prepared and presented in accordance with the Sri Lanka Accounting Standards,

provide the information required by the Companies Act, No.17 of 1982 and give a true and fair view of the Company’s state of

affairs as at 31 March 2005 and its profit and cash flows for the year then ended.

In our opinion, the consolidated balance sheet and statements of income, cash flows and changes in equity and the accounting

policies and notes thereto have been properly prepared and presented in accordance with the Companies Act, No. 17 of 1982

and the Sri Lanka Accounting Standards, and give a true and fair view of the state of affairs as at 31 March 2005 and the profit

and cash flows for the year then ended of the Company and its subsidiaries dealt with thereby, so far as concerns the members

of the Company.

Directors’ Interest in Contracts with the Company

According to the information made available to us, the Directors of the Company were not directly or indirectly interested in

contracts with the Company during the year ended 31 March 2005 except as stated in Note 33 to these financial statements.

Ernst & Young

Colombo

20th May 2005

Income Statement

H E M A S H O L D I N G S L I M I T E D36

Year ended 31 March 2005Group Company

Note 2005 2004 2005 2004 Rs. Rs. Rs. Rs.

Revenue 3 8,797,880,679 6,485,421,977 54,476,512 34,863,612

Cost of Sales (5,878,203,643) (4,098,225,241) - -

Gross Profit 2,919,677,036 2,387,196,736 54,476,512 34,863,612

Other Operating Income 4 164,110,220 108,502,182 444,759,276 191,954,801

Distribution Costs (811,653,977) (677,314,685) - -

Administrative Expenses (1,062,178,137) (941,153,717) (66,515,711) (39,166,889)

Other Operating Expenses (35,219,171) (9,559,399) - (532,776)

Profit from Operating Activities 5 1,174,735,971 867,671,117 432,720,077 187,118,748

Negative Goodwill Written Back 5,534,929 7,199,761 - -

Goodwill Written Off (3,638,438) (3,459,733) - -

Finance Cost 6 (155,542,408) (48,639,927) (1,536,455) (4,890,213)

Profit from Ordinary Activities Before Tax 1,021,090,054 822,771,218 431,183,622 182,228,535

Share of Associate Company Profit 3,587,700 11,412,480 - -

Share of Profits of Subsidiaries - - 130,046,213 436,622,733

Profit Before Taxation 1,024,677,754 834,183,698 561,229,835 618,851,268

Income Tax Expenses 7 (225,142,584) (180,067,670) (3,203,163) (4,384,861)

Net Profit after Taxation 799,535,170 654,116,028 558,026,672 614,466,407

Minority Interest 6,896,744 (41,601,823) - -

Extra Ordinary Items (2,458,629) - - -

Net Profit for the year attributable to the Group 803,973,285 612,514,205 558,026,672 614,466,407

Earnings Per Share - Basic 8 10.11 8.28 7.07 8.30

Dividends Per Share - Interim Paid 9 3.00 1.25 3.00 1.25

- Final Proposed 9 - 1.25 - 1.25

The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.

Colombo

20 May 2005

Balance Sheet

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 37

As at 31 March 2005Note Group Company

ASSETS 2005 2004 2005 2004 Non-Current Assets Rs. Rs. Rs. Rs.

Property, Plant & Equipment - At Cost 10 3,825,182,533 3,346,930,862 67,795,296 35,738,440 - At Valuation 10 1,508,123,877 944,001,539 120,942,500 82,698,027

Intangible Assets 11 40,335,770 8,012,700 - - Investments in Subsidiaries 12 - - 3,333,100,870 2,750,680,710 Investments in Associates 13 195,897,526 120,567,197 83,410,456 41,386,045 Other Investments 14 37,361,308 75,178,151 2,505,000 14,178,020 Other Receivables - 1,671,650 - -

5,606,901,014 4,496,362,099 3,607,754,122 2,924,681,242 Current AssetsInventories 15 732,935,986 781,689,738 - - Trade and Other Receivables 16 2,195,110,152 1,991,157,991 10,940,767 8,257,460 Loans Due from Related Parties 17 - - 174,504,611 181,130,531 Investments 14 306,738 306,738 1,094,905 22,306,296 Tax Recoverable 18,885,094 12,292,112 2,703,604 - Amounts Due from Related Parties 18 145,468 14,480 383,395,549 375,895,803 Short Term Cash Investments 28 439,752,239 120,602,249 62,743,210 66,920,365 Cash and Bank Balances 28 657,932,581 471,034,056 170,392,257 6,243,372

4,045,068,258 3,377,097,364 805,774,903 660,753,827

Total Assets 9,651,969,272 7,873,459,463 4,413,529,025 3,585,435,069

EQUITY AND LIABILITIESCapital and ReservesIssued Share Capital 19 791,295,500 780,000,000 791,295,500 780,000,000 Reserves 20 827,991,413 28,669,843 622,906,729 1,684,462 Share Premium 343,889,834 297,387,834 343,889,834 297,387,834 Accumulated Profits 1,578,796,259 1,525,508,670 1,787,933,342 1,547,377,945 Preliminary Expenses - (3,678,776) - -Total Equity 3,541,973,006 2,627,887,571 3,546,025,405 2,626,450,241

Minority Interest 681,897,221 546,380,272 - -

Non-Current Liabilities Non Interest Bearing Loans and Borrowings 21 11,274,897 7,696,816 536,625,644 554,220,229 Interest Bearing Loans & Borrowings 22 2,084,462,170 1,868,131,264 - - Deferred Income Tax 23 91,326,474 90,115,751 10,805,541 11,071,290 Other Deferred Liabilities 24 84,083,421 78,634,094 7,036,396 5,835,658 Negative Goodwill 25 11,173,295 8,019,871 - - Trade and Other Payables - 6,620,118 - -

2,282,320,257 2,059,217,914 554,467,581 571,127,177 Current Liabilities Trade and Other Payables 26 1,910,273,670 1,873,704,555 17,576,499 8,014,799 Dividends Payable 133,404,054 - 131,173,989 - Income Tax Liabilities 66,939,018 69,264,065 5,799,774 4,259,815 Amounts Due to Related Parties 27 189,096,330 - 158,436,813 303,155,683 Non Interest Bearing Loans & Borrowings 21 3,340,285 550,000 - - Interest Bearing Loans & Borrowings 22 842,725,431 696,455,086 48,964 72,427,354

3,145,778,788 2,639,973,706 313,036,039 387,857,651

Total Equity,Minority Interest and Liabilities 9,651,969,272 7,873,459,463 4,413,529,025 3,585,435,069

The Board of Directors is responsible for the preparation and presentation of these financial statements.

Signed for and on behalf of the Board by,

Husein Esufally Ms. Serena Fonseka Chief Executive Officer Group Finance Director

The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.

Colombo20 May 2005

Statement of Changes in Equity

H E M A S H O L D I N G S L I M I T E D38

Year ended 31 March 2005Share Share Premium Capital & Revenue Deferred Preliminary Accumulated Total

Capital Reserve Expenses Expenses Profit Group Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 31 March 2003 400,000,000 - 170,619,714 (1,360,000) (4,765,156) 1,121,044,594 1,685,539,152

Net Profit for the Year - - - - - 612,514,205 612,514,205 Shares Issued for Cash 80,000,000 320,000,000 - - - - 400,000,000 IPO Expenses Written off - (22,612,166) - - - - (22,612,166)Bonus Issue 300,000,000 - (138,841,174) - - (161,158,826) - Dividends - - - - - (50,000,000) (50,000,000)Transferred to/from During the Year - - (3,108,697) - - 3,108,697 - Amounts Written Off During the Year - - - 1,360,000 1,086,380 - 2,446,380

Balance as at 31 March 2004 780,000,000 297,387,834 28,669,843 - (3,678,776) 1,525,508,670 2,627,887,571

Net Profit for the Year - - - - - 803,973,285 803,973,285 Shares Issued for Cash 11,295,500 46,502,000 - - - - 57,797,500 Dividends - - - - - (317,471,276) (317,471,276)Preference shares Dividends - - - - - (5,950,686) (5,950,686)Revaluation Reserve - - 326,233,752 - - - 326,233,752 Transferred to/from During the Year - - 473,087,818 - - (423,584,958) 49,502,860 Amounts Written Off During the Year - - - - 3,678,776 (3,678,776) -

Balance as at 31 March 2005 791,295,500 343,889,834 827,991,413 - - 1,578,796,259 3,541,973,006

The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.

Share Share Capital & Revenue Accumulated Total Company Capital Premium Reserve Profit

Rs. Rs. Rs. Rs. Rs.

Balance as at 31 March 2003 400,000,000 - 135,548,118 1,144,070,365 1,679,618,483

Net Profit for the Year - - - 614,466,407 614,466,407 Dividends - - - (50,000,000) (50,000,000)Bonus Issue 300,000,000 - (138,841,173) (161,158,827) - Shares Issued for Cash 80,000,000 320,000,000 - - 400,000,000 IPO Expenses Written-off - (22,612,166) - - (22,612,166)Share of Capital Reserve of Subsidiary - - 4,977,517 - 4,977,517

Balance as at 31 March 2004 780,000,000 297,387,834 1,684,462 1,547,377,945 2,626,450,241

Net Profit for the Year - - - 558,026,672 558,026,672 Dividends - - - (317,471,275) (317,471,275)Shares Issued for Cash 11,295,500 46,502,000 - - 57,797,500 Revaluation Reserve - - 41,193,306 - 41,193,306 Share of Capital Reserve of Subsidiary - - 580,028,961 - 580,028,961

Balance as at 31 March 2005 791,295,500 343,889,834 622,906,729 1,787,933,342 3,546,025,405

The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.

Colombo20 May 2005

Cash Flow Statement

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 39

Year ended 31 March 2005Group Company

Cash flows from Operating Activities 2005 2004 2005 2004 Rs. Rs. Rs. Rs.

Net Profit Before Taxation 1,024,677,754 834,183,698 561,229,835 618,851,268

Adjustments forGoodwill (Net) (1,896,491) (3,740,028) - - Depreciation 352,878,064 157,301,034 9,182,177 8,186,137 Profit on Sale of Property, Plant & Equipment (12,829,359) (17,128,540) 89,455 (3,462,125)Preliminary Expenses Written - off - 1,086,380 - - Provision for Retiring Gratuity 20,087,254 32,574,317 1,642,426 2,911,910 Impairment of Assets 28,472,729 - - - Finance Cost 155,542,408 48,639,927 1,536,455 4,890,213 Investment Income (10,199,661) (2,350,025) (325,587,903) (140,315,786)(Profit)/loss on Associates/ Subsidiaries (3,587,700) (11,412,480) (130,046,213) (436,622,733) Development Expenditure Written-off 19,248,557 1,360,000 - -(Profit)/Loss on Sale of Investments (55,397,733) (32,545,203) (79,419,739) (29,349,244)

Operating Cash Flow before Working Capital Changes 1,516,995,822 1,007,969,080 38,626,493 25,089,640

(Increase)/Decrease in Receivables (204,001,476) (713,839,025) (2,683,303) 520,149 (Increase)/Decrease in Inventories 48,753,752 (172,318,467) - - (Increase)/Decrease in amounts Due from Related Companies (81,673) 488,749 (7,499,746) (222,591,945)Increase/(Decrease) in amounts Due to Related Companies 186,587,397 - (144,718,870) 102,576,554 Increase/(Decrease) in Creditors and Accruals 32,457,930 640,501,058 9,561,700 (1,400,182)

Cash Generated from/(Used in) Operations 1,580,711,752 762,801,395 (106,713,726) (95,805,784)

Finance Cost Paid (155,542,408) (48,639,927) (1,536,455) (4,890,213)Income Tax Paid (230,141,016) (134,650,132) (4,631,839) - Gratuity Paid (7,111,161) (5,194,467) (441,688) (104,920)Development Expenses paid (5,551,333) - - -

Net Cash from/(Used in) Operating Activities 1,182,365,834 574,316,869 (113,323,708) (100,800,917)

Cash Flows from Investing ActivitiesPurchase of Property, Plant & Equipment (1,138,619,201) (2,691,942,245) (38,436,256) (5,850,921)Investment in Subsidiaries/Associates (Note 29) 60,478,157 (175,789,296) (172,369,397) (474,632,400)Investment in Brand (25,000,000) - - -Other Investments (2,969) (21,285) - (1,662,500)Proceeds from Sale of Property, Plant & Equipment 61,223,385 28,162,308 56,600 10,474,625 Proceeds from Disposal of Investments 59,269,656 113,806,220 370,304,148 116,473,364 Dividends Received from Associates 2,520,000 2,700,000 - - Investment Income 10,199,661 2,350,025 325,587,903 140,315,786

Net Cash from/( Used in) in Investing Activities (969,931,311) (2,720,734,273) 485,142,998 (214,882,046)

Cash Flows from Financing ActivitiesBorrowings (Net) 186,315,930 2,011,546,991 (35,968,665) (28,510,209)Proceeds From Issue of Shares (Net of Issue Expenses) 57,797,500 377,387,834 57,797,500 377,387,834 Proceeds From Issue of Shares and Debentures to Minority 42,017,563 - - - Dividends Paid - To Hemas Share Holders (186,297,287) (80,000,000) (186,298,005) (80,000,000)

- To Minority Share Holders of Subsidiaries (13,873,401) - - - Rental Deposits Received 6,368,366 3,623,237 - - Finance Lease Paid (435,276) (1,597,917) - -

Net Cash from/(Used in ) used in Financing Activities 91,893,395 2,310,960,145 (164,469,170) 268,877,625

Net Increase in Cash and Cash Equivalents 304,327,918 164,542,741 207,350,120 (46,805,338)Cash & Cash Equivalents at the Beginning of the Year (Note 28) 431,463,671 266,920,930 25,736,383 72,541,721

Cash & Cash Equivalents at the End of the Year (Note 28) 735,791,589 431,463,671 233,086,503 25,736,383

The Accounting Policies and Notes on pages 40 through 69 form an integral part of the financial statements.

Year ended 31 March 2005

1. CORPORATE INFORMATION

1.1 General

Hemas Holdings Limited (formally “Hemas Holdings (Pte)Ltd”) is a public limited liability company incorporated anddomiciled in Sri Lanka. The company changed its status froma private company to a public limited liability company on7th August 2003, under section 20(1) of the Companies Act,No.17 of 1982. Subsequently, the company changed itsname from Hemas Holdings (Pte) Ltd, to Hemas HoldingsLtd.

Hemas Holdings Limited (“Company”) was listed in theColombo Stock Exchange on 15th October 2003.

The registered office and the principal place of business issituated at No. 36, Bristol Street, Colombo 01.

Hemas Holdings Ltd., does not have an identifiable parent ofits own.

1.2 Principal Activities and Nature of Operations

During the year, the principal activities of the Company werecarrying out investment activities, and providingmanagement and administration services to otherCompanies in the group.

1.3 Date of Authorisation for Issue

The financial statements of Hemas Holdings Limited for theyear ended 31st March 2005 , were authorised for issue , inaccordance with a resolution of the Board of Directors on20th May 2005.

1.4 Number of Employees

The number of employees of the company at the end of theyear was 10 (2004- 9)

The number of employees of Hemas Holdings Ltd., and its100% owned subsidiaries was 1171 at the end of the year.(2004-2525)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 General Policies

2.1.1 Basis of Preparation

The balance sheet, statements of income, changes in equityand cash flows, together with accounting policies and notes,(“Financial Statements”) of the Company as at 31st March2005 and for the year then ended, comply with the SriLanka Accounting Standards.

These financial statements presented in Sri Lanka Rupeeshave been prepared on historical cost basis except for thevaluation of certain Property Plant & Equipment, which arestated at market values.

2.1.2 Consolidation Policy- Principles of Consolidation

(a) Subsidiaries

The financial statements of the Group represent theconsolidation of the financial statements of the Company,and its controlled subsidiaries after elimination of allmaterial intra group transactions and unrealized gainsarising from intra – group transactions.

Subsidiaries are consolidated from the date the Parentobtains control until such time as control ceases.

The total profits & losses for the period of the Company andof its subsidiaries included in consolidation are shown in theconsolidated income statement with the proportion of profitor loss after taxation pertaining to minority shareholders ofsubsidiaries being deducted as “Minority Interest”.

All assets and liabilities of the Company and of itssubsidiaries included in consolidation are shown in theconsolidated balance sheet. The interest of minorityshareholders of subsidiaries in the fair value of net assets ofthe Group are indicated separately in the consolidatedbalance sheet under the heading “Minority Interest.”

(b) Associate Companies

Associate companies have been accounted for on the equitymethod.

Associates are those investments in which the Group has asignificant influence of 20% to 50% and which are neithersubsidiaries nor joint ventures of the Group.

The income statement reflects the Group’s share of theresults of the operations of each associate.

The related investments are carried forward in theconsolidated balance sheet initially at cost and valuesadjusted to reflect the Group’s share of post acquisitionprofit /(loss) of the associates , net of any dividends paid bysuch associate.

Unrealized gains arising from transactions with associatesare eliminated against the investment in the associate , tothe extent of Group’s interest in the enterprise.

(c) Joint Ventures

The Group’s interests in Joint Ventures is accounted for byproportionate consolidation, whereby the venturers’proportionate share of each of the assets, liabilities, incomeand expenses of the jointly controlled entity is combined ona line by line basis with similar items in the consolidatedfinancial statements.

(d) Goodwill

Goodwill arising on acquisition represents the excess of costof the acquisition over the fair value of identifiable net

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D40

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 41

assets of a subsidiary, associate or joint venture as at thedate of acquisition.

Negative Goodwill

Negative goodwill arising on acquisition comprises theexcess of the fair value of net identifiable assets acquiredover the purchase price or cost of acquisition.

Acquired goodwill is recognized as an intangible asset andnegative goodwill as deferred income in the consolidatedfinancial statements and stated at cost less accumulatedamortization.

Any acquired goodwill, including negative goodwill isamortized over 5 years on a straight line basis from the dateof initial recognition.

(e) Changes in Group Companies

Hemas Garments (Pte) Limited a subsidiary, (70% controllinginterest) was disposed on 31st March 2005 and Exchange &Finance Investment Limited was acquired as a subsidiary(56% controlling interest) and the controlling interest inPeace Haven Resorts Limited was increased to 88% from71%.

(f) Financial Year

All Companies in the Group have a common financial yearthat ends on 31st March .

(g) Country of Incorporation

All subsidiaries and the associate companies areincorporated in Sri Lanka.

2.1.3 Comparative Information

The accounting policies have been consistently applied bythe Company and are consistent with those used in theprevious year. The previous years’ figures and phrases havebeen rearranged wherever necessary to conform to thecurrent presentation.

2.1.4 Foreign Currency Translation

All foreign exchange transactions are converted to Sri LankaRupees, which is the reporting currency, at the rates ofexchange prevailing at the time the transactions wereeffected. Monetary assets and liabilities denominated inforeign currencies are translated to Sri Lanka Rupeeequivalents using year-end spot foreign exchange rates.Non- monetary assets and liabilities are translated usingexchange rates that existed when the values weredetermined. The resulting gains and losses are accounted forin the Income Statement.

2.1.5 Taxation

a) Current Taxes

The provision for income tax is based on the elements ofincome and expenditure as reported in the financialstatements and computed in accordance with the provisionsof the Inland Revenue Act.

Trading income of Serendib Hotels Ltd., Hotel Sigiriya Ltd.,Stafford Hotels Ltd., Miami Beach Hotels Ltd., SerendibLeisure Management Ltd., Hemas Travels (Pte) Ltd. andHemtours (Pte) Ltd., is taxed at 15%, other income of theseCompanies are taxed at 30%.

The profits of Hemas Garments (Pte) Ltd., are exempt fromIncome Tax under BOI Act No. 4 of 1978 for a period of 15years reckoned from the year of assessment 1996/1997 inwhich the Company commences to make profits in relationto its transactions in that year of assessment not later than5 years from the date of first commercial production oroperation of the enterprise which occurs earlier. On theexpiration of the above tax exemption period the provisionof section 85 A of the Inland Revenue Act No. 38 of 2000shall apply to the company.

Hemas Developments (Pte) Ltd., has obtained BOI approvalunder Section 17 and it enjoys a 7 year tax holidaycommencing from the year of assessment 1998/1999 inwhich the enterprise makes profits in relation to itstransactions in that year or not later than 5 years from thedate of its first commercial operation whichever is earlier.

b) Deferred Taxation

Deferred taxation is provided on the liability method. Thetax effect of all timing differences which occur where itemsare allowed for income tax purposes in a period differentfrom that when they are recognised in financial statementsis included in the provision for deferred taxation at rates oftaxation, which would prevail at the time the differencereverses.

Deferred tax assets are recognised for all deductible timingdifferences and carry forward of unused tax losses, to theextent that it is probable that taxable profit will be availableagainst which the deductible timing differences and carryforward of unused tax losses can be utilized. The carryingamount of deferred tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longerprobable that sufficient taxable profit will be available toallow all or part of the deferred tax asset to be utilized.

2.1.6 Borrowing Costs

Borrowing costs are recognised as an expense in the periodin which they are incurred, unless they are incurred inrespect of qualifying assets in which case it is capitalized aspart of that asset.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D42

2.1.7 Deferred Expenditure

Expenditure which is deemed to have a benefit orrelationship to more than one financial year is classified asdeferred expenditure. Such expenditure is written off overthe period to which it relates, on a straight-line basis.

2.1.8 Research and Development Costs

Research and development costs are expensed as incurred,except for development costs, which are recognised as anasset to the extent that it is expected that such asset willgenerate future economic benefits. Where development costsare recognised as an asset, such costs are amortized on astraight- line basis over the period of expected futurebenefits. At each balance sheet date, the company assesseswhether there is any indication of impairment ofdevelopment costs recognized as assets i.e. whether it is nolonger probable that further economic benefits will begenerated. If any such indication exits, only the estimatedrecoverable amount is further amortised.

2.1.9 Other Intagible Assets

Other intangible assets (other than positive and negativegoodwill) that are acquired by the Group are stated at costless accumulated amortisation. Acquisition of a Brand isrecognized in the Balance Sheet as an asset and is amortisedover 5 years with no amortisation for year of acquisition anda full year’s charge in the final (5th) year.

2.2 Valuation of Assets and their Measurement Bases

2.2.1 Inventories

Inventories are valued at the lower of cost and net realisablevalue, after making due allowances for obsolete and slowmoving items. Net realisable value is the price at whichinventories can be sold in the ordinary course of businessless the estimated cost of completion and the estimated costnecessary to make the sale.

The cost incurred in bringing inventories to its presentlocation and condition are accounted using the followingcost formulae:-

Raw Materials - At actual cost on first-in first-out basis /weighted average basis.

Finished Goods & Work-in-Progress - At the cost of directmaterials, direct labour and an appropriate proportion offixed production overheads based on normal operatingcapacity.

Other Stocks - At actual cost.

2.2.2 Trade and Other Receivables

Trade receivables are stated at the amounts they areestimated to realise net of provisions for bad and doubtfulreceivables.

Other receivables and dues from Related Parties arerecognised at cost less provision for bad and doubtfulreceivables.

2.2.3 Cash and Cash Equivalents

Cash and cash equivalents are defined as cash in hand,demand deposits and short term highly liquid investments,readily convertible to known amounts of cash and subject toan insignificant risk of changes in value.

For the purpose of cash flow statement, cash and cashequivalents consist of cash in hand and deposits in banksnet of outstanding bank overdrafts. Investments with shortmaturities i.e. three months or less from the date ofacquisition are also treated as cash equivalents.

2.2.4 Property, Plant and Equipment

a) Cost and Valuation

All items of Property, Plant & Equipment are initiallyrecorded at cost. Where items of Property, Plant andEquipment are subsequently revalued, the entire class ofsuch assets is revalued. Revaluations are made withsufficient regularity to ensure that their carrying amountsdo not differ materially from their fair values at the balancesheet date. Subsequent to the initial recognition as an assetat cost, revalued Property, Plant and Equipment are carriedat revalued amounts less any subsequent depreciationthereon. All other Property, Plant and Equipment are statedat historical cost less depreciation.

When an asset is revalued, any increase in the carryingamount is credited directly to a revaluation surplus unless itreverses a previous revaluation decrease relating to the sameasset, which was previously recognised as an expense. Inthese circumstances the increase is recognised as income tothe extent of the previous write down. When an asset’scarrying amount is decreased as a result of a revaluation, thedecrease is recognised as an expense unless it reverses aprevious increment relating to that asset, in which case it ischarged against any related revaluation surplus, to theextent that the decrease does not exceed the amount heldin the revaluation surplus in respect of that same asset. Anybalance remaining in the revaluation surplus in respect of anasset, is transferred directly to Accumulated Profits onretirement or disposal of the asset.

An amount equal to the excess of the annual depreciationchare on revalued assets over the notional historical costdepreciation charge on such asssets is transferred annuallyfrom the surplus in the revaluation reserve to theaccumulated profit in Hemas Development (Pte) Ltd. andHemtours (Pte) Ltd.

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 43

b) Restoration Costs

Expenditure incurred on repairs or maintenance of Property,Plant and Equipment in order to restore or maintain thefuture economic benefits expected from originally assessedstandard of performance, is recognised as an expense whenincurred.

c) Depreciation

The provision for depreciation is calculated by using astraight line method (except for Serendib Hotels Ltd, HotelSigiriya Ltd. and Stafford Hotels Ltd,) on the cost orvaluation of all Property, Plant and Equipment other thanfreehold, in order to write off such amounts over theestimated useful lives. The principal annual rates used bythe companies in the Group are as follows:

Assets Rate p.a.

Buildings 1.5% - 5%

Furniture & Fittings 7% - 25%

Office & Factory Equipments 10% - 33.33%

Computer Accessories 33 1/3 %

Plant & Machinery 6% - 25%

Motor Vehicles 20% - 25%

Leased Assets 25%

Crockery & Cutlery 50% - 100%

Fire Fighting Equipment 10%

Leasehold land and buildings are depreciated over theremaining lease period (except for Serendib Hotel Ltd andHotel Sigiriya Ltd)

In Serendib Hotels Ltd., value of the buildings on theleasehold land is amortized in 20 equal annual installmentscommencing from 1 April 1994 and ending on 31 March2014. The Company has further obtained an extension of thelease period for 30 years commencing 1 April 2002.Accordingly the balance written down value of leaseholdland and buildings as at 1st April 2000 is amortized over aperiod of 33 years. However, if the lease is not renewed afterthe date of termination on 31 March 2034, the Company isentitled to compensation for the cost of buildings andlandscaping.

Hotel Sigiriya Ltd., has commenced amortizing leaseholdproperty from the year 1994/95, the policy of this Companyis to amortize the leasehold buildings over 20 years in equalannual installments i.e. 10 years beyond the expiry of thelease.

No provision is made in the year of purchase and full year’sdepreciation is provided for in the year of sale. (except forHeladhanavi Ltd.)

2.2.5 Leases

a) Finance Leases

Property, Plant and Equipment on finance leases, whicheffectively transfer to the Group substantially all of the riskand benefits incidental to ownership of the leased item arecapitalised at the inception of the lease at the fair value ofleased property or, if lower, at the present value of minimumlease payments. Capitalized leased assets are disclosed asFinance Leases under Property, Plant and Equipment anddepreciated over the period the Group is expected to benefitfrom the use of the leased assets.

The corresponding principal amount payable to the lessortogether with interest payable over the period of lease isshown as a liability. Lease payments are apportionedbetween the finance charges and reduction of the leaseliability so as to achieve a constant rate of interest on theremaining balance of the liability. The interest payable overthe period is transferred to an interest in suspense account.The interest element of the rental obligations pertaining toeach financial year is charged to income statement over theperiod of lease.

The cost of improvements to or on leasehold property iscapitalised, disclosed as leasehold improvements, anddepreciated over the unexpired period of the lease or theestimated useful lives of the improvements, whichever isshorter.

b) Operating Leases

Leases where the lessor effectively retains substantially allthe risks and benefits of ownership over the leased term, areclassified as operating leases.

Lease rentals paid under operating leases are recognised asan expense in the income statement on a straight-line basisover the lease term.

2.2.6 Investments

a) Current Investments

Current investments are stated at lower of cost and marketvalue determined on an aggregate portfolio basis.

The cost of an investment is the cost of acquisition inclusiveof brokerages, fees, duties and bank fees.

Unrealized gains and losses on current investments carriedat market value i.e. reduction to market value and reversalsof such reductions required to reflect current investments atthe lower of cost and market value, are credited or chargedto income statement.

b) Long Term Investments

Quoted and unquoted investments in shares held on a longterm basis are stated at cost.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D44

The cost of the investment is the cost of acquisitioninclusive of brokerage fees, duties and bank fees.

The carrying amount of long term investments is reduced torecognise a decline other than temporary in the value ofinvestments, determined on an individual investment basis.

In the Company’s financial statements, investments insubsidiaries are accounted for in the equity method andassociates are carried at cost, net of any provision for otherthan temporary diminution in value, under the Company’saccounting policy for long term investments.

c) Other Investments

Treasury bills and other interest bearing securities held forresale in the near future to benefit from short term marketmovements are accounted for at cost plus relevantproportion of the discounts or premiums.

2.3 Liabilities and Provisions

2.3.1 Provisions

Provisions are recognized when the company has a presentobligation (legal or constructive) as a result of a past event,where it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of theobligation. If the effect of the time value of money ismaterial, provisions are determined by discounting theexpected future cash flows at a pre- tax rate that reflectscurrent market assessments of the time value of money and,where appropriate, the risks specific to the liability.

2.3.2 Retirement Benefit Obligations

a) Defined Benefit Plan – Gratuity

Gratuity is a Defined Benefit Plan. The Company is liable topay gratuity in terms of the relevant statute. In order tomeet this liability, a provision is carried forward in thebalance sheet, equivalent to an amount calculated based ona half month’s salary of the last month of the financial yearof all employees for each completed year of service,commencing from the first year of service. The resultingdifference between brought forward provision at thebeginning of a year and the carried forward provision at theend of a year is dealt with in the income statement.

In respect of those employees those who have not completed5 years , the provision required at the end of 5 years is builtup on an increasing sum of digit basis and accordingly theretirement benefit cost is charged to the income statement.

The gratuity liability is not externally funded nor actuariallyvalued. This item is grouped under Other DeferredLiabilities in the Balance Sheet.

However, as per the payment of Gratuity Act No. 12 of 1983this liability only arises upon completion of 5 years ofcontinued service.

b) Defined Contribution Plans – Employees’ Provident Fund &Employees’ Trust Fund

Employees are eligible for Employees’ Provident FundContributions and Employees’ Trust Fund Contributions inline with the respective statutes and regulations. TheCompany contributes 12 % and 3% of gross emoluments ofemployees to Employees’ Provident Fund and Employees’Trust Fund respectively.

2.4 Income Statement

2.4.1 Revenue Recognition

Revenue is recognised to the extent that it is probable thatthe economic benefits will flow to the Company and therevenue and associated costs incurred or to be incurred canbe reliably measured. Revenue is measured at the fair valueof the consideration received or receivable net of tradediscounts, value added taxes, and other sales taxes and aftereliminating intra-group sales. The following specific criteriaare used for the purpose of recognition of revenue.

a) Sale of Goods

Revenue from sale of goods is recognised when thesignificant risks and rewards of ownership of the goods havepassed to buyer; with the Company retaining neithercontinuing managerial involvement to the degree usuallyassociated with ownership, nor effective control over thegoods sold.

b) Rendering of Services

Revenue from rendering of services is recognised in theaccounting period in which the services are rendered orperformed.

c) Interest

Interest Income is recognised on an accrual basis.

d) Dividends

Dividend income is recognised on a cash basis.

e) Rental Income

Rental income is recognised on an accrual basis.

f) Others

Other income is recognised on an accrual basis.

Net gains and losses of a revenue nature on the disposal ofProperty, Plant & Equipment and other non current assetsincluding investments have been accounted for in theincome statement, having deducted from proceeds ondisposal, the carrying amount of the assets and relatedselling expenses. On disposal of revalued Property, Plant andEquipment, amount remaining in Revaluation Reserverelating to that asset is transferred directly to AccumulatedProfit.

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 45

Gains and losses arising from incidental activities to mainrevenue generating activities and those arising from a groupof similar transactions which are not material, areaggregated, reported and presented on a net basis.

2.4.2 Expenditure Recognition

a) Expenses are recognised in the income statement on thebasis of a direct association between the cost incurred andthe earning of specific items of income. All expenditureincurred in the running of the business and in maintainingthe Property, Plant & Equipment in a state of efficiency hasbeen charged to income in arriving at the profit for the year.

b) For the purpose of presentation of income statement theCompany has adopted “the function of expenses” method onthe basis that it presents fairly the elements of theCompany’s and Group’s performance.

2.5 Business Segment Reporting

A business segment is distinguishable component of anenterprise that is engaged in providing an individualproduct or service or a group of related products or services

that is subject to risk and returns that are different fromthose of other business segments. The accounting policiesadopted for segment reporting are the same accountingpolicies adopted for preparing and presenting consolidatedfinancial statements of the Group.

Inter-Segment transfers are based on fair market prices.

2.6 Employees Share Option Plan (ESOP)

The Company has established an Employee Share OptionPlan by way of a shareholder resolution passed on 20thAugust 2003 whereby its Senior Management and Employeesare entitled to purchase up to 3,120,000 Ordinary Shares ofthe Company between 1st April 2004 and 31st March 2008.These shares would be allocated at the discretion of theBoard. The allocation to the Senior Management would bebased on performance criteria. Approvals from the ColomboStock Exchange and Securities & Exchange Commission havebeen duly obtained for the scheme.

The allocation to the Senior Management and theEmployees, which has taken place and is expected to takeplace in the future is as follows:

Year ended 31 March 2005

Date / Period of Number of options granted Date by which options have to No of options grant option /to be granted to be exercised Exercised during

the year

30th August 2003 1,560,000 1st April 2004- 31st March 2006 1,096,550

14th September 2004 732,500 14st September 2004 - 31st March 2007 33,000

1st July 2005- 827,500 From date of grant-31st March 200830th September 2005

The first option which has been granted on 30th August 2003, entitled Senior Management and Employees to subscribe for theirentitlements of Ordinary Shares with an exercise price of Rs 50/- per share. The second option has been granted on 14th September2004, to Senior Management with an exercise price of Rs. 90/- per share.

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D46

Group Company 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

3. REVENUE

3.1 Summary

Sales 9,050,149,487 6,514,540,034 54,476,512 42,370,700

Less: Sales Taxes:

Turnover Tax (34,230,474) (8,811,357) - -

National Security Levy / VAT (218,038,334) (20,306,700) - (7,507,088)

Revenue 8,797,880,679 6,485,421,977 54,476,512 34,863,612

3.2 Goods and Services Analysis

Sales of Goods 7,934,531,133 5,687,142,130 - -

Rendering of Services 863,349,546 798,279,847 54,476,512 34,863,612

8,797,880,679 6,485,421,977 54,476,512 34,863,612

Segment information is given in Note 35 to these financial statements.

Group Company

4. OTHER OPERATING INCOME 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

Income from Investments with Related Parties

- Quoted 637,385 1,129,300 275,450 -

- Non Quoted - 3,935,576 324,706,237 140,131,592

Income from Other Investments

- Quoted 9,243,824 156,938 106,216 59,194

- Non Quoted 955,837 2,193,087 500,000 125,000

Interest Income - Related Parties - - 7,367,272 4,828,326

- Others 23,245,416 8,828,842 10,372,077 15,322,789

Profit on Disposal of Current Investments 21,452,813 32,545,203 12,512,772 29,882,020

Profit on Disposal of Hemas Garments (Pte) Ltd. 53,944,920 - 86,906,967 -

Rental Income 5,496,713 762,950 - -

Profits on Disposal of Rejected Stocks 1,965,605 1,582,146 - -

Commission Income 12,255,577 13,116,673 - -

Exchange Gain 2,471,131 3,124,501 - -

Sundry Income 9,690,365 20,956,430 2,012,285 1,605,880

Travel Counter Income 22,750,634 20,170,536 - -

164,110,220 108,502,182 444,759,276 191,954,801

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 47

5. PROFIT FROM OPERATING ACTIVITIES

Stated after Charging /(Crediting)Group Company

2005 2004 2005 2004 Rs. Rs. Rs. Rs.

Directors’ Emoluments 26,525,034 21,374,061 10,246,746 11,235,140

Auditors’ Fees and Expenses 2,576,441 2,432,075 402,313 290,215

Depreciation 352,878,064 157,301,034 9,182,177 8,186,138

Donations 4,759,333 215,825 - -

(Profit)/Loss on Disposal of Property, Plant & Equipment (12,829,359) (17,128,540) 89,455 (3,462,125)

Bad Debts Written - off 2,082,006 10,247,523 21,706 -

Provision for Doubtful Debts 7,696,657 3,059,565 4,525,000 -

Staff Costs includes:

Defined Benefit Plan Cost - Gratuity 20,087,254 32,574,317 1,642,426 2,911,910

Defined Contribution Plan Cost - MSPS/EPF/ETF 63,905,109 55,319,239 1,662,229 2,115,485

Other Staff Costs 541,181,659 498,623,732 6,635,393 2,677,927

6. FINANCE COST

Interest Expense on Overdrafts 13,624,393 15,058,973 153,856 901,107

Interest Expense on Loans & Borrowings 139,868,299 29,981,563 1,382,599 3,989,106

153,492,692 45,040,536 1,536,455 4,890,213

Bank Guarantee Charges 1,394,012 2,953,298 - -

Finance Charges on Lease Liabilities 655,704 646,093 - -

155,542,408 48,639,927 1,536,455 4,890,213

Group Company 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

7. INCOME TAX EXPENSE

Current Income Tax

Current Tax Expense on Ordinary Activities for the Year (7.1) 193,331,283 154,186,239 5,798,706 4,657,419

Under/(Over) Provision of Current taxes

in respect of prior years (1,845,728) (128,450) (2,329,794) -

Share of Associate Company Income Tax 2,708,874 2,630,168 - -

Tax on Dividends 29,737,432 443,441 - -

Deferred Income Tax

Deferred Taxation Charge/(Reversal) (7.2) 1,210,723 22,936,272 (265,749) (272,558)

225,142,584 180,067,670 3,203,163 4,384,861

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D48

Group Company

7.1 Reconciliation between Current Tax Expense/ 2005 2004 2005 2004 (Income) and the product of Accounting Profit Rs. Rs. Rs. Rs.

Accounting Profit (Profit from Ordinary Activities before Tax) 1,021,090,054 822,771,218 431,183,622 182,228,535

Intra Group Adjustment 395,608,053 111,503,218 - -

1,416,698,107 934,274,436 431,183,622 182,228,535

Aggregate Disallowed Items 169,573,303 135,981,852 18,626,933 11,497,915

Aggregate Allowable Expenses (315,101,442) (307,721,427) (8,381,763) (37,200,046)

Aggregate Allowable Income (569,181,451) (6,024,132) (417,782,954) (138,613,254)

Incentives not recognised in the Income Statements (5,813,454) (12,403,275) - (3,582,630)

Income not subject to Tax (21,837,072) (207,561,058) - -

Taxable Profit / (Loss) 674,337,991 536,546,396 23,645,838 14,330,520

Tax Losses Brought Forward and Utilized (4,362,727) (137,697) - -

669,975,264 536,408,699 23,645,838 14,330,520

Current Income Tax Expense 193,331,283 154,186,239 5,798,706 4,657,419

The Group tax expense is based on taxable profit of each Group Company.

The carried forward tax losses of the Group as at 31st March 2005 amount to Rs. 15,768,628/- (Provisional) (2004 -Rs 52,404,818/-).The related tax effect of these tax losses which are carried forward have not been included in net income of any period.

7.2 Deferred Tax Expense/(Income)

Deferred Tax Expense / (Income) arising due to

- Origination and Reversal of Timing Differences 1,210,723 22,936,272 (265,749) (272,558)

1,210,723 22,936,272 (265,749) (272,558)

7.3 Deferred Tax has been computed using the current effective tax rates applicable to each Group Company.

7.4 Applicable Tax Rates

As per the Inland Revenue Act, No. 38 of 2000, all resident companies are liable to effective Income Tax of 32.5% (Statutory Tax rateof 30% and Human Resource Endowment Fund rate of 2.5%) ( 2004 - 32.5%), with the exception of the below stated Companies.

- Trading income of Serendib Hotels Ltd., Hotel Sigiriya Ltd., Stafford Hotels Ltd., Miami Beach Hotels Ltd., Serendib LeisureManagement Ltd., Hemas Travels (Pte) Ltd. and Hemtours (Pte) Ltd., is taxed at 15%, while the other income of these Companies istaxed at 30%. (2004 – 15%)

- The profits of Hemas Garments (Pte) Ltd., are exempt from Income Tax under BOI Act No. 4 of 1978 for a period of 15 years reckonedfrom the year of assessment 1996/1997 in which the Company commences to make profits in relation to its transactions in that yearof assessment not later than 15 years from the date of first commercial production or operation of the enterprise whichever occursearlier. On the expiration of the above tax exemption period the provision of section 85 A of the Inland Revenue Act No. 38 of 2000shall apply to the Company.

- Hemas Developments (Pte) Ltd., has obtained BOI approval under Section 17 and it enjoys a 7 year tax holiday commencing from theyear of assessment 1998/1999 in which the enterprise makes profits in relation to its transactions in that year or not later than 5years from the date of its first commercial operation whichever is earlier.

- The profits and income of the Hemas Power (Pte) Ltd., (other than from sale of capital assets) is exempted from income tax for aperiod of 5 years commencing from the year of assessment in which the Company commences to carry on commercial operations, underSection 21H of the Inland Revenue (Amendment) Act, No 37 of 2003 (Provided that the Company, qualifies the criteria specified in thesaid section). Commercial operations would be deemed to commence in the year in which the issued share capital of the Companyreaches Rs. 100 million before 01st April 2008. The issued share capital of the Company as at 31st March 2005, amounted to Rs. 600million.

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 49

- Pursuant to the agreement dated 28th August 2003, entered into with Board of Investment under section 17 of the Board ofInvestment Law, Heladhanavi Ltd., is exempt from tax for a period of 10 years from the year in which the Company commences tomake profits or any year of assessment not later than two years from the date of commencement of commercial operations of theenterprise, whichever is earlier. After the expiration of the said, tax exemption period the income of the enterprise shall be chargedat the rate of 15%.

However, other operating income of the Company is liable for income tax in accordance with the provisions of the Inland Revenue Act.

- Companies where the taxable income is less than Rs. 5 million in any year of assessment are liable to income tax at a rate of 20%, inthat year.

8. EARNINGS PER SHARE

8.1 Basic Earnings Per Share is calculated by dividing the net profit for the year attributable to ordinary shareholders of the Company by

the weighted average number of ordinary shares 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 outstanding,

without a corresponding change in the resources such as a bonus issue.

8.2 The following reflects the income and share data used in the basic Earnings Per Share computation.

Group Company Amount Used as the Numerator: 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

Net Profit for the year 803,973,285 612,514,205 558,026,672 614,466,407

Less: Preference Dividends (5,950,686) - - -

Net Profit Attributable to Ordinary Shareholders for Basic

Earnings Per Share 798,022,599 612,514,205 558,026,672 614,466,407

2005 2004 2005 2004

Number of Ordinary Shares Used as Denominator: Number Number Number Number

Weighted Average number of Ordinary Shares in issue

Applicable to basic Earnings Per Share 78,900,000 74,000,000 78,900,000 74,000,000

8.3 There were no potentially dilutive ordinary shares outstanding at any time during the year.

9. DIVIDEND PER SHARE - Group / Company 2005 2004 % Rs. % Rs.

9.1 Dividends Paid

Interim Paid - 1st Interim 12.5 98,695,562 12.5 50,000,000 - 2nd Interim 17.5 138,489,225 - -

Final Proposed - - 12.5 97,500,000

30.00 237,184,787 25.00 147,500,000

9.2 Dividend Per Share

- 1 st Interim 1.25 1.25- 2 nd Interim 1.75 -- Final Proposed - 1.25

9.3 The interim dividends has been paid on 19th November 2004 and 25th April 2005.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D50

10. PROPERTY, PLANT & EQUIPMENT Balance Additions/ Disposals/ Balance 10.1 Group As at Transfers/ Transfers As at

Gross Carrying Amount 01.04.2004 Acquisitions 31.03.2005 Rs. Rs. Rs. Rs.

At Cost/ Cost incurred sinceLast Revaluation Freehold Land 158,343,444 4,622,379 (18,708,076) 144,257,747Freehold Buildings 216,778,471 146,180,245 (190,183,331) 172,775,385Building on Leasehold Land 45,679,730 9,744,305 (55,424,035) -Plant & Machinery 471,438,461 3,014,870,555 (136,300,766) 3,350,008,250Furniture & Fittings 224,362,148 47,155,344 (30,040,361) 241,477,131Office & Factory Equipment 232,262,940 27,154,596 (87,172,794) 172,244,742Computer & Accessories 104,545,293 50,049,230 (31,913,976) 122,680,547Motor Vehicles 219,233,320 29,096,298 (42,367,586) 205,962,032Crockery & Cutlery 12,975,665 1,372,407 (4,031,996) 10,316,076Revertment 18,965,927 421,500 (278,550) 19,108,877

1,704,585,399 3,330,666,859 (596,421,471) 4,438,830,787At ValuationFreehold Land 226,787,000 103,760,901 (34,361,500) 296,186,401Freehold Buildings 645,354,814 387,474,748 (116,399,290) 916,430,272Leasehold Land 104,244,254 20,399,919 - 124,644,173Leasehold Buildings 114,310,625 57,521,598 (969,192) 170,863,031

1,090,696,693 569,157,166 (151,729,982) 1,508,123,877Assets on Finance LeasesMotor Vehicles 9,482,988 1,053,800 (1,106,667) 9,430,121

9,482,988 1,053,800 (1,106,667) 9,430,121Total Value of Assets 2,804,765,080 3,900,877,825 (749,258,120) 5,956,384,785

Balance BalanceAs at Charge for Disposals / As at

Depreciation 01.04.2004 the year Transfers 31.03.2005Rs. Rs. Rs. Rs.

At CostFreehold Buildings 19,724,387 8,057,990 (26,371,919) 1,410,458Plant & Machinery 190,537,115 199,199,206 (80,925,878) 308,810,443Furniture & Fittings 108,093,299 21,147,673 (21,690,444) 107,550,528Office & Factory Equipment 91,596,291 25,895,057 (58,630,283) 58,861,065Computer Accessories 70,962,415 17,330,842 (22,533,754) 65,759,503Motor Vehicles 113,022,212 36,509,402 (29,816,189) 119,715,425Crockery & Cutlery 7,198,840 148,309 (276,795) 7,070,354Revertment 6,045,072 948,299 - 6,993,371

607,179,631 309,236,778 (240,245,262) 676,171,147At ValuationFreehold Buildings 111,326,074 15,222,758 (126,548,832) -Leasehold Land 6,913,944 1,580,047 (8,493,991) -Leasehold Buildings 28,455,136 29,165,376 (57,620,512) -

146,695,154 45,968,181 (192,663,335) -

Assets on Finance LeasesMotor Vehicles 2,545,308 2,002,375 (1,106,667) 3,441,016

2,545,308 2,002,375 (1,106,667) 3,441,016Total Depreciation 756,420,093 357,207,334 (434,015,264) 679,612,163

Capital Work-In-Progress 2,242,587,414 782,404,447 (2,968,458,073) 56,533,7882,242,587,414 782,404,447 (2,968,458,073) 56,533,788

2005 2004 Rs. Rs.

Net Book ValuesAt Cost 3,819,193,428 3,339,993,182 At Valuation 1,508,123,877 944,001,539 Assets on Finance Lease 5,989,105 6,937,680Total Carrying Amount 5,333,306,410 4,290,932,401

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 51

10.1.1 The Land and Buildings of Hemas Holdings Ltd, Hemas Manufacturing (Pte) Ltd., and Hemas Development (Pte) Ltd., were revalued

during the financial years 1999/2000 & 2004/2005 by Mr. D.S.A. Senaratne (A.I.V.) an independent valuer. The results of such

revaluation was incorporated in these financial statements from its effective date which is 31 March 2000 & 31 March 2005. Such assets

were valued on an open market value for existing use basis. The surplus arising from the revaluation was transferred to a Revaluation

Reserve.

10.1.2 Leasehold Property and Furniture and Equipment of Hotel Sigiriya Ltd., were revalued during the financial years in 1991, 1994 and

2004/2005 respectively, by Mr. D.S.A.Senaratne, an Associate of the Institute of Valuers of Sri Lanka. The surplus arising on revaluation

was credited to the Revaluation Reserve.

10.1.3 The Land and Buildings of Serendib Hotels Ltd., Stafford Hotels Ltd. & Miami Beach Hotels Ltd., were last revalued during the financial

years 1995/96 and 2004/2005 by Mr. D.S.A. Senaratne, an Associate of the Institute of Valuers of Sri Lanka. The properties were valued

on an open market value for existing use basis. The surplus arising from the revaluation was transferred to a Revaluation Reserve.

Cumulative Depreciation Net Carrying Net Carrying

If assets were Amount Amount Class of Asset Cost Carried at cost 2005 2004

Rs. Rs. Rs. Rs.

Buildings on Freehold Land 325,719,367 25,749,588 299,969,779 122,220,823

Buildings on Leasehold Land 76,835,407 5,593,575 71,241,832 14,009,941

Leasehold Property 31,962,385 13,667,912 18,294,473 18,773,909

10.1.4 During the financial year, the Group acquired Property, Plant & Equipment to the aggregate value of Rs.3,900,877,825/-(2004 - Rs.

569,674,674/-) of which Rs. 1,053,800/- (2004: Rs. 5,001,561 /-) was acquired by means of finance leases. Cash payments amounting

to Rs. 1,138,619,201/- (2004: Rs. 2,691,942,246/-) was paid during the year for purchases of Property, Plant & Equipment.

10.1.5 During the year Heladhanavi Ltd., a Jointly Controlled Entity has capitalised Rs. 75,708,265/- (2004 - Rs. 72,050,692/-) of borrowing

cost under Plant and Machinery.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D52

10. PROPERTY, PLANT AND EQUIPMENT (Contd.)Balance Additions/ Disposal/ Balance

10.2 Company As At Transfers/ Transfers As at 01.04.2004 Acquisitions 31.03.2005

At Cost Rs. Rs. Rs. Rs.

Roadways 4,858,512 - - 4,858,512Furniture & Fittings 7,412,696 3,707,686 - 11,120,382Office Equipment 8,211,987 314,919 (9,689) 8,517,217Computer & Accessories 2,818,368 24,904,063 (210,000) 27,512,431Motor Vehicles 5,675,055 4,090,202 - 9,765,257Plant and Machinery 21,613,616 - - 21,613,616

50,590,234 33,016,870 (219,689) 83,387,415

At ValuationFreehold Land 35,425,000 7,775,000 - 43,200,000Freehold Buildings 57,142,500Buildings Transferred from cost 1,834,149 58,976,649 33,418,306 (14,652,455) 77,742,500

94,401,649 41,193,306 (14,652,455) 120,942,500

Total Value of Assets 144,991,883 33,016,870 (14,872,144) 163,136,609

Work in Progress - 5,419,386 - 5,419,386

Depreciation Balance Charge Balance As at For the Disposals/ As t

At Cost 01.04.2004 Year Transfers 31.03.2005 Rs. Rs. Rs. Rs.

Furniture & Fittings 3,766,889 660,708 - 4,427,597Office Equipment 3,938,086 776,713 (3,633) 4,711,166Computer & Accessories 785,724 844,207 (70,000) 1,559,931Motor Vehicles 957,691 1,250,014 - 2,207,705Plant & Machinery 5,403,404 2,701,702 - 8,105,106

14,851,794 6,233,344 (73,633) 21,011,505At ValuationFreehold Buildings 11,428,501Buildings Transferred from Cost 275,121 11,703,622 2,948,833 (14,652,455) -

11,703,622 2,948,833 (14,652,455) -

Total Depreciation 26,555,416 9,182,177 (14,726,088) 21,011,505

2005 2004 Net Book Values Rs. Rs.

At Cost 62,375,910 35,738,440 At Valuation 120,942,500 82,698,027 Work In Progress 5,419,386 -Total Carrying Amount 188,737,796 118,436,467

The Land and Buildings of the Company were revalued during the financial years 1999/2000 & 2004/2005 by Mr. D.S.A. Senaratne (A.I.V)an independent valuer. The results of such revaluation was incorporated in these financial statements from its effective date which is31 March 2000 and 31 March 2005. Such assets were valued on an open market value basis. The surplus arising from the revaluationwas transferred to a Revaluation Reserve.

The Carrying amount of revalued assets that would have been included in the financial statements had the assets been carried at costless depreciation is as follow:

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 53

Cumulative Depreciation Net Carrying Net Carrying

if assets were Amount Amount Class of Asset Cost Carried at cost 2005 2004

Rs. Rs. Rs. Rs.

Freehold Land 9,833,928 - 9,833,928 9,833,928 Buildings 42,722,702 25,450,329 17,272,373 19,893,906

52,556,630 25,450,329 27,106,301 29,727,834

10.2.2 During the financial year, the Company acquired Property, Plant & Equipment to the aggregate value of Rs. 79,629,562/-(2004 - Rs. 5,850,921/-) of which Rs. 38,436,256/- (2004- Rs. 5,850,921/-) was acquired by means of cash.

11. INTANGIBLE ASSETS Company

2005 2004Rs. Rs.

Goodwill 9,784,437 8,012,700 Acquisition of Brand 25,000,000 - Project Development Expenses 5,551,333 -

40,335,770 8,012,70011.1 Goodwill

At the beginning of the year 8,012,700 2,378,605 Acquired during the year 5,410,175 9,093,828 Amounts Written off during the year (3,638,438) (3,459,733)

9,784,437 8,012,700

12. INVESTMENT IN SUBSIDIARIESGroup Holding Company Holding Company % % % % 2005 2004

12.1 Non-Quoted Investments 2005 2004 2005 2004 Rs. Rs.

Hemas Marketing (Pte) Ltd 100% 100% 100% 100% 105,300 105,300 Hemas Manufacturing (Pte) Ltd 100% 100% 100% 100% 40,000,000 40,000,000 Hemas Travels (Pte) Ltd 100% 100% 100% 100% 2,840,112 2,840,112 Hemas Garments (Pte) Ltd - 100% - 59.0% - 41,500,000 Hemtours (Pte) Ltd 100% 100% 100% 100% 30,000,020 30,000,020 Hemas Commodities (Pte) Ltd 100% 100% 100% 100% 2,500,000 2,500,000 Hemas Pharmaceuticals (Pte) Ltd 100% 100% 100% 100% 33,000,000 33,000,000 Discover the World Marketing (Pte) Ltd 100% 100% 100% 100% 500,000 500,000 Hemas Aviation (Pte) Ltd 100% 100% 100% 100% 500,000 500,000 Hemas International Freight (Pte) Ltd 100% 100% 100% 100% 999,960 999,960 Hemas Developments (Pte) Ltd 100% 100% 50.0% 50.0% 75,000,000 75,000,000 Hemas Air Services (Pte) Ltd 100% 100% 100% 100% 4,999,980 4,999,980 Hemas Healthcare (Pte) Ltd 100% 100% 100% 100% 18,000,000 18,000,000 Hemas Foods (Pte) Ltd 100% 100% 100% 100% 20,000,000 20,000,000 Hemas Corporate Services (Pte) Ltd 100% 100% 100% 100% 10,000,010 10,000,010 Leisure Asia Investments Ltd 61.5% 61.5% 61.5% 61.5% 80,663,830 80,663,830 Forbes Air Services (Pte) ltd 100% 100% 100% 100% 37,029,988 37,029,988 Hemas Power (Pte) Ltd 100% 100% 2.2% 4.8% 172,000,000 360,000,000 Peace Haven Resorts Ltd 88.0% 71.0% 88.0% 71.0% 88,671,156 70,688,670 Exchange & Finance Investment Ltd. 56.0% - 56.0% - 5,000,000 -

621,810,356 828,327,870

12.2 Quoted InvestmentsSerendib Hotels Ltd 29.7% 29.7% 1.4% 1.4% 86,823,005 7,960,505

Share of Capital Reserves of Subsidiaries 979,359,124 396,035,183 Share of Revenue Reserves of Subsidiaries 1,645,108,385 1,518,357,152

Total 3,333,100,870 2,750,680,710

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D54

12.3 The companies with less than 50% voting power are considered as subsidiaries,as control exists over their financial and operating policies

in line with SLAS 26.

12.4 Disposal of Subsidiary during the year

The Company divested 70% of its investment in Hemas Garments (Pte) Ltd., on 31st March 2005, as part of its strategic repositioning.

Hemas Holdings Ltd., had held a total investement of 7,000,000 Ordinary Shares at a cost of Rs. 70,000,000/- and 3,000,000 Preference

Shares at a cost of Rs. 30,000,000/- in Hemas Garments (Pte) Ltd., as at the date of disposal.

13. INVESTMENTS IN ASSOCIATES

Carrying Increase Share of Profit Carrying13.1 Group Holding % Value (Decrease) in net of Dividends Value

2005 2004 2004 Investments Received 2005Non-Quoted Rs. Rs. Rs. Rs.

Mowbray Hotels Ltd 39.6% 39.3% 9,567,837 - (648,803) 8,919,034Brushco (Pvt) Ltd 40% 40% 8,006,406 - 3,297,269 11,303,675Associated Hotels Ltd 47% 47% 102,992,954 33,124,912 (4,569,640) 131,548,226Hemas Garments (Pte) Ltd 30% - - 44,126,591 - 44,126,591

120,567,197 77,251,503 (1,921,174) 195,897,526

13.2 Company

Holding % No. of Shares 2005 20042005 2004 2005 2004 Rs. Rs.

Mowbray Hotels Ltd 33.3% 33.3% 1,926,671 1,926,671 5,380,533 5,380,533 Associated Hotels Ltd 17% 17% 1,549,237 884,496 48,029,923 36,005,512 Hemas Garments (Pte) Ltd 30% - 3,000,000 - 30,000,000 -

83,410,456 41,386,045

14. OTHER INVESTMENTS Group Company 2005 2004 2005 2004

Summary Rs. Rs. Rs. Rs.

Non Current

Investments in Equity Securities (14.1) 16,014,088 54,290,931 - - Investments in Equity Securities (14.2) - - 2,505,000 14,178,020 Investments in Debentures (14.1.1) 1,497,220 1,497,220 - - Investments in Fixed Deposits 19,850,000 19,390,000 - -

37,361,308 75,178,151 2,505,000 14,178,020

Current

Investment in Equity Securities (14.1.2) 306,738 306,738 - - Investments in Equity Securities (14.2.1) - - 1,094,905 22,306,296 Investments in Fixed Deposits - - - -

306,738 306,738 1,094,905 22,306,296

Total Carrying Value of Other Investments 37,668,046 75,484,889 3,599,905 36,484,316

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 55

Year ended 31 March 2005

14.1 Investments in Equity Securities-Non Current

Carrying Market Carrying MarketGroup No of Shares Value Value in Value Value

2005 2004 2005 2005 2004 2004Non-Quoted Rs. Rs. Rs. Rs.

Mahaweli Reach Hotel Ltd - 648,890 - - 15,465,370 11,680,020

Overseas Realty (Ceylon) Ltd 3,500 500 35,000 28,000 10,000 3,750

Eden Hotels Lanka Ltd 127 127 861 2,096 861 2,000

Galadari Hotels 2,000 2,000 20,000 32,000 20,000 17,500

Blue Diamond Jewellers Ltd 1,300 1,300 15,600 4,875 15,600 3,900

Royal Palm Beach Hotels 85 85 676 3,485 676 2,805

Diesel Motor Engineering Co Ltd 884 - 12,390 86,932 - -

Serendib Land Ltd 5,400 5,400 262,500 1,620,000 262,500 649,350

Colombo Land and Developments Ltd 3,500 - 5,525 22,750 - -

Ceylon Hospitals Ltd 50,000 153,000 1,000,000 1,362,500 3,325,000 3,060,000

Lanka Hospitals Ltd 3,400 1,866,400 46,265 54,250 20,595,153 19,130,600

Lanka Walltile Ltd 100 - 5,000 5,400 - -

Lankem (Ceylon) Ltd 1,500 - 14,500 105,000 - -

Provision for loss for the year (12,950) - (12,950) -

Total Investment in Quoted Equity Securities 1,405,367 3,327,288 39,682,210 34,549,925

Investments in Equity Securities - Non Current Carrying Carrying Group - Continued Value Value

2005 2004 b) Non-Quoted Rs. Rs.

Unit Trust (NAMAL) 2,500,000 2,500,000 Felix Hotels Ltd 1,751,210 1,751,210 Rainforest Ecology (Pvt) Ltd 10,000,000 10,000,000 SLFFA Cargo Services Ltd 357,511 357,511

14,608,721 14,608,721

Total Equity Investments (Group - Non Current) 16,014,088 54,290,931

No of Debentures Carrying Value 14.1.1 Investment in Debentures 2005 2004 2005 2004

Group Rs. Rs.

Ocean View Ltd (6% interest) 149,722 149,722 1,497,220 1,497,220

149,722 149,722 1,497,220 1,497,220

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D56

14.1.2 Investments in Equity Securities - Current Carrying Market Carrying MarketGroup No of No of Value Value Value Value

Shares Shares 2005 2005 2004 2004a) Quoted 2005 2004 Rs. Rs. Rs. Rs.

Ceylinco Securities & Financial Services Ltd - 6000 - - 42,000 45,000

John Keells Holdings Ltd 726 726 48,642 98,373 48,642 80,586

Aitken Spence & Co. Ltd 133 133 34,000 50,208 34,000 35,046

Lanka Milk Foods Ltd 100 100 3,200 1,925 3,200 2,250

Overseas Realty (Ceylon) Ltd 500 500 5,000 2,125 5,000 2,125

Harischandra Mills Ltd 100 100 11,500 35,700 11,500 16,000

Millers Ltd 500 500 24,000 225,000 24,000 102,500

Cargills Ltd 200 200 17,200 55,000 17,200 24,000

Keells Food Products Ltd 100 100 1,875 3,800 1,875 1,700

Elephant Lite Corporation Ltd 100 100 700 975 700 500

Soy Foods (F&W ) Ltd 100 100 3,550 4,650 3,550 2,575

Muller & Phipps Ltd 100 100 1,500 975 1,500 80

Chemanex Ltd 174 116 12,975 24,012 11,525 9,251

John Keells Ltd 284 284 13,000 41,180 13,000 36,920

Bata Shoe Co. of Ceylon Ltd - 100 - - 5,200 1,150

Glaxo Ceylon Ltd 150 150 4,500 4,875 4,500 6,338

Shaw Wallace Ltd 100 100 6,800 13,000 6,800 533

Ceylon Cold Stores Ltd 300 300 4,025 36,000 4,025 35,100

Ceylon Tobacco Ltd 196 196 3,900 8,918 3,900 8,036

Nestle Lanka Ltd 400 400 17,625 38,000 17,625 36,400

Lankem Ceylon Ltd 100 100 6,300 7,000 6,300 1,425

E.B. Creasy Ltd 150 150 23,000 39,000 23,000 2,625

J.L. Morisons Ltd 100 100 30,550 55,500 17,550 30,000

Hayleys Ltd 396 287 26,240 44,550 26,240 33,364

Galadari Hotels - 500 - - 5,000 2,000

Chemical Industries Ceylon Ltd 148 132 11,525 23,680 11,525 14,784

311,607 814,446 349,357 530,288

Less: Provision for fall in Value (11,744) (57,494) -

Total Equity Investments (Group - Current) 299,863 814,446 291,863 530,288

b) Non Quoted

Pure Beverages Ltd 100 100 5,275 - 5,275 -

Rekitt & Colman Ltd - 300 - - 8,000 -

Carsons Marketing Ltd 100 100 1,600 - 1,600 -

6,875 - 14,875 -

Total Investment 306,738 814,446 306,738 530,288

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 57

14.2 Investment in Equity Securities - Non Current Carrying Market Carrying Market Company Value Value Value Value

No of Shares 2005 2005 2004 2004 2005 2004 Rs. Rs. Rs. Rs.

a. Quoted

Mahaweli Reach Hotel Ltd - 530,910 - - 11,631,020 9,556,380

Overseas Realty (Ceylon) Ltd 500 500 5,000 4,000 5,000 3,750

Ceylinco Securities Financial Services Ltd - 6,000 - - 42,000 45,000

5,000 4,000 11,678,020 9,605,130

b. Non Quoted

Unit Trust (NAMAL) 250,000 250,000 2,500,000 3,252,500 2,500,000 2,967,500

Total Carrying Value of Equity Investment

(Company - Non Current) 2,505,000 3,256,500 14,178,020 12,572,630

14.2.1 Investment in Equity Securities - Current Carrying Market value Carrying Market Value Value Value

No of Shares 2005 2005 2004 2004 Quoted 2005 2004 Rs. Rs. Rs. Rs.

Lanka Hospitals Ltd 3,400 1,866,400 46,263 54,250 20,595,154 19,130,600

Ceylon Hospitals Ltd 50,000 76,500 1,000,000 1,362,500 1,662,500 1,530,000

John Keells Holdings Ltd 726 726 48,642 98,373 48,642 80,586

Total Carrying Value of Equity Investment

(Company - Current) 1,094,905 1,515,123 22,306,296 20,741,186

Group15. INVENTORIES 2005 2004

Rs. Rs.

Raw Materials 167,171,377 141,664,237

Work in Progress 14,867,565 163,784,724

Finished Goods & Other Stock 547,350,381 496,424,938

Goods In Transit 30,446,663 -

759,835,986 801,873,899

Less: Provision for Unrealized Profit (26,900,000) (20,184,161)

732,935,986 781,689,738

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D58

Group Company 16. TRADE AND OTHER RECEIVABLES 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

16.1 Summary

Trade Debtors 1,955,764,772 1,357,453,823 - -

Ceylon Electricity Board 37,363,678 - - -

Less: Provision for Doubtful Debts (21,432,134) (8,582,834) - -

1,971,696,316 1,348,870,989 - -

Other Debtors - Current 106,345,700 63,765,833 3,931,974 336,842

Other Debtors - Non-Current - - - 4,525,000

Advances and Prepayments 93,274,930 552,577,168 4,487,535 1,213,942

Less: Provision for Doubtful Debts (1,029,076) (290,573) - -

Loans to Company Officers (16.2) 24,822,282 25,975,043 2,521,258 2,181,676

Accrued Income - 259,531 - -

2,195,110,152 1,991,157,991 10,940,767 8,257,460

Group Company 16.2 Loans to Company Officers: 2005 2004 2005 2004

Rs. Rs. Rs. Rs.

Summary

Balance as at the Beginning of the Year 25,975,043 20,625,180 1,873,460 1,873,461

Loans Granted During the Year 12,169,452 15,173,763 1,772,725 1,081,957

Less: Repayments (13,322,213) (9,823,900) (1,124,927) (773,742)

Balance as at the end of the Year 24,822,282 25,975,043 2,521,258 2,181,676

16.3 Loans over Rs. 20,000/- were granted to 97 employees (2004-97) within the group. The total balance outstanding from such employeesamounted to Rs. 13,389,175/- (2004 - Rs. 13,665,327/-) as at the balance sheet date.No loans have been given to the Directors of the Company.

All non trade receivables from related parties appear under Note 18 to these financial statements.

Company

17. LOANS DUE FROM RELATED PARTIES 2005 2004 Relationship Rs. Rs.

Hemas Pharmaceuticals (Pte) Ltd Subsidiary 55,614,011 33,420,000

Hemas Healthcare (Pte) Ltd Subsidiary 78,310,000 27,510,000

Hemas Corporate Services (Pte) Ltd Subsidiary 28,087,110 22,716,110

Hemas Garments (Pte) Ltd Subsidiary - 10,000,000

Conventions Asia (Pte) Ltd Subsidiary 500,000 500,000

Go Asia Air Lines (Pte) Ltd Subsidiary 1,993,490 1,984,421

Hemas Manufacturing (Pte) Ltd Subsidiary - 65,000,000

Hemas International Freight (Pte) Ltd Subsidiary 10,000,000 20,000,000

174,504,611 181,130,531

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 59

18. AMOUNTS DUE FROM RELATED PARTIESGroup Company

2005 2004 2005 2004 Relationship Rs. Rs. Rs. Rs.

SASH Management & Tourism Ltd Affiliate Company 22,783 7,240 - - Felix Hotels Ltd Affiliate Company 50,587 - - - Casabah Hotels Ltd Affiliate Company 22,783 7,240 - - Hemtours (Pte) Ltd Subsidiary - - 2,249,356 18,038,620 Hemas Marketing (Pte) Ltd Subsidiary - - 221,755,409 228,598,662 Hemas International Freight (Pte) Ltd Subsidiary - - 218,059 8,269,478 Spectrum Marketing (Pte) Ltd Subsidiary - - (214,466) 1,250,222 Hemas Pharmaceuticals (Pte) Ltd Subsidiary - - 51,822,014 29,864,187 Hemas Corporate Services (Pte) Ltd Subsidiary - - 139,021 - Hemas Developments (Pte) Ltd Subsidiary - - 24,695,685 48,183,722 Hemas Healthcare (Pte) Ltd Subsidiary - - 3,506,918 3,525,393 Hemas Air Services (Pte) Ltd Subsidiary - - 27,711,356 5,630,424 Hemas Garments (Pte) Ltd Associate/Subsidiary 49,315 - 49,315 3,313,033 Hemas Travels (Pte) Ltd Subsidiary - - 6,345,098 - Hemas Manufacturing (Pte) Ltd Subsidiary - - 7,151,811 4,336,056 Hemas Power (Pte) Ltd Subsidiary - - 14,325,783 8,458,636 Forbes Air Services (Pte) Ltd Subsidiary - - 18,459,180 16,427,370 Peace Haven Resorts Ltd Subsidiary - - 5,174,427 - Discover The World Marketing (Pvt) Ltd Subsidiary - - (605) - Exchange and Finance Investment Ltd. Subsidiary - - 7,188 -

145,468 14,480 383,395,549 375,895,803

Company19. SHARE CAPITAL Par Value 2005 2004

Rs. Number Number

19.1 Authorised

Number of Shares Ordinary Shares 100,000,000 100,000,000

2005 2004 Rs. Rs.

Nominal Value Ordinary Shares 10/- 1,000,000,000 1,000,000,000

At the Issued for Issued for At the Par Value Beginning Cash During Non cash End

19.2 Issued and Fully Paid Rs. of the Year the Year Consideration of the Year 01.04.2004 31.03.2005

Number Number Number Number

Number of Shares Ordinary Shares 78,000,000 1,129,550 - 79,129,550

Rs. Rs. Rs. Rs.

Nominal Value Ordinary Shares 10/- 780,000,000 11,295,500 - 791,295,500

19.3 The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at

a meeting of the Company.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D60

Group Company 20. RESERVES 2005 2004 2005 2004

Summary Rs. Rs. Rs. Rs.

(a) Capital Reserve

Opening Balance as Previously Reported 28,495,558 170,445,429 1,684,462 135,548,118

Transfer from Revaluation Reserve to

- Profit and Loss 326,233,752 (3,108,697) 41,193,306 -

Bonus Share Issues - (138,841,174) (138,841,173)

Capital Reserve of Subsidiaries - - 580,028,961 4,977,517

Transfer from Profit and Loss 473,087,818 - -

827,817,128 28,495,558 622,906,729 1,684,462

(b) Revenue Reserves 174,285 174,285 - -

Total Reserves 827,991,413 28,669,843 622,906,729 1,684,462

The above revaluation surplus consists of net surplus resulting from the revaluation of property, plant and equipment as described in Note 10

to these financial statements.

2005 2005 2004 2004 21. NON INTEREST BEARING Amount Amount Amount Amount

LOANS & BORROWINGS Repayable Repayable 2005 Repayable Repayable 2004 Within 1 Year After 1 Year Total Within 1 Year After 1 Year Total

21.1 Group Rs. Rs. Rs. Rs. Rs. Rs.

Rent Deposits Payable 2,133,285 11,274,897 13,408,182 550,000 7,696,816 8,246,816

Other Payable 1,207,000 - 1,207,000 - - -

3,340,285 11,274,897 14,615,182 550,000 7,696,816 8,246,816

21.2 Company

Loans from Related Parties (21.2.1) * - 536,625,644 536,625,644 - 554,220,229 554,220,229

- 536,625,644 536,625,644 - 554,220,229 554,220,229

21.2.1 Loans from Related Parties As at Loans Repayment As at 01.04.2004 Obtained During the year 31.03.2005

During the year Rs. Rs. Rs. Rs.

Forbes Air Services (Pte) Ltd 44,125,121 27,000,000 (29,000,000) 42,125,121

Hemas Marketing (Pte) Ltd 228,280,390 255,000,000 (289,988,737) 193,291,653

Hemtours (Pte) Ltd 101,367,483 64,138,019 (67,757,821) 97,747,681

Hemas Pharmaceuticals (Pte) Ltd 16,023,000 - (16,023,000) -

Hemas Travels (Pte) Ltd 806,235 2,377,083 - 3,183,318

Hemas Manufacturing (Pte) Ltd 83,000,000 100,000,000 (50,100,000) 132,900,000

Hemas International Freight (Pte) Ltd 3,800,000 - (694,296) 3,105,704

Hemas Development (Pte) Ltd 50,018,000 25,000,000 (45,000,000) 30,018,000

Hemas Air Services (Pte) Ltd 22,500,000 30,200,000 (22,245,833) 30,454,167

Hemas Healthcare (Pte) Ltd 3,800,000 - - 3,800,000

Spectrum Marketing (Pte) Ltd 500,000 - (500,000) -

554,220,229 503,715,102 (521,309,687) 536,625,644

* Terms of repayment are mutually agreed with relevant related parties.

No securities are kept in respect of these loans.

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 61

22. INTEREST BEARING LOANS & BORROWINGS

2005 2005 2004 2004 Amount Amount Amount Amount

22.1 Group Repayable Repayable 2005 Repayable Repayable 2004 Within 1 Year After 1 Year Total Within 1 Year After 1 Year Total

Rs. Rs. Rs. Rs. Rs. Rs.

Finance Leases 1,243,198 2,105,852 3,349,050 1,335,397 2,448,929 3,784,326

Bank Loans (22.1.1) 472,770,820 1,939,174,500 2,411,945,320 509,947,055 1,715,682,335 2,225,629,390

Commercial Papers

and Promissory Notes (22.2.1) - - - 25,000,000 - 25,000,000

Debentures 6,818,182 43,181,818 50,000,000 - 50,000,000 50,000,000

Preference Shares (22.1.2) - 100,000,000 100,000,000 - 100,000,000 100,000,000

Bank Overdrafts 361,893,231 - 361,893,231 160,172,634 - 160,172,634

842,725,431 2,084,462,170 2,927,187,601 696,455,086 1,868,131,264 2,564,586,350

22.1.1 Bank Loans As at Loans Obtained Repayments As at 01.04.2004 31.03.2005

Rs. Rs. Rs. Rs.

Bank Loans 2,225,629,390 2,138,550,093 (1,952,234,163) 2,411,945,320

2,225,629,390 2,138,550,093 (1,952,234,163) 2,411,945,320

22.1.2 Preference Shares12% Cumulative Redeemable Preference Shares has been issued by Heladhanavi Ltd. the jointly controlled entity to the DFCC bank forinitial fund requirement for the construction of the plant.

2005 2005 2004 2004 Amount Amount Amount Amount

22.2 Company Repayable Repayable 2005 Repayable Repayable 2004 Within 1 Year After 1 Year Total Within 1 Year After 1 Year Total

Rs. Rs. Rs. Rs. Rs. Rs.

Commercial Papers and

Promissory Notes (22.2.1) - - - 25,000,000 - 25,000,000

Bank Overdrafts 48,964 - 48,964 47,427,354 - 47,427,354

48,964 - 48,964 72,427,354 - 72,427,354

As at Promissory Notes Repayment As at 01.04.2004 Obtained 31.03.2005

22.2.1 Promissory Notes Rs. Rs. Rs. Rs.

Mercantile Service Provident Fund (MSPS) 25,000,000 - (25,000,000) -

25,000,000 - (25,000,000) -

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D62

Group Company

23. DEFERRED INCOME TAX 2005 2004 2005 2004 Rs. Rs. Rs. Rs.

Balance as at Beginning of the Year 90,115,751 67,179,676 11,071,290 11,343,848

Provision / (Release) made during the Year 1,210,723 22,936,075 (265,749) (272,558)

Balance as at the end of the Year 91,326,474 90,115,751 10,805,541 11,071,290

24. OTHER DEFERRED LIABILITIES

Retirement Benefit Obligation - Gratuity

Balance as at Beginning of the Year 78,634,094 51,254,244 5,835,658 3,028,668

Charge for the Year 24,720,172 32,574,317 1,642,426 2,911,910

Payments during the Year (19,270,845) (5,194,467) (441,688) (104,920)

Balance as at the end of the Year 84,083,421 78,634,094 7,036,396 5,835,658

25. NEGATIVE GOODWILL

Group

Balance at the Beginning of the Year 8,019,871 8,181,927 - -

Adjustments due to Acquisition of Subsidiary 8,688,353 7,037,705 - -

Transferred to Income Statement (5,534,929) (7,199,761) - -

Balance at the End of the Year 11,173,295 8,019,871 - -

26. TRADE AND OTHER PAYABLES

Trade Payables 1,342,703,846 1,305,159,205 7,371,365 5,892,415

Tsunami Rehabilitation Fund 5,269,936 - 5,269,936 -

Sundry Creditors including Accrued Expenses 562,299,888 568,545,350 4,935,198 2,122,384

1,910,273,670 1,873,704,555 17,576,499 8,014,799

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 63

Group Company 27. AMOUNTS DUE TO RELATED PARTIES 2005 2004 2005 2004

Relationship Rs. Rs. Rs. Rs.

Hemas Development (Pte) Ltd Subsidiary - - 30,040,000 26,535,000

Hemas Garments (Pte) Ltd Associate/Subsidiary 2,508,933 - 2,508,933 55,400,000

Hemas Air Services (Pte) Ltd Subsidiary - - 30,000,000 10,000,000

Hemas Pharmaceuticals (Pte) Ltd Subsidiary - - 1,752,217 1,752,217

Hemas Corporate Services (Pte) Ltd Subsidiary - - 671,611 10,197,228

Discover the World Marketing (Pte) Ltd Subsidiary - - 500,000 500,000

Hemas Commodities (Pte) Ltd Subsidiary - - 9,183,865 9,208,864

Hemas Healthcare (Pte) Ltd Subsidiary - - 27,268,848 27,268,848

Hemas Travels (Pte) Ltd Subsidiary - - 4,388,788 26,836,139

Spectrum Marketing (Pte) Ltd Subsidiary - - 46,200,000 5,700,000

Hemas Marketing (Pte) Ltd Subsidiary - - 5,922,551 129,757,387

Lakdhanavi Ltd Joint Venturer 186,587,397 - - -

189,096,330 - 158,436,813 303,155,683

Group Company 28. CASH AND CASH EQUIVALENTS 2005 2004 2005 2004

IN CASH FLOW STATEMENT Rs. Rs. Rs. Rs.

Components of Cash and Cash Equivalents

28.1 Favourable Cash & Cash Equivalents Balances

Cash & Bank Balances 657,932,581 471,034,056 170,392,257 6,243,372

Treasury Bills and Repo Investments 439,752,239 120,602,249 62,743,210 66,920,365

1,097,684,820 591,636,305 233,135,467 73,163,737 28.2 Unfavourable Cash & Cash Equivalent Balances

Bank Overdraft (Note 22.1/22.2) (361,893,231) (160,172,634) (48,964) (47,427,354)

Total Cash and Cash Equivalents for the Purpose of

Cash Flow Statement 735,791,589 431,463,671 233,086,503 25,736,383

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D64

29. ACQUISITION OF SUBSIDIARY AND ASSOCIATES DURING THE YEAR - Group

The acquisitions had the following effects on the groups Assets & Liabilities2005

Rs.(a) Exchange & Finance Investment Ltd.

AssetsWritten Down Value of Property, Plant and Equipment 1,667,762Investments 7,282,415Net Current Assets 10,928,239Cash & Cash Equivalents 2,109,659

21,988,075LiabilitiesInterest Bearing Liabilities 1,209,234Creditors and Accruals 21,504,955

22,714,189

Net assets (726,114)Minority Interest - 44% (319,490)

Net Assets Acquired (406,624)Goodwill Acquired 5,410,175Cash & cash equivalents (2,109,659)

Cash Consideration 2,893,892(b) Peace Haven Resort Ltd 26,570,816

(c) Investment in Associates 33,124,912

Total Cash Consideration 62,589,620

The disposal had the following effect on the Group Assets & Liabilities

Hemas Garments (Pte) Ltd

AssetsWritten Down Value of Property, Plant and Equipment 211,546,921Inventories 102,372,137Trade and Other Receivables 286,275,512Amounts due from Related Parties 70,000,000Deferred Expenditure 20,000,000

690,194,570LiabilitiesTrade and Other Payables 175,896,686Interest Bearing Loans 350,545,642

526,442,328

Net Assets 163,858,153Cash and cash equivalent 3,336,215

167,194,368Transferred to Associate (44,126,591)

Proceeds from Disposal 123,067,777

The net impact to the Group Cash Flow StatementTotal Proceeds from Disposal of Subsidiary 123,067,777Total Investment in Subsidiaries & Associates (62,589,620)

Net Proceeds 60,478,157

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 65

30. EVENTS OCCURRING AFTER THE BALANCE SHEET DATE

There have been no events subsequent to the balance sheet date,which would have any material effect on the Company and the Group.

31. COMMITMENTS AND CONTINGENCIES

31.1 Lease Commitments

(a) Serendib Leisure Management Limited

Commitments for minimum lease payments under finance lease and non-cancelable operating leases as at 31st March are as follows:

Non CancelableOperating Leases

2005 2004 Rs. Rs.

Not later than 1 year - 930,000

Later than one year and not later than 5 years - 527,500Later than 5 Years - -

Later than 5 Years - 1,457,500

Under the terms to the lease agreements, no contingent rentals are payable.

(b) Hemas Corporate Services (Pte) Limited

Finance Leases 2005 2004 Rs. Rs.

Not later than 1 year - 444,598

Later than 1 year and not later than 5 years - -

Interest in Suspense - (19,889)

- 424,709

31.2 Capital Expenditure Commitments

The Company and the Group do not have significant capital expenditure commitments as at the balance sheet date, other than the

following;

The purchase commitments in respect to acquisition of Property, Plant and Equipment incidental to the ordinary course of business as

at 31 st March, are as follows:

(a) Leisure Asia Investments Limited2005 2004

Rs. Rs.

Contracted but not provided for 8,353,225 -

Authorised by the Board, but not contracted for 6,982,742 160,000,000

15,335,967 160,000,000

(b) Hemas Manufacturing (Pte) Limited

The Company has committed through a sale and purchase agreement, a total sum of Rs. 97 million to Nimesha Enterprises (Pvt) Ltd.,

for the acquisition of the "Nimex" brand and assets such as buildings and machinery as at the balance sheet date. An amount of Rs. 6.5

million was paid as at the year end from the total sum committed, in line with the sale and purchase agreement.

Year ended 31 March 2005

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D66

31. COMMITMENTS AND CONTINGENCIES (Contd.)

31.3 Contingencies

(a) Hemas Holdings Limited

The contingent liability as at 31st March 2005 on guarantees given by Hemas Holdings Ltd ., to banks on behalf of subsidiaries and

Associates relating to facilities obtained, are as follows:

Rs. USD

Hemas Pharmaceuticals (Pte) Limited 325,000,000 -

Hemas Travels (Pte) Limited 29,000,000 -

Hemas Air Services (Pte) Limited 4,000,000 -

Hemas International Freight (Pte) Limited 18,000,000 -

Hemas Corporate Services (Pte) Limited 5,000,000 -

Hemas Healthcare (Pte) Limited 15,000,000 -

Exchange & Finance Investments (Pte) Limited 2,500,000 -

Hemas Garments (Pte) Limited - 374,400

398,500,000 374,400

(b) Hemas Manufacturing (Pte) Limited

A civil case has been filed against the Company by Colgate Palmolive Company, seeking a declaration that the Company's Registered

Trade Mark No. 74941 is null and void and of no force or effect in law from the date of registration of the said Mark.

Based on the representations made by the Company Lawyers, the Supreme Court has delivered judgment in favour of the Company.

(c ) Hemas Marketing (Pte) Lmited

Contingent liability as at balance sheet date in respect of guarantees, granted to Spectrum Marketing (Pte) Ltd., amounting to

Rs.65,000,000/-.

(d) Hemas Travels (Pte) Limited

(a) The Guarantees given by the Company to third parties in relation to facilities obtained amounting to Rs. 45,000,000/-

(b) The Guarantees given by the Company to third parties in relation to facilities obtained by "Discover The World Marketing (Pte) Ltd"

amounts to US$ 50,000 and "Gullivers Travels" amounts to GBP 10,000.

31.4 Commitments and Contingencies of the Jointly Controlled Entity

Heladhanavi Limited - The Group has a 50% share of the following:

Operations and Maintenance Agreement with Lakdhanavi Limited

According to this agreement, the fixed fee payable after the final completion date is US$ 625,000 per annum paid in equal monthly

installments for the period of 10 years.

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 67

32. ASSETS PLEDGED

The following assets have been pledged as security for liabilities as at the balance sheet date.

Name of The Company Nature of Assets Nature of Liability Carrying Amount Included of the Assets Under

Pledged 2005 2004

Rs. Rs.

Forbes Air Services (Pte) Ltd Trade Receivables Pledged as a security to 248,000,000 271,714,046 Trade Debtorsthe extent of bank facility obtained from Standard Chartered Bank.

Hemas Manufacturing (Pte) Ltd. Inventories Concurrent Mortgage to 172,100,000 195,800,000 Inventories and Trade Receivables the extent of bank facility Trade Debtors

obtained from HNB & HSBC

Heladhanavi Ltd Immovable Assets. US$ 4,000,000 10,190,270 9,540,270 Property ,Plant (The Group has 50% share (Syndicated Loan Facility) & Equipment of the Assets Pledged)

Mortgage of all movableassets and assignment of 7,091,052,089 4,476,828,570

book debts of the company.

Share certificates of the 1,200,000,070 1,200,000,070 Share Capital. Company.

Assignment of projectdocuments.

Immovable Assets. Rs. 30,769,230 10,190,270 9,540,270 Property ,Plant (Rupee Loan Facility) & Equipment.

Mortgage of all movable assets and assignment of book debts of the company. Rs.269,230,769 7,093,419,330 4,476,828,570 Property ,Plant

(Rupee Loan Facility) & Equipment.

Share certificates of the company. Rs.400,000,000 1,200,000,070 1,200,000,070 Share Capital.

(Working Capital Loan) Assignment of project documents.

Serendib Hotels Ltd. Land and Buildings Primary Mortgage upto 207,202,952 155,715,594 Property, Plant the value of Rs 48 million to & EquipmentSeylan Bank

Stafford Hotels Ltd Freehold Land Primary Mortgage upto 50,840,000 214,402,725 Property, Plant the value of Rs. 55 million to & EquipmentDFCC bank.

Primary mortgage over existing movable items upto the value of Rs. 5 million to DFCC

Miami Beach Hotels Ltd. Freehold Land & Buildings Primary Mortgage 136,825,500 140,742,022 Property, Plant& Equipment

Year ended 31 March 2005

US$ 35,000,000(Syndicated loan Facility) }

Notes to the Financial Statements

H E M A S H O L D I N G S L I M I T E D68

33. DIRECTORS INTEREST IN CONTRACTS AND/OR PROPOSED CONTRACTS WITH THE COMPANY

Messers Husein Esufally, Murtaza Esufally, Abbas Esufally, Imtiaz Esufally, Lalith de Mel, Divayaroop Bhatnagar, Simon Scarff, MaithriWickremesinghe and Ms. Serena Fonseka were Directors of the Company for the year ended 31st March 2005.During 2004/2005 Hemas Holdings Ltd., has charged a total of Rs. 45,153,246/- (2004- Rs. 23,431,646/-) in respect of management,consultancy and bank guarantee charges from subsidiary companies within the Group.All interests in contracts with the Company in respect to ordinary course of business have been declared at Board Meetings by the Directorsconcerned. The Directors have no direct or indirect personal interest in any other contracts and/or proposed contracts with the Company.

34. RELATED PARTY DISCLOSURESThere were no other related parties transactions other than what is disclosed under Notes 16, 17, 18, 21, 27 and 33 to these financialstatements.

34.1 Pricing Policies

Sales and purchases of goods and services to related parties were made at normal trading terms under arms' length basis. managementfees, rental income were made at agreed prices, finance charges / income in respect of borrowings are carried at decided rates ofinterest by the Board of Directors.

35. SEGMENTAL INFORMATIONInformation based on the primary segments (Business Segment)

2005 2005 2005 2004 External Intra Group Total Total

Segment Turnover Rs. Rs. Rs. Rs.

FMCG 2,897,597,057 1,284,646,451 4,182,243,508 4,147,440,249 Healthcare 2,144,300,996 31,313,202 2,175,614,198 1,727,700,434 Leisure 445,431,318 - 445,431,318 482,773,217 Transportation 352,982,582 5,471,931 358,454,513 284,057,177 Strategic Investment 2,957,568,726 110,189,937 3,067,758,663 1,170,073,314

8,797,880,679 1,431,621,521 10,229,502,200 7,812,044,391

Intra Group Sales (1,431,621,521) (1,326,622,414)

8,797,880,679 6,485,421,977

Segment ProfitFMCG 352,812,235 7,687,124 360,499,359 324,303,119 Healthcare 103,100,701 12,749,492 115,850,193 92,700,383 Leisure 18,562,799 12,041,812 30,604,611 109,738,129 Transportation 54,002,649 33,776,305 87,778,954 60,687,317 Strategic Investment 271,056,786 483,137,786 754,194,572 345,887,686

799,535,170 549,392,519 1,348,927,689 933,316,634

Intra Group Profit Elimination (549,392,519) (279,200,606)

799,535,170 654,116,028

Segment Assets & LiabilitiesTotal Assets Total Liabilities

2005 2004 2005 2004 Rs. Rs. Rs. Rs.

FMCG 2,017,091,680 1,759,944,419 699,808,833 642,035,311 Healthcare 1,066,402,958 761,173,612 793,726,316 559,592,453 Leisure 1,901,971,887 1,595,669,281 685,974,151 580,391,149 Transportation 1,178,508,617 914,689,630 911,162,116 702,809,690 Strategic Investment 9,413,318,014 7,894,367,727 3,864,969,437 3,804,598,084

15,577,293,156 12,925,844,669 6,955,640,853 6,289,426,687 Intersector Adjustment (5,925,323,884) (5,052,385,206) (1,527,541,807) (1,590,235,067)

9,651,969,272 7,873,459,463 5,428,099,046 4,699,191,620

Year ended 31 March 2005

Notes to the Financial Statements

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 69

36. PROPORTIONATE INTEREST IN JOINT VENTURES

The Group’s proportionate share (50%) of Heladhanavi Ltd’s Income and Expenses, Assets and Liabilities have been included in the Group Income

statement and Balance Sheet respectively.

The aggregate amounts so included are as follows;Group

2005 2004 Rs. Rs.

a) Current Assets 882,761,383 473,029,900 b) Non Current Assets 2,831,976,932 2,243,184,420 c) Current Liabilities 984,184,674 3,461,113,986 d) Non Current Liabilities 1,939,767,821 1,771,026,666 e) Income 1,402,691,197 - f) Expenses 38,424,113 952,236

37. GROUP COMPANIESAccounts Proportion of Proportion of Proportion of Proportion ofAudited by Ownership Voting Ownership Voting

Interest Power Interest Poweras at as at as at as at

Subsidiaries 31.03.2005 31.03.2005 31.03.2004 31.03.2004

Hemas Travels (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas International Freight (Pte) Ltd. B.R.De Silva & Co 100% 100% 100% 100%Hemas Manufacturing (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Commodities (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Air Services (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Healthcare (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Foods (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemas Corporate Services (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Discover the World Marketing (Pte) Ltd Ernst & Young 100% 100% 100% 100%Leisure Asia Investments Ltd Ernst & Young 61.5% 61.5% 61.5% 61.5%Hemas Power (Pte) Ltd. Ernst & Young 100% 100% 100% 100%Hemtours (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Hemas Developments (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Conventions Asia (Pte) Ltd. H.L.B. Edirisinghe & Co. 100% 100% 100% 100%Forbes Air Services (Pte) Ltd KPMG Ford Rhodes Thornton & Co. 100% 100% 100% 100%Hemas Marketing (Pte) Ltd. Puvimanasinghe & Co. 100% 100% 100% 100%Spectrum Marketing (Pte) Ltd Puvimanasinghe & Co. 100% 100% 100% 100%Hemas Pharmaceuticals (Pte) Ltd. Puvimanasinghe & Co. 100% 100% 100% 100%Hemas Garments (Pte) Ltd. Puvimanasinghe & Co. - - 100% 100%Peace Haven Resorts Ltd. H.L.B. Edirisinghe & Co. 88% 88% 71% 71%Exchange & Finance Investment (Pte) Ltd. Tudor V. Perera & Co. 56% 56% - - Hemas Aviation (Pte) Ltd. B. R . De Silva & Co 100% 100% 100% 100%Go Asia Air Lines (Pte) Ltd. B. R.De Silva & Co. 100% 100% 100% 100%

Hotel Sigiriya Ltd., a subsidiary of Leisure Asia Investment Ltd., was audited by PriceWaterHouseCoopers.

Associate Companies

Mowbray Hotels Ltd. H.L.B. Edirisinghe & Co. 39.60% 39.60% 39.60% 39.60%

Brushco (Pvt) Ltd. Puvimanasinghe & Co. 40% 40% 40% 40%

Associated Hotels Ltd. Ernst & Young 47% 47% 47% 47%

Hemas Garments (Pte) Ltd. Puvimanasinghe & Co. 30% 30% - -

Jointly Controlled Entity

Heladhanavi Ltd. Ernst & Young 50% 50% 50% 50%

Year ended 31 March 2005

Five Year Summary

H E M A S H O L D I N G S L I M I T E D70

Year Ended 31st March 2005 2004 2003 2002 2001 Rs'000

Operating Results

Group Revenue 8,797,881 6,485,422 5,290,102 4,250,435 3,864,154

Profit Before Taxation 1,024,678 834,183 556,030 315,608 322,983

Taxation 225,143 180,067 133,243 101,090 83,407

Profit After Taxation 799,535 654,116 422,786 214,518 239,576

Profit Attributable To Hemas Group 803,973 612,514 401,199 203,747 207,986

Equity & Liabilities

Share Capital 791,296 780,000 400,000 300,000 300,000

Reserves 1,171,881 326,058 170,620 286,186 295,541

Accumulated Profits 1,578,796 1,521,830 1,114,919 792,412 653,741

Minority Interest 681,897 546,380 506,803 483,570 486,833

Non-Current Liabilities 2,282,320 2,059,218 147,115 161,426 193,126

Current Liabilities 3,145,779 2,639,974 1,708,812 1,457,681 1,376,388

9,651,969 7,873,460 4,048,269 3,481,274 3,305,629

Assets

Property, Plant & Equipment 5,333,306 4,290,932 1,669,964 1,628,787 1,653,434

Intangible Assets 40,336 8,013 2,379 4,020 5,661

Investments (Associates and others) 233,259 195,745 193,734 185,086 99,285

Other Receivables - 1,672 567 47,826 851

Current Assets 4,045,068 3,377,097 2,181,626 1,615,555 1,546,398

9,651,969 7,873,459 4,048,269 3,481,274 3,305,629

Key Indicators

Earnings Per Share (Rs.) 10.11 8.3 5.7 2.9 3.0

Effective Rate Of Dividend (%) 30.0 25.0 33.3 25.0 24.3

Dividend Cover (No. of times) 3.7 4.2 4.0 2.7 2.9

Interest Cover (No. of Times) 7.6 17.9 14.3 6.5 6.5

Net Asset Per Share (Rs.) 44.8 33.7 21.6 17.7 16.0

Cash From Operating Activities (Rs'000) 1,182,366 574,317 357,025 230,363 312,464

Current Ratio (No. of times) 1.3 1.3 1.3 1.1 1.1

Debt / Equity (%) 82.6 97.6 24.5 29.1 31.8

ROE (%) 25.9 28.4 26.2 15.5 17.6

Shareholder Information

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 71

STOCK EXCHANGE LISTING

Hemas Holdings Limited (HHL) was listed as a Public Quoted Company on the Colombo Stock Exchange on 15th October 2003.

ANALYSIS OF SHAREHOLDERS - AS PER THE NUMBER OF SHARES AS AT 31.03.05

RESIDENT NON RESIDENT TOTALShareholdings Number of Number of Number of

Shareholders No of Shares (%) Shareholders No of Shares (%) Shareholders No of shares (%)

1 to 1000 Shares 3,311 594,250 0.75 18 5,500 0.01 3,329 599,750 0.761001 to 5,000 Shares 171 371,417 0.47 9 25,100 0.03 180 396,517 0.505,001 to 10,000 Shares 37 264,900 0.33 1 5,900 0.01 38 270,800 0.3410,001 to 50,000 Shares 40 868,250 1.10 3 83,600 0.11 43 951,850 1.2150,001 to 100,000 Shares 8 550,700 0.70 2 126,600 0.16 10 677,300 0.86100,001 to 500,000 Shares 13 2,673,000 3.38 2 728,500 0.92 15 3,401,500 4.30500,001 to 1000,000 Shares 0 0 0 2 1,388,800 1.76 2 1,388,800 1.76Over 1,000,000 Shares 9 67,373,933 85.13 2 4,069,100 5.14 11 71,443,033 90.27

3,589 72,696,450 91.86 39 6,433,100 8.14 3,628 79,129,550 100.00

As at 31st March 2004 4,954 72,541,500 93,01 54 5,458,500 6.99 5,008 78,000,000 100.00

SHARE TRADING

No. of transactions for the period to 31st March 2005 - 3,868 (2004 - 12,077)

No. of shares traded - 7,676,100 (2004 - 15,361,800)

Value of the shares traded - Rs. 738 million (2004 - Rs. 1,315 million)

Market PriceHighest - Rs. 110.00 (24th March 2005)Lowest - Rs. 75.00 (06th April 2004)As at year ended - Rs. 109.00

Issue Price - Rs. 50.00

Market Capitalisation as at 31th March 2005 - Rs. 8,625 million (2004 - Rs. 6,884 million)

TWENTY LARGEST SHAREHOLDERS OF THE COMPANY2005 2004

No. of Shares % No. of Shares %

A Z Holdings (Private) Limited 14,522,060 18.35 14,522,060 18.62Saraz Investments (Private) Limited 13,823,366 17.47 13,823,366 17.72Blueberry Investments (Private) Limited 13,725,000 17.34 13,725,000 17.60Amagroup (Private) Limited 13,724,907 17.34 13,724,907 17.60HSBC Intl NOM LTD - SNFE - Arisaig India Fund Limited 2,995,500 3.79 1,853,700 2.38Mr. I. A. H. Esufally 2,530,600 3.20 2,500,000 3.21Mr. A. N. Esufally 2,504,900 3.17 2,500,000 3.21Mr. H. N. Esufally 2,500,000 3.16 2,500,000 3.21Mr. M. A. H. Esufally 2,500,000 3.16 2,500,000 3.21Employees Provident Fund 1,573,700 1.99 - -HSBC Intl NOM LTD - MSIL - Asian Smaller Companies Plus Ltd. 1,073,600 1.36 1,073,600 1.38Mr R. Rajaratnam 768,500 0.97 998,000 1.28Voyager Capital (International) Limited 620,300 0.78 419,000 0.54DFCC Bank 485,700 0.61 - -Gold Investment Limited 377,000 0.48 382,000 0.49Explorer Capital (Intl) Services Ltd 351,500 0.44 - -Cocoshell Activated Carbon Company Limited 318,400 0.40 298,700 0.38MJF Exports Ltd 272,800 0.34 - -Lanka Ventures Limited 223,600 0.28 210,800 0.27Hatton National Bank Limited 216,100 0.27 252,000 0.32

The Percentage of shares held by the Public as at 31st March 2005 - 16.64%

Glossary

H E M A S H O L D I N G S L I M I T E D72

CAPITAL EMPLOYED

Total shareholders' funds plus debt and minority interest.

CAPITAL RESERVES

Reserves identified for specific purposes and considered notavailable for distribution.

CURRENT RATIO

Current assets divided by current liabilities.

CONTINGENT LIABILITIES

Conditions or situations at the Balance Sheet date, thefinancial effect of which are to be determined by futureevents which may or may not occur.

DEBT

Interest bearing long term loans plus short term loans andoverdrafts.

DEBT EQUITY RATIO

Total interest bearing borrowings divided by the total ofshareholders' funds.

DEFERRED INCOME TAX

The net tax effect on items which have been included in theincome statement, which would only qualify for inclusionon a tax return at a future date.

DIVIDEND COVER

Net profit attributable to the ordinary shareholders dividedby the total dividend paid and proposed.

ESOP (Employee Share Option Plan)

The right but not the obligation to purchase an accruednumber of shares at a fixed price within a pre-determinedtime period.

EQUITY

Total shareholders' funds.

EARNINGS PER SHARE

Profit attributable to ordinary shareholders divided by theweighted average number of ordinary shares in issue duringthe year.

EBIT

Earnings before interest and tax.

EFFECTIVE RATE OF TAXATION

Income tax, including deferred income tax over profit beforetax.

INTEREST COVER

Operating profit before interest and tax divided by the totalfinance cost.

MARKET CAPITALISATION

The number of ordinary shares in issue multiplied by themarket price per share as at the reported date.

MINORITY INTEREST

Part of the net results of operations and of net assets of asubsidiary attributable to interests which are not owned,directly or indirectly, through Subsidiaries, by the Parent.

NET ASSETS PER SHARE

Shareholders funds divided by the number of ordinary sharesin issue as at the end of the year.

PRICE EARNINGS RATIOMarket price per share divided by the earnings per share.

RETURN ON EQUITY

Profit after tax, minority interest and extra ordinary itemsdivided by average shareholders’ funds at the beginning andend of the year.

REVENUE RESERVES

Reserves set aside for future distributions and Investments.

SEGMENT

Constituent business units grouped in terms of similarity ofoperations and strategy.

SHAREHOLDERS’ FUNDS

Total of share capital, capital reserves and revenue reservesless preliminary and deferred Expenses.

Notice of Meeting

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 73

NOTICE IS HEREBY GIVEN that the Annual General Meeting of HEMAS HOLDINGS LIMITED, will be held at the Auditoriumof The Ceylon Chamber of Commerce, No.50, Navam Mawatha, Colombo 2, on 30th June, 2005, at 3.30 p.m. for the followingpurpose:

• To receive and consider the Report of the Directors, Statement of Accounts and the Balance Sheet of the Company, forthe year ended 31st March 2005, together with the Report of the Auditors thereon.

• o re-elect Mr. Husein N Esufally, Director who retires by rotation and being eligible offers himself for re-election in termsof Article No.89 of the Articles of Association of the Company.

• To re-elect Mr. Abbasally N Esufally, Director who retires by rotation and being eligible offers himself for re-election interms of Article No.89 of the Articles of Association of the Company.

• To re-elect Mr. Imtiaz A H Esufally , Director who retires by rotation and being eligible offers himself for re-election interms of Article No.89 of the Articles of Association of the Company.

• To re-appoint M/s Ernst and Young, Chartered Accountants, as auditors of the Company and authorise the Directors todetermine their remuneration.

By order of the BoardHEMAS CORPORATE SERVICES (PTE) LTD

(Sgd)Secretaries

Colombo.20th May, 2005.

Note:

1. A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend and vote instead of him/her.

2. A proxy need not be a member of the Company.

3. A Form of Proxy accompanies this notice.

Notes

H E M A S H O L D I N G S L I M I T E D74

Form of Proxy

A N N U A L R E P O R T 2 0 0 4 - 2 0 0 5 75

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

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

being * a member/members of HEMAS HOLDINGS LIMITED, do hereby appoint

1. Mr. Husein N Esufally of Colombo or failing him,

2. Mr. Abbasally N Esufally of Colombo or failing him,

3. Mr . Imtiaz A H Esufally of Colombo or failing him,

4. Mr. Murtaza A H Esufally of Colombo or failing him,

5. Mrs. M Serena Fonseka of Colombo or failing her,

6. Mr. Lalith De Mel of Colombo or failing him,

7. Mr. Divyaroop Bhatnagar of Colombo or failing him,

8. Mr. Simon J Scarff of Colombo or failing him,

9. Mr. Maithri E Wickremesinghe of Colombo or failing him,

Mr./Mrs ........................................................................................................................................................................

of ................................................................................................................................................................. as*my/our Proxy to vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING of the Company to be held on 30thJune, 2005, and at any adjournment thereof.

For Against

(1) To receive and consider the Report of Directors, Statement of Accounts and

the Balance Sheet of the Company for the year ended 31st March,2005,

together with the Report of the Auditors thereon.

(2) To re-elect Mr. Husein N Esufally, Director who retires by rotation and being

eligible offers himself for re-election in terms of Article No.89 of the

Articles of Association of the Company.

(3) To re-elect Mr. Abbasally N Esufally, Director who retires by rotation and

being eligible offers himself for re-election in terms of Article No.89 of the

Articles of Association of the Company.

(4) To re-elect Mr.Imtiaz A H Esufally, Director who retires by rotation and

being eligible offers himself for re-election in terms of Article No.89 of the

Articles of Association of the Company.

(5) To re-appoint M/s Ernst and Young, Chartered Accountants, as auditors of

the Company and authorise the Directors to determine their remuneration.

*Mark your preference with “X” signed on this………day of……………….Two Thousand and Five.

..................................................Signature of Shareholder

Form of Proxy

H E M A S H O L D I N G S L I M I T E D76

Note:

1. *Please delete the inappropriate words.

2. Instructions as to completion are noted on the reverse hereof.

3. If you wish your proxy to speak at the meeting you should interpolate the words "and to speak" immediately after thewords "to vote".

Instructions as to Completion

1. Kindly perfect the Form of Proxy after filling in legibly your name in full and address and by signing in the space asprovided. Please fill in the date of signature.

2. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy who need not be a member, to attendand vote instead of him. The Proxy may not speak at the meeting unless expressly authorized by the instrument appointinghim.

3. In the case of Corporate Member, the Form of Proxy must be completed under its Common Seal, which should be affixedand attested in the manner prescribed by the Articles of Association.

4. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Formof Proxy, in the manner prescribed by the Articles of Association.

5. The completed Form of Proxy should be deposited at the registered office of the Company, No.36, Bristol Street, Colombo 1,not less than forty eight (48) hours before the appointed time for the Meeting.