Pivotal Points Towards Profitable Growths3.amazonaws.com/zanran_storage/ Term Borrowings (Rs.'000) ... generated funds and external borrowings on satisfactory ... Our country simply

ANNUAL REPORT 2005 /06

Associated Motorways LimitedAnnual Report 2005/06

92

CONTENTS

Financial Highlights 2 Chairman’s Message 3 Deputy Chairman/ Managing Director’s Review of Operations 7 Board of Directors 18

Senior Management Team 20 Keys to Delivering Class 23 Functional Managers 28 Widening the Core 33 Group Structure 36

Corporate Governance 38

Financial Reports

Report of the Directors 40 Directors’ Responsibility for Financial Reporting 42 Audit Committee Report 43 Report of the Auditors 44

Income Statement 45 Balance Sheet 46 Statement of Changes in Equity 47 Cash Flow Statement 48 Significant Accounting Policies 50

Notes to the Financial Statements 57 Statement of Value Added 80 Ten Year Financial Summary 81 Statement of Shareholdings 83

Our Heritage 86 Notice of Meeting 88

Pivotal Points Towards Profitable GrowthTo grow a business and to grow it profitably is perhaps the most simply stated

challenge faced by any business entity, in the modern world.

At AMW we've set foot on our ideal road to profitable growth. Thanks to a well

planned process of “shifting gears” over the years, we've been able to reach this

road with much of the infrastructure in place.

Now, we face the drive ahead with confidence. A confidence born from the

development of our optimum “5 speed transmission system” really our five thrust

areas; our five pivotal points for success - Performance, Quality, Technology,

Professionalism and Positioning.

In stark print, perhaps these five drivers may seem run of the mill and run of the

mill wouldn't really work in the highly competitive world of today.

In choosing these five pivotal points, AMW has looked beyond cold statistical

benchmarking, to a more holistic view. We've looked at desired customer centric

issues, aesthetics, behavioural traits, innovation and the future to define the true

path to profitable growth.

The story unfolds in more detail, in the ensuing pages of this report.


2

Financial Highlights

Group

Year ended 31st March 2006 2005 Change

%

Earnings, Highlights and Ratios

Gross Turnover (Rs.'000) 9,079,193 5,440,302 67

Net Profit Attributable to the Shareholders (Rs.'000) 571,891 288,937 98

Earnings per Share (Rs.) 69.38 35.06 98

Return on Total Assets (%) 22.35 15.69 42

Balance Sheet Highlights and Ratios

Total Assets (Rs.'000) 4,328,024 2,926,136 48

Shareholders' Funds (Rs.'000) 1,684,551 1,155,932 46

Net Assets per Share (Rs.) 204.38 140.24 46

Short Term Borrowings (Rs.'000) 1,274,575 759,714 68

Long Term Borrowings (Rs.'000) 315,988 98,469 221

Market/Shareholder Information

Rate of Dividends (%) 75 40 88

Dividends per Share (Rs.) 7.50 4.00 88

Market Price per Share (Rs.) 326.25 137.75 137

1,7982,502

3,720 9,0795,440

TurnoverRs. Mn

0602 03 04 05

4395

67 826384

Profit Before TaxRs. Mn

0602 03 04 05

4.357.42

4.31 69.3835.06

Earnings per Share

Rs.

0602 03 04 05

Return on Equity%

511

7 4933

0602 03 04 05 204.38

326.25

140.24

137.75

Net Assets Value per Sharevs Market Price per Share

Rs.

NAV

MP

99.71

29

107.13

50

108.94

84

060502 03 04

Total AssetsRs. Mn

1,6371,927

2,244 4,3282,926

0602 03 04 05


3

Chairman’s Message

It is with a sense of delight and

fulfillment that I write this message

to you, to report an overwhelmingly

successful year for Associated

Motorways Limited. A truly

memorable financial result

unsurpassed thus far, in our

57-year history of business in

Sri Lanka.

With these words, let me warmly

welcome you to the 57th Annual

General Meeting of Associated

Motorways Limited.

Outstanding FinancialResults

Exceptional results as indicated in

all our key financial parameters.

Most of our core functions reported

a healthy growth with the overall

revenue increasing by 67% to

Rs. 9,079 Mn for the financial year

under review.

It was most pleasing to note that

this increased turnover was

achieved under difficult economic

and social conditions that were

prevalent in our country during

Our financial performance clearly underlines the dominant position wehold in the Motor and related areas in Sri Lanka

most part of the year. The growth

in profitability was even more

impressive with the consolidated

Group profitability of Rs. 572 Mn

for financial year 2005/06,

indicating an increase of 98% as

compared to previous year. This is

the highest ever profit for the

Group, which resulted in the

earnings per share rising

significantly to Rs. 69.38.

Your Group asset holdings also

increased significantly, primarily on

account of term investments and

current asset balances to support

this growth in volume of business.

In terms of fixed assets, the

acquisition of a 120 perch prime

block of land immediately adjacent

to the newly established ‘Maruti’/

‘Suzuki' Showroom in Borella was

the highlight. The funding of this

investment was well-structured

with a combination of internally

generated funds and external

borrowings on satisfactory

payment terms.

Our financial performance clearly

underlines the dominant position

we hold in the Motor and related

areas in Sri Lanka.

How did this happen?

We stuck to our business

fundamentals. Whilst we were

aggressive in our marketing


3


4


efforts, we also leveraged on the

available market opportunities

satisfactorily to gain market share

across most lines of business. The

salient feature being the increase in

market share, in the new

Passenger Car segment, to 59%.

Another important contributor for

this remarkable growth was the

enhancement of our customer

network. This involved building

several new customer/dealer

relationships across the country

for most lines of business. This

broad based increase in our

marketing reach was appropriately

complemented with continued

improvements in quality of

customer servicing.

AMW has always offered products

of superior quality. Accordingly, the

Company implemented several

initiatives to maintain this

competitive edge. Enhancement of

our product range within several

lines of businesses was significant

in this regard. The Company also

invested in training and upgrading

employee technical skills to meet

market needs. I believe that the

Company is now deriving the

benefits of these learning curve

improvements, which has

complemented the offer of superior

products. Our Management team

and staff have combined

commitment with skill and hard

work throughout the year, which I

believe was a key factor in this

growth process.

A prudent management of Working

Capital needs coupled with the

implementation of several cost

control initiatives and productivity

improvement measures, also

facilitated the growth in profitability,

through better returns on

resources deployed.

Needless to state that we will

endeavour to maintain this growth

momentum, with continued

qualitative improvements to

generate a higher contribution in

the coming year and beyond.

The Business Environment

Whilst the reconstruction work on

account of the tsunami devastation

continue, most businesses in our

country are anxiously keeping a

close watch on the developments

of the peace process.

Our country simply cannot slide

back to war. The currently evident

fragile peace process needs to be

fortified as early as possible. The

external economic pressures,

such as high crude oil prices, lower

export volumes due to the

termination of the Multi Fibre

agreement, etc. will definitely have

a significant impact on our

economy. Therefore an internal

conflict would further aggravate the

situation and would be disastrous

to state the least. The need of the

hour is unity among all sections of

society, so that we could

collectively focus in achieving our

country’s economic, social and

other goals. I am confident that the

new government would initiate the

necessary pragmatic policies and

lay down direction as a foundation

in this common stand.

The regulatory authorities are

confident that the economy will

continue to expand in 2006 with

most sectors expected to perform

better. This will augur well, given

the achieved growth rate of

approximately 6% for 2005. The

immediate attention on

infrastructure is another key factor

for sustained economic growth.

The country requires a significant

quantum of funding for this

purpose. A conflict free

environment with a stable

government is once more an

absolute essence in this regard.

The new government should also

ensure a conducive tax

environment. It is imperative that

the government maintains an

optimal balance between adequate

tax collection and the required

impetus for new investment and

expansion of existing businesses.

The Future

We will endeavour to maintain an

optimal balance of aggression and

prudence at all possible times,

despite various external challenges

and impediments that we may need

to encounter from time to time. I am

confident that the Company

possess the necessary

characteristics to maintain a

healthy growth momentum.

We will continue to adjust to the

changes in our business

environment with equal emphasis

on market and operational risk

management and productivity to

ensure adequate controls and

returns on resources invested in

our businesses.

The investment in infrastructure

plays a pivotal roll in our growth

plans. We have decided to adopt a

two-way strategy. Whilst the

Company would continue to

establish stand alone sales outlets


5

in major urban areas for its Motor

Vehicles, much attention would also

involve investments in lubricant

and Workshop centres.

On a larger scale, the Company

would also develop its existing

Workshop operation at Kitulwatte

Road. As I write we have received

preliminary planning clearance to

construct a state-of-the-art Multi

storey workshop to handle repair

work and lubricant services of our

‘Maruti’, ‘Nissan’, ‘Yamaha’, and

‘Piaggio’ customers. The project,

which is expected to cost

Rs. 350 Mn approximately would

enable us to consolidate our

workshop activities within one

location, with several benefits of

synergy to accrue once

completed. The funding will be

prudently arranged through bank

borrowings and an internal capital

infusion.

Our subsidiary, Associated Motor

(Lanka) Co. Limited plans to enter

the leisure Outboard Motor market

with an investment of approximately

Rs. 50 Mn in a strategically located

freehold property at Bentota. This

building, which is expected to be

completed in early 2007, will house

a ‘Yamaha’ Outboard Motor

showroom and a workshop to

cater to the discerning leisure

customer base.

We would also focus on new

strategic alliances within our core

area of activity. Sourcing of

necessary infrastructure to

manufacture motor cycle tyres in

collaboration with Associated

CEAT (Private) Ltd., would be an

investment in this direction. We

believe that both partners could

derive synergies of manufacture

and sale of motor cycle tyres in

Sri Lanka via this joint effort in the

near future.

We have also invested within our

manufacturing capability at our

Kalutara Factory operation. The

installation of a 270 litre Banbury in

order to increase our compound

mixing output, would enable us to

cater to increased demand and

generate higher profitability. In

addition, we will also seek

opportunities of another investment

in a Banbury going forward. We

have also invested in new

machinery for our cold-process,

which will significantly increase

output.

In another significant development,

the Company has decided to seek

opportunities of forward integration

of our Motor Division through offer

of lease facilities to potential

customers of AMW. At present

approximately 60% of our

customers obtain lease facilities to

purchase our Motor Vehicles. This

is a worldwide trend for all Motor

Vehicle distributors to enhance its

existing business within the industry.

This ideal “one stop” concept, which

will provide customer convenience

and accessibility to finance needs

under one roof is expected to bring

satisfactory returns. In this respect,

we have already established a

public unquoted company and are

currently awaiting the approvals

from the Central Bank of Sri Lanka

to commence commercial

operations. The offer of lease

facilities is expected to support the

existing services provided by the

other Financial Institutions to our

customer base.

The Dividends

The profit unappropriated available

for distribution is Rs. 496 Mn. Your

Company declared an interim

dividend of 25% during the year

under review. I am pleased to

announce that your Board of

Directors has recommended a final

dividend of 50%.

Conclusion

Finally, let me take this opportunity

to convey my sincere appreciation

to all Shareholders, Customers,

Principals, Joint Venture Partners,

Bankers, Dealers/Distributors,

Suppliers, Regulatory Officials and

all other Stakeholders for their

valuable services and co-operation

extended to the Company during

the entire year. I am confident that

all stakeholders would continue to

partner us in meeting our goals and

targets in the future as well.

To the Board of Directors,

Management Team and all

employees, a big ‘Thank You’ for all

the support extended throughout

the year in this outstanding year of

success for AMW. I look forward

for your continued guidance and

support during the new financial

year and beyond.

Thank you,

Ajita De Zoysa

Chairman

14th June 2006


A virtuoso performance can only truly bejudged by the joy it evokes in its audience

Performance


7

Deputy Chairman/Managing Director’s Review of Operations

I am delighted to be reporting

another highly successful year for

AMW. The motor division performed

beyond expectations achieving the

best ever results recorded. Whilst

we have demonstrated our ability to

achieve significant revenue

increases, the growth in profitability

of 98% as compared to previous

year has further strengthened the

fabric of our Company. The

achievement of Group Net Profits of

Rs. 572 Mn despite difficult market

conditions is most impressive. On

account of this growth, our earnings

per share too recorded a significant

increase to be reporting at

Rs. 69.38.

This achievement has given us

further impetus and opportunities to

invest for the future, so that we may

sustain this growth momentum to

achieve greater heights in the

coming years.

We were steadfast in focusing on

our strategic goals at all times. Our

customer behavioural patterns and

needs were closely monitored and

appropriately met at all possible

times. Our employees at all levels

displayed commitment even during

difficult times to meet goals and

objectives. It is also satisfying to

The achievements of this financial year hasgiven us further impetus and opportunities toinvest for the future in order to sustain ourgrowth momentum

note the reciprocal contribution and

support we received from our

principals in meeting local market

needs. Operationally we were also

conscious of our productivity

standards and to this end several

initiatives were implemented to

eliminate processes that do not

meet minimum criteria. The benefits

of these initiatives would also

accrue in the years to come.

These business fundamentals were

key drivers for this highly

commendable growth.

EBIT vs Gross Profit

Mn

EBIT

Gross Profit

128

352

169

483

161

581

968

1,520

459

894

0602 03 04 05


7


8


Nissan, the most preferred brand of

Motor Vehicles in the new and usedJapanese passenger car segment.

Motor Division

Nissan

The imposition of increased custom duties and other levies on Motor

Vehicles, negatively impacted market conditions significantly. The

depressed market outlook did not deter Nissan sales. A marginal

reduction in turnover of a mere 3%, indicated resilience and a

performance well above the market average on overall sales of

passenger vehicles (overall registration of Motor cars dropped by 10%).

This amplifies Nissan’s strong brand image and our marketing strength.

We are confident that Nissan will continue to be the most preferred brand

of Motor Vehicles in the new and used Japanese passenger car segment.

Our after sales divisions completed another satisfying year with turnover

increasing by 15% as compared to last year. This stands testimony of the

superior quality of products, technical disposition and customer care of

our staff, authorized workshops and other parts outlets.

Nissan’s outlook for the future is encouraging, given the anticipated launch

of several new eye-catching brands. The proposed multi-storey, state-of-

the-art and customer friendly workshop complex at Kitulwatte, would no

doubt be a further impetus for growth of business. It is imperative that all

effort is extended to leverage and capture the business opportunities

available to this flagship brand at all times.

Maruti

The recent opening of the uniquely designed showroom has driven the

‘Maruti’ division to a new platform of business activity. Our Principals have

rated this landmark building as one of the best equipped sales outlets globally.

The growth in Maruti car sales during the year under review was

phenomenal, with turnover increasing by a record 114% as compared to

the previous year. A business analysis indicates that reliability, affordability

combined with availability of a broad based product range and superior

resale value were the key drivers facilitating this growth. The achieved

market penetration was satisfactory with strong customer bondage and a

114% increase in

turnover - maintaining the No. 1

position for new vehicles for the 3rd

successive year.

Source : Registrar of Motor Vehicles

Japanese Motor CarRegistrations - 2005

Nissan 39%

Others 61%


9


Superior after sales service andhigher market value for the Brand.

Market leader in Europe.

countrywide belief that Maruti vehicles offer a ‘value for money’

proposition. The volume of Maruti sales during 2005/06 was in a league of

its own, with a commanding No. 1 position within the new vehicle segment.

This market leader position is enjoyed for the 3rd consecutive year.

We anticipate a satisfactory growth in vehicle sales during 2006/07 too,

given the expected product innovations and increased customer

convenience and accessibility on offer, especially synonymous with the

new showroom.

In another development, the Company has decided to establish new sales

outlets in key urban towns of the country. With the opening of the

Showroom in Kurunegala, we have been successful in achieving volumes

surpassing expectations. The forecast is for several other openings

commencing July 2006 in Matara. Our view is that the strategy of moving

closer to the customer will provide the necessary incremental benefits in

our endeavour to maintain market leadership status.

The after sales divisions too contributed significantly with an increased

turnover of 74% as compared to previous year. Indications are that

improvements on workshops coupled with increased vehicle sales will

facilitate satisfactory returns in the coming years. This augurs well with

regard to enhancing the shareholder value of the Company.

Suzuki

The Suzuki sales division too performed very well since commencing

business activities in July 2005. We look forward with confidence to build

on this performance in the ensuing years.

Notably after the appointment of AMW as the Sole Distributor for Suzuki

motor vehicles in Sri Lanka, Suzuki vehicles have grown in popularity in

the local market to the extent that it now has the highest growth rate in

used vehicle imports among the Japanese Brands. We believe this is due

to the expectation of superior after sales service and higher market value

for the Brand.

Renault

The performance of the Renault sales division was not satisfactory mainly

due to the increase in import duties and the consequent reduction in

demand for higher end vehicles.

We need to leverage on Renault's market leadership status in Europe to

generate a brand value proposition to improve overall performance.


10

82% increase in turnover.

47% increase in turnover

and a new specialized workshop.


70% increase in

motor cycle turnover coupled with62% increase in the after sales

turnover.

15% increase in

turnover.

Yamaha

The Yamaha sales division continued to improve on their performance byincreasing unit sales and turnover by 70% over the previous year. TheYamaha Brand is now well established and we have been able to doublethe dealer network in the current year.

The after sales divisions too performed very well with turnover increasingby 62% over the previous year.

We will be celebrating our 25th anniversary of our Distributorship in 2006,and have arranged a number of events to celebrate this significant landmark.

One such outstanding event was the visit of Mr. John Abraham, one of themost popular Indian film stars and Brand Ambassador for Yamaha whoseparticipation at several dealers based and CSR activities attracted largecrowds from across the country.

Piaggio

The turnover increased by 82% over last year through better marketing

focus. This division is expected to significantly alter its product mix with

improved sales of diesel cargo models to capture relatively new marketing

segments. The introduction of the LPG-Gasoline three wheelers will also

enhance the product range.

Eicher

The Eicher sales division increased turnover by an encouraging 47% overthe previous year.

The main contributor to the growth was the heavy commercial vehicleswhich has received wide market acceptance. As a result we are quiteconfident of increasing our market share.

We have opened a new specialized workshop for Eicher vehicles atPeliyagoda in order to provide the expected after sales service.

Gizmo/Effy

We have been constrained by the import and sales of motor cycles whichare being sold as Mopeds by various traders. Although we have broughtthis matter to the notice of the relevant authorities highlighting the loss ofrevenue to the Government by these irregular practices, the lack ofcommitment to enforce the regulations has been a matter of disappointment.

In spite of the above, Moped sales have increased by 15% over theprevious year. We are quite confident that we will achieve significantimprovements in our sales during the next year.


11


Short supply of popular sizes andunfavourable market conditions led

to sales falling short of

expectations.

36% increase in

turnover with a record bottom-line

growth of 120%.

Overall reduction in the imports of

used vehicles.

24% growth inturnover. Pitstop continues to set

benchmark standards in the vehilce

service industry.

Certified Vehicles

The sales division fared poorly reducing unit sales by 30% over the

previous year. During the year under review there has been an overall

reduction in the imports of used vehicles.

Complimentary Products & Services

Goodyear Tyres

Goodyear failed to achieve its budgeted targets due to short supply of

popular sizes, and unfavourable market conditions. India, the regular

country of source for radial tyres was unable to meet the requirements of

their export markets, and thus radials are now sourced through other

countries such as Thailand, Indonesia and Philippines. Further, the market

was flooded with brands enjoying lower prices.

Goodyear division’s amalgamation with the lubricants division has enabled it

to minimize the impact of the adversities it was faced with, whilst drawing from

the common synergies of the two departments to improve its performance.

BP/Castrol Lubricants

BP and Castrol division surpassed its budgeted targets to show

substantial top-line and bottom-line growth, in comparison to the previous

financial year. A 36% improvement was recorded in sales turnover, whilst

the division achieved a record bottom-line growth of 120%.

Favourable changes in the external environment, good sales and

marketing, as well as improvements on internal efficiencies and

productivity were the key reasons for the vast strides made within the

lubricants division. The gradual liberalization in the petroleum sector has

enabled BP and Castrol brands to be marketed through most filling

stations, making the industry less skewed towards a few brands. Internal

efficiency and productivity improvements were achieved through the

department’s amalgamation with the Goodyear division, whilst

simultaneously downsizing the staff complement.

Pitstop

Pitstop recorded a satisfactory performance during the 2005/06 financial

year, achieving a sales turnover growth of 24%, and bottom-line growth of

87% vis-à-vis the previous financial year.

Pitstop continues to set benchmark standards in the vehicle service

industry through superior customer care and state-of-the-art technology.

The Principals of all its associate brands, namely BP, Castrol, Goodyear,

and AutoGlym, have commended its quality standards.

Quality, delivered unfailingly builds trust andloyalty within a secure environment

Quality


13

High prices of raw materialscoupled with decline in demand for

hot process tyres led to

performance falling below expected

levels.

Manufacturing Operations

Hot Process & Cold Process Tyre Retreading

High raw material cost of natural rubber and chemicals had a significant

impact on the hot process rebuilding operation. This along with market

trend in lower demand for hot process tyres resulted in a drop in turnover

and increased cost of production. On a positive note several cost saving

initiatives were implemented to off set these losses.

It is noteworthy that under very severe market conditions the division

recorded a 10% increase in the collection of tyres for processing,

there-by recording an increase in our market share. However, due to

unfair trade practices adopted by our competitors profitability was not in

accordance with the increase in sales.

The contribution of the Kalutara tyre retreading division showed an overall

improvement due to the addition of a cold process facility during the year

under review. We hope to expand the cold processing capacity under this

division in the future, in order to further improve the contribution.

Expansion in production capacitywith a view to becoming the largest

custom mixing facility in Sri Lanka.

Custom Mixing

Our custom mixing department during the year under review recorded a

profit comparable with the previous year as the demand for mixing

matched our capacity. Accordingly, the Company decided to expand

production capacity by adding a new Russian mixer which will be in

operation by July 06, thus becoming the largest custom mixing facility in

Sri Lanka.

New three wheeler tyre under the

brand name ‘TARRO'.

Two/ Three Wheeler Tyre Division

During the year the two/ three wheeler tyre division introduced a new

three wheeler tyre under the brand name ‘TARRO' and the quality

standards were upgraded with the assistance of an Indian technical

consultant. Marketing of the TARRO tyre is done through an appointed

dealer network to sustain the market. We are hopeful of increasing sales

in the years ahead.

Increase in export volumes.Export

During the year under review, we were able to export three wheeler tyres,

precure tread liners and rubber compounds to Bangladesh , Turkey and

to the United Kingdom and hope to increase volumes gradually.



14

Group Companies

Associated Property Development Limited (APD)

In August 2005, we completed a new workshop for Eicher vehicles in Peliyagoda. This six bay complex capable of

handling the 10-wheeler truck category will greatly enhance the level of service that we can now offer our

customers.

We have planned to add another 26,000 square feet to our existing complex to cater to our growing needs. We

have already started construction and this new area is earmarked for an additional storage area for motor cycles

and outboard motors as well as a spares store and a training centre.

Exceptional year due to theunprecedented growth in demand

for Outboard Motors.

Associated Motor (Lanka) Company Limited (AML) -Yamaha Marine Products

There was an unprecedented demand for Outboard Motors, mainly driven

by foreign and local NGO purchases, to replace the units damaged by the

tsunami disaster. Due to the assistance of our Principals who gave us

priority in production allocations, and the groundwork that was laid by us in

the preceding years by establishing a strong dealer network throughout

the Island; we were able to obtain a major share of these orders.

12% increase in marketshare of cold process tyre

retreading by the AMW Group.

Associated Autoways (Pvt) Limited (AAW)

AMW Group enjoyed an overall increase of 12% in market share with

regard to Precure tyre rebuilding volumes. A satisfactory performance

within a highly competitive market environment.

Despite this achievement AAW’s turnover increase was marginal as

compared to the previous year. The primary factor influencing this drop

was the splitting of the overall revenue under its parent and AAW, following

AMW’s commencement of Precure operations in early 2005.

On a negative note, the Company was unable to revise prices due to high

raw material costs especially rubber and inflationary increases in other

direct expenses. This was largely due to our main competitor adopting a

‘rivalry strategy’ with primary focus on business volumes only, probably at

the sacrifice of margins.

Going forward, it is important that we seek possibilities of enhancing

capacity of the Company’s Plant and Machinery. Currently, AAW’s Plant

capacity utilization is approximately 90%. A line of action already taken

includes an additional investment of approximately Rs. 25 Mn to increase

‘Treadliner’ production capacity, along with enhancing tyre retreading

capacity.

In a separate development, our factory in Anuradhapura has decided to

migrate towards a more environmentally friendly management system with

a view of obtaining the ISO 14000 certification.



15

Associated Global Trading (Pvt) Limited (AGT)

The Company recorded a decrease in turnover over the previous year due to restriction in supplies.

During the year, we worked closely with our dealers, assisting those who

were directly affected by replacing their tools and equipment, refurbishing

their establishments and providing training in order to improve the required

after sales service to our customers. We also added another mobile

service vehicle to further strengthen our after sales service.

Together with our dealers we were able to extend an exceptional service

to our customers to return to their livelihood in the quickest possible time.


An impressive performance with the

expectation of expanding the

product range and the introduction

of new state-of-the-art Radial Tyres.

Associated Ceat Holdings Co. (Pvt) Limited (ACHL)

The Joint Venture CEAT Kelani Associated Holdings (Pvt) Limited,

recorded an impressive performance notwithstanding the labour issues

caused by the extended negotiations, which partially affected production.

The Company (ACHL) is expected to come up with much better results in

the future in view of the higher productivity agreement signed with the

union, higher demand and expansion of the product range with the

introduction of new state-of-the-art Radial Tyres.

31% increase in

export sales.

Associated Universal (Pvt) Limited (AUPL)

Export sales increased by 31% during the year under review. However,

the Company recorded a loss mainly due to the sharp escalation of rubber

prices, poor prices for the products in the first half of the year and an

unfavourable exchange rate. The rubber prices increased by 50% during

the period under review. The Company was able to negotiate a price

revision with the buyer only in January 2006 and together with in-house

value engineering exercises which recorded a significant cost saving, was

able to record profits in the final quarter of the year. It is hoped that the

Company would be able to record a profit in the year 2006/07.

Responsibility toShareholders

Proactive communication and a

good relationship is maintained with

the Company’s trusted and loyal

shareholders. The Company

welcomes their suggestions and

implements these suggestions

whenever possible. Rights of

shareholders are respected and

good corporate governance is

exercised. Quarterly and Annual

reporting on the Company’s and

Group’s performance is carried out

on a timely basis. Adequate notice

is given to shareholders and the

forthcoming Annual General

Meeting will provide an opportunity

for shareholders to seek

clarification and express their

views with regards the activities of

the Company and its financial

statements.


16

Human Capital

During the year we have paid

particular attention to training our

staff both locally and overseas in

technical, customer care and other

aptitude development areas which

has helped to further develop the

potential of our employees. We

consider investment in human

capital as an important and integral

part of corporate management by

the implementation of structured

programmes to ensure continuous

development and career

progression of our staff. The

Company continues to reward

long-standing service and strives

to sufficiently motivate its

employees by regular discussions,

welfare activities and other

participative activities.

Our Future Plans

It is a worldwide trend that major

motor vehicle distributors expand

its existing businesses to provide

leasing and related facilities to its

customers.

Currently approximately 60% of

our customers obtain lease

facilities to purchase motor cars

from AMW. These facilities are now

being provided by several Banks,

Leasing and Finance Companies.

Therefore, given the availability of a

captive market, it is viable for us to

leverage this opportunity to derive

several synergies. These include,

the integration of our motor division

to provide an ideal ‘One-stop-shop'

to our potential customers with

increased convenience and

immediate accessibility to finance

needs, within the same location. It

is also anticipated that satisfactory

returns could be derived once

commercial operations of this

Company commence during the

2nd quarter of the financial year

2006/07.

Our strategy is to provide a

supporting role to the existing

financial institutions already

extending leasing facilities to our

customer base.

The new Company, AMW Capital

Leasing Limited is already

established as a public unquoted

entity with an initial Capital of

Rs. 100 Mn and is currently

sourcing the preliminary

infrastructure necessary to

commence the business.

An MOU was signed with CEAT of

India to manufacture two-wheeler

tyres under the CEAT brand name

for the local market. The 1st phase

of this project is expected to


Rewarding long service

manufacture 9,000 tyres per month

and production will be gradually

increased to 25,000 tyres per

month during the next 18 months.

The budgeted investment for the

1st phase is approximately

Rs. 38 Mn.

In July 2006, to cater to our

growing customer needs, a new

specialized lubrication service

facility with a capacity to serve

100 units per day will be opened in

Rajagiriya in close proximity to our

new showroom.

To further enhance our

commitment to customer

satisfaction a custom designed

‘Yamaha City’ to provide an

excellent one-stop 3s facility will

be established in July 06 at

Darley Road, Colombo 02.

A new ten-storey facility would be

constructed at our Kitulwatte

property which would fully utilize

the available land at this location.

Four floors will be designed for

workshops/spare parts operations

and the remaining six floors will be

used for vehicle parking/storage.

The project is scheduled to

commence in the 2nd quarter of

2006/07 and is expected to be

completed within 15 months.

AMW & CEAT enter into a joint venture The late Deshabandu Patrick Pieris with our Yamaha sponsored team


17

In order to strengthen our market

presence islandwide, we intend

establishing a network of

showrooms in the main cities. The

showroom in Kurunegala was

established in December 2005

whilst the Matara facility will be

opened in July 2006. Other

potential locations have been

identified such as Kandy,

Ratnapura, Badulla and

Anuradahapura. We expect to

complete the proposed new

showrooms during the course of

the ensuing financial year.

The Yamaha Town which is a

Marina/Showroom concept is the

first of its kind in Sri Lanka and will

be based in Bentota with river

frontage. It will be a showroom not

only for the full range of Yamaha

marine products such as OBM's,

water vehicles and boats, but also

for other Yamaha products

including motor cycles, generators,

ATV's (all-terrain vehicles) and

spare parts. We are confident that

the investments made in this

respect will strengthen the Yamaha

brand name and enable us to take

advantage of the growth in the

tourism industry and the need for

related products and services.

Suzuki Motor Company in Japan

and Maruti Udyog Limited are

seriously evaluating the possibility

of establishing an assembly plant in

Sri Lanka to produce one or two of

the most popular models. We have

commenced preliminary

negotiations with the authorities in

pursuance of this project.

We are also exploring the

possibility of establishing a rubber

based automotive parts

manufacturing facility jointly with

Indian and Pakistani investors to

particularly take advantage of the

Free Trade Agreement with India

and Pakistan and also the

concessionary duties extended by

the European Union.

Appreciation

It is with much sadness we record

the passing away of Deshabandu

Patrick Peiris who joined the

Associated Motor (Lanka)

Company Limited Board

subsequent to his retirement from

Yamaha Motor Co. Limited Japan

where he served for nearly

21 years.

We are indebted to Patrick who

was instrumental in establishing a

strong foundation for the

distribution of Outboard Motors by

setting up an experienced

islandwide dealer network which

contributed to the unprecedented

growth of Associated Motor

(Lanka) Company Limited.

My Thanks

I would like to take this opportunity

to thank our valued customers who

helped us to achieve this year’s

phenomenal growth and maintain

our leadership position in the

industry. We are greatly indebted to

all our world renowned Principals,

very specially for continuing to

place their trust in us. We thank

them for supplying time tested


quality products and very specially

for their strong commitment to

support us in brand building and

training activities.

I am grateful to the Chairman and

the Board of Directors for their

guidance and unstinted support

and my very special thanks to all

our employees who have worked

tirelessly with unreserved

commitment and dedication.

Deshabandu Tilak de Zoysa

Deputy Chairman /

Managing Director

14th June 2006


18

Board of Directors

Ajita de Zoysa

Chairman of AssociatedMotorways Group ofCompanies since 1990.Mr. de Zoysa is the5th Chairman in theCompany's 57 yearhistory. Previously heserved as a Directorfrom September 1975 -August 1987 andthereafter as DeputyChairman. Mr. de Zoysahas held a series ofleadership roles in thefields of Manufacturing,Trading and Insurancebusinesses. He is alsothe Chairman ofAssociated ElectricalCorporation Limited,Union Bank of ColomboLimited, a Director ofCEAT Group ofCompanies, TrelleborgLanka (Pvt) Limited andRoyal Palm Beach HotelsLimited.

DeshabanduTilak de Zoysa

Deputy Chairman/Managing Director since1993 and has served onthe Board since 1980.Mr. de Zoysa is a Memberof the Monetary Board(of the Central Bank ofSri Lanka), Chairman ofCarson Cumberbatch &Company Limited, and isa Non-Executive Directorof several public quotedcompanies includingJohn Keells Limited,Taj Lanka Hotels Limited,Lanka Walltiles Limited &Nawaloka HospitalsLimited. He is theChairman of HelpAgeSri Lanka and a Trusteeof the Employers'Federation of Ceylon.Mr. de Zoysa has beenthe Past Chairman of theCeylon Chamber ofCommerce, NationalChamber of Commerce ofSri Lanka, Plastics &Rubber Institute andseveral TradeOrganizations, BilateralBusiness Councils andFriendship Societies. Hehas been the HonoraryConsul for Croatia inSri Lanka since 1999 andis the receipient of "TheOrder of the Rising Sun,Gold Rays with NeckRibbon" from the Emperorof Japan.

Upatissa Hulugalle

Director since 1989,Mr. Hulugalle wasappointed as ExecutiveDirector in 1990. He is aFellow of the Institue ofChartered Accountants ofSri Lanka and is one ofthe most senior membersof the professional body.Mr. Hulugalle was founderpartner of HulugalleWickramanayake & Co.,a firm of CharteredAccountants and hasbeen the advisor toseveral successfulbusiness magnates.

J B L de Silva

Mr. de Silva has servedon the Board since 1989.A lawyer by professionhe comes with substantialexperience in the RubberTrade and is the currentChairman of the ColomboRubber Traders’Association. He is theChairman of EasternMerchants Limited andalso serves on the Boardof Associated ElectricalCorporation and a host ofother non-listedcompanies.

H S A K Caldera

Mr. Caldera has beenassociated with theCompany for the last19 years and has been aDirector since 1996. Hewas appointed as DeputyManaging Director -Manufacturing in June2005. A professionallyqualified Engineer, heholds an MBA inManagement ofTechnology and is aFellow Member of theInstitute of Materials - UK,and the Plastics andRubber Institute ofSri Lanka. He is theChairman of theSri Lanka Association ofManufacturers andExporters of RubberProducts and the Presidentof the Tyre Retreaders'Association. He is alsothe President of thePlastics & RubberInstitute in Sri Lanka.Mr. Caldera serves inseveral AdvisoryCommittees representingthe Rubber ProductsManufacturing sector andis a member of theIndustry ConsultativeCommittee of theUniversity of Moratuwa.

G B R de Silva

A Fellow of the CharteredInstitute of ManagementAccountants, UK,Mr. de Silva has servedon the Board since 1995and was appointed asDeputy ManagingDirector - Motor in June2005. He counts 26 yearsof experience in Finance,Marketing andOperational Management.He is the Chairman of theTransport & Automobilesection of the NationalChamber of Commerceand Vice Chairman of theCeylon Motor TradersAssociation, and theImports Committee whichare affiliated to the CeylonChamber of Commerce.

Alastair J de A Abraham

Appointed Director -Commercial in July 1999,Mr. Abraham wasawarded a B.Sc. (Hons)Degree in 1968 inChemical Engineering bythe University ofManchester - U.K. Hiswork experience is over35 years and has been inthe Commercial andProduction fields withorganizations inSri Lanka, England andGermany.

Eric Abeysiriwardane

Served on the Boardsince 1998 as FinanceDirector and was laterappointed as ExecutiveDirector in June 2005.Mr. Abeysiriwardane is aFellow of the Institute ofChartered Accountants ofSri Lanka and is aBachelor of Arts andBachelor of Commerce ofthe University of Ceylon.He was a CouncilMember of the Institute ofChartered Accountants ofSri Lanka.

A R Peiris

Mr. Peiris holds aBachelor's Degree inScience from theUniversity of Ceylon,Peradeniya and is aMember of the CharteredInstitute of ManagementAccountants - UK. Hehas been a Director of theComapny since 1987 andhas been functioning asthe Chairman of the BoardAudit Committee from2001 to-date. He servedthe Petroleum Corporationfor 10 years in technical,planning & financedivisions and at the timehe left the Corporation in1979 was head of theRefinery FinanceDivision. Thereafter, hejoined a DevelopmentBank where he heldseveral senior positionsfor 24 years. Mr. Peirishas held Directorships inseveral reputed publiclisted and unlistedcompanies. He ispresently attached to alarge group of reputedcompanies as a full-timeConsultant.

Dinesh de Zoysa

Appointed to the Board inFebruary 2002,Mr. de Zoysa holds aBachelor of BusinessDegree from theUniversity of Technology,Sydney. He is the currentManaging Director ofAssociated ElectricalCorporation Limited andserves on the Board ofseveral non-listedFinancial/Insuranceservices and HRConsultancy companies.

Aswin de Silva

Finance Director sinceJune 2005, Mr. de Silva isan Associate Member ofthe Institute of theChartered Accountants ofSri Lanka and a FellowMember of the CharteredInstitute of ManagementAccountants - UK. Prior tojoining the AMW GroupMr. de Silva was a seniorbanker and counts over15 years experience inreputed foreign and localbanks. During this longassociation he wasresponsible for diversefunctions such asCorporate & RetailBanking.

Ashan de Zoysa

Mr. de Zoysa holds aBachelor of CommerceDegree from theUniversity of New SouthWales, Sydney and wasappointed as Director/Group General Managerin June 2005. Prior tojoining AMW he worked inthe fields of IT andDerivatives/CommodityTrading in Australia.Mr. de Zoysa serves onthe Board of AssociatedElectrical CorporationLimited.

Seated left to right:A R Peiris, Upatissa Hulugalle, Ajita de Zoysa,Deshabandu Tilak de Zoysa, Eric Abeysiriwardane,Alastair J de A Abraham

Standing left to right:H S A K Caldera, Aswin de Silva, Ashan de Zoysa,Dinesh de Zoysa, J B L de Silva, G B R de Silva


20

Senior Management Team

Sivaji de Zoysa

Appointed as Personal Assistant to the Deputy Chairman/

Managing Director in 1992, Mr. de Zoysa was appointed

as General Manager for the Goodyear tyre business in

1995. In 1999 he was instrumental in introducing British

Petroleum to Sri Lanka. He functions as General Manager

of Goodyear/BP and new business development/projects.

Prasanna Lenaduwa

A Fellow of the Chartered Institute of Management

Accountants - UK, Mr. Lenaduwa has been associated

with the Group since 1987. He was appointed as

Director/General Manager of Associated Rubber

Industries Limited and presently handles commercial

activities of Associated Universal (Pvt) Limited.

Ms. Dilani Yatawaka

A Fellow Member of the Institute of Chartered Accountants of

Sri Lanka and an Associate Member of the Chartered Institute

of Management Accountants - UK, Ms. Yatawaka has been

with the Company since 1998 and functions as the General

Manager - Finance. She was appointed as a Director of

Associated Motor (Lanka) Co. Limited in June 2005.

They lay down strategy and give direction to drive enterprise throughout the Group

Ajita de Zoysa, Tilak de Zoysa, U Hulugalle, A J de A Abraham, E Abeysiriwardena, H S A K Caldera, G B R de Silva, Aswin de Silva and

Ashan de Zoysa who are Directors of the Company are members of the Senior Management Team. The others are...

Left to right: Prasanna Lenaduwa, Sivaji de Zoysa, Ms. Dilani Yatawaka

Left to right:

Shehann de Zoysa,

Erantha Fernando,

Shivantha de Zoysa,

Mevan Pieris


21

Senior Management Team

Mevan Pieris

A Chartered Chemist and Fellow of the Institute of

Chemistry - Ceylon, Mr. Pieris holds a Masters Degree in

Polymer Rubber Technology and an MBA Merit Degree

and Merit Award from the Postgraduate Institute of

Management. He is the General Manager, Research &

Development and Director/General Manager of

Associated Universal (Pvt) Limited and is a recipient of a

Gold Medal in Rubber Technology for Excellence at the

Licentiateship examination of the Institute of Rubber

Industry - UK. Mr. Pieris is a former President of the

Plastics and Rubber Institute and President of the Institute

of Chemistry.

Shivantha de Zoysa

Mr. de Zoysa joined AMW in 1994 and initially worked in

the Spares Division and thereafter in 1996 moved to the

New Vehicle Sales Division. A qualified Pilot with an

Airline Transport Pilot's Licence from Oxford Air Training

School - UK, he is currently the General Manager

(Sales & Marketing) for the Brand New Vehicle Division.

Ms. Deepthi Kumarasinghe

Ms. Kumarasinghe has been with the Group since 1984

and is the Company Secretary of the Group. She is an

Attorney-at-Law by profession. She serves as the

Secretary to the Audit Committee and is an active member

of the CSR - Employee Development Group.

Yohann de Zoysa

Deputy General Manager in charge of AMW’s fast growing

Yamaha, Eicher and certified vehicles business,

Mr. de Zoysa, joined AMW in 1998. He holds a Degree in

Business Administration from Washington College, USA

and was previously employed at YUASA EXIDE INC, USA.

Erantha Fernando

Having joined the Company in 1991, Mr. Fernando

presently functions as Senior General Manager,

Finance - Factories. He is an Associate Member of the

Chartered Institute of Management Accountants - UK and

has 16 years post-qualifying experience in Financial and

Management Accounting. Mr. Fernando was appointed a

Director of Associated Autoways (Pvt) Limited in

June 2005.

Ananda Jayasuriya

Senior General Manager of the Pallekelle Factory,

Mr. Jayasuriya is well qualified in maintaining

ISO 9000 quality standards and is qualified in the field of

Rubber Technology and Chemical/Industrial Engineering.

He has been with the Company since 1982.

Shehann de Zoysa

Mr. de Zoysa joined AMW in 2002 and is currently Deputy

General Manager in charge of Associated Motor (Lanka)

Co. Limited, which represents the fast growing Yamaha

marine products as well as its power product range.

Mr. de Zoysa holds a degree in Economics from

Washington College, USA and was previously employed

by Universal Polymer and Rubber Co. Limited (USA) and

Yamaha Motor Co. Limited (Japan).

Left to right: Ms. Deepthi Kumarasinghe, Yohann de Zoysa, Ananda Jayasuriya

Technology fired by passion and innovationbuilds products with good looks andgreat performance

Technology


23

Keys to Delivering Class

Channels of Quality and Class

Building upon our five pivotal point

base for sustainable growth, we

place before you the Company’s

keys to delivering class - our

products, distribution channels,

after sales service, our people,

infrastructure development and the

invaluable backing we receive from

our internationally renowned

principals.

Our Principals

Over many years, AMW has

enjoyed mutually rewarding

relationships with world renowned,

blue-chip principals. The support

we receive from them is extremely

substantial and sustained. Their

strength and global experience

have contributed significantly in our

quest for increased market share

and the capacity to attract and

retain customers in a competitive

business environment.

We are in the happy position of

enjoying relationships with our

principals that yield ample

opportunities for discussion,

knowledge and experience sharing

with a view to improving the quality

of the products and services

offered. Our principals partner us

fully in training, brand building and

other awareness creating/sustaining

activities, which in turn, help the

Company sustain and strengthen its

presence in the market-place.

An equation that leads us into the

next segment of this feature runs

thus: “Blue-Chip Principals =

Blue-Chip Products and Services”.

Our Products, DistributionChannels and After SalesService

Captured in this section is a

fundamental business progression

that takes top quality products

through the most efficient

distribution channels to reach a

wide clientele who thereafter have

ready access to state-of-the-art

after sales service.

Our Products

Steeped as we are in the motor

industry, our product portfolio is

driven by some of the world’s most

sought after brands.

Our association with ‘Nissan’

dates back to 1957. From small

beginnings, this partnership has

now grown to become an absolute

powerhouse within the motor

industry of Sri Lanka. Nissan

boasts a product range, which has

catered to the needs of thousands

of customers and possesses the

ability to attract many more in the

future as well.

The best-known brand in India for

several years has been ‘Maruti’,

with a phenomenal growth in

Discussions with some of ourPrincipals - Clockwise fromupper left - Eicher, Nissan,Yamaha & Suzuki


24


customer attraction, retention and

loyalty. Maruti dominates

Sri Lanka’s new passenger vehicle

market providing an adequate and

optimum mix of durability and

affordability. The advent of

‘Suzuki’ to our product range has

further enhanced our customer

reach with the offer of another

world-class range of vehicles. In

fact, the Wagon-R was the highest

selling car in Japan during 2005-06.

Amongst car distributors in Europe,

‘Renault’ holds a pivotal position,

being the No. 1 seller in many top

Euro markets. Renault also enjoys

tremendous success in the

Formula 1 Championship circuit.

With regard to the ‘Yamaha’ range

of motor cycles we represent in

Sri Lanka, they offer sought after

technical superiority coupled with

several eye-catching designs,

which cater to most segments of

the two-wheel market. World-class

‘Yamaha’ Outboard Motors provide

safe and reliable maritime mobility

in a vital area of enterprise in

Sri Lanka. Yamaha has become an

ideal partner to a large community

in our Island.

We also represent ‘Eicher’ heavy

vehicles, which has become the

fastest selling truck in South Asia.

The superior quality ‘BP/Castrol’

range of lubricants has fast

become a household name both

locally and internationally. Our

representation of this Fortune 500

Company, introduces valuable

synergies within our Motor division.

AMW is the sole distributor of

‘Goodyear’ tyres in Sri Lanka.

Goodyear is the pioneer pneumatic

tyre manufacturer in the world, and

offers a high calibre, technically

superior product range. We also

represent ‘Piaggio’ the world’s

pioneer in the three-wheeler motor

vehicle category. This utility vehicle

lends us an opportunity of market

penetration within this segment for

the future as well.

From a manufacturing perspective,

our plant in Kalutara could be

considered the live wire of rubber

and related products in Sri Lanka.

Over the years, the factory has

rebuilt, produced new tyres and

exported a range of custom

compound and rubber related

products. The infrastructure within

this division also involves joint

ventures with partners from the

USA, Malaysia, and India.

Our products provide us the

necessary foundation of corporate

stability and the ability to reach the

hearts and minds of a diverse

populace in our country. They are

essential ingredients in our quest to

continually meet the expectations

of AMW’s wider stakeholder

fraternities. Our financial

performance stands testimony to

this fact. Our products will become

the cornerstone of our attempts to

reach beyond, to new horizons in

the years ahead.

Distribution Channels

Bringing a superior portfolio of

products and services to the

widest possible customer base is

challenging in itself. To this end, we

consider our dealers as vital

partners in the supply chain.

AMW continues to expand its

dealer network for both services

and spares including 5S certified

dealers. The Company also

conducts special programmes and

campaigns, including service

campaigns, to reach customers

residing beyond city limits.

We provide a wide range of

marketing support including training

to our dealers, which in turn, has

enabled many of them to establish

Products to the customerdoorstep...

The best, the most skilled, the most learned….true professionalism at work

Professionalism


26


lucrative businesses and achieve

“leading business house” status in

their respective areas.

The Company also operates a

door-to-door delivery service to

our dealers, whereby they may

enjoy the advantage of receiving

their product requirements in a

timely manner.

We support and motivate our

dealers with structured

programmes to inform and educate

them on product information,

technological advances and any

other relevant information that will

aid them in their dialogue with

customers. Annual dealer

conferences are key in this regard;

top achievers are also recognized

and rewarded for their valuable

contribution at these conferences.

Our dealers throughout the island

are key players in the Company’s

distribution channel and help to keep

our Brands highly visible and within

easy reach of our end customer.

After Sales Service

From well-equipped and

technologically advanced service

facilities to a comprehensive

inventory of genuine spare parts

and accessories which are made

available islandwide through our

dealer network, AMW customers

are exposed to one of our keys to

delivering class - everyday.

The Company also operates a

24-hour operational recovery

service for breakdowns and a

service facility that accepts all

makes of vehicles at the Pitstop.

Our People

The best of strategies, the most

advanced products and technology

will lie fallow without the human

touch.

This is why we firmly believe that

our family of employees across

every business unit of the

Company is the key variable in

delivering value and class to the

customer.

From initial recruitment through a

selective and target oriented

process to final graduation as a

fully trained member of the AMW

family, our employees are imbued

with training, firstly to understand

and embrace the direction and

expectations of the Company in

terms of its business and then to

acquire and develop the necessary

skills to support a blue-chip

portfolio.

AMW receives invaluable support

from our principals through

overseas training opportunities

extended to our staff in Technical

as well as Marketing areas.

1. Our Deputy Chairman/Managing Director, DeshabanduTilak de Zoysa being felicitated by His Excellency Akio Suda,Ambassador of Japan

2. Presentation of certificates to employees who completed thecustomer service training programme

3. The Maruti team with Mr. J Khattar, Managing Director of MarutiUdyog Limited at the Autoexpo 2006, New Delhi, India

4. Participants at Nissan Dealer Conference

5. Our Round-the-Clock Service Truck

11111 22222

44444 55555

33333


27


Also in collaboration with our

principals, the Company conducts

many activities and initiatives on a

continuous basis, to develop and

unleash the potential of our

employees in order to help them

realize their full capabilities. That

these measures are on the right

track is borne out by the positive

performance of most business

units during the year under review.

In a significant achievement, our

Deputy Chairman/Managing

Director, Deshabandu

Thilak de Zoysa was conferred

‘The Order of the Rising Son, Gold

Rays with Neck Ribbon' from the

Emperor of Japan in recognition of

his outstanding contribution for the

development of trade and other

international relations between

Sri Lanka and Japan.

Infrastructure Development

The Company made structured

investments into capital intensive

projects which specifically cater to

growing business opportunities as

well as those that enhance

customer convenience and

expectation and ensure desired

visibility in the market-place.

Tangible manifestation of such

investment is to be found in our

uniquely designed, state-of-the-art

Suzuki/Maruti Showroom, which

has significantly enhanced brand

visibility and perception. This has

helped both Maruti and Suzuki to

acquire a new sense of identity and

appeal in the competitive market-

place.

In support of the growing sales of

Yamaha motor cycles, AMW working

along the lines of a recommendation

from our principals, has mooted

“Yamaha Town” - a new concept in

brand building and product and

service accessibility. We propose to

provide all activities such as sales,

spare parts and service to Yamaha

customers under one roof.

Another exciting project that has

just entered the first phase of

construction is a Marina - a water

sports haven, the final phase of

which we hope to complete early

next year.

With regard to existing

infrastructure, the Company

recognizes the need to further

expand its workshop facilities and to

this end, several expansion projects

are in the pipeline for next year.

AMW remains committed to its

“keys to delivering class”. To us,

this remains an exciting and highly

motivational aspect of business. It

is vital in maintaining a competitive

edge in the market-place; it is a

differentiating concept that makes

AMW, our principals, employees,

dealers and ultimately our

customers, what we are -

custodians and owners of the

products and services of real

class.

Futuristic; Aesthetic.... ournew Maruti/Suzuki Showroomin Borella


28

1

2

85

7

11

9

106

4 3

Functional Managers

Trading

1. Dil WarnakulasuriyaAGM/Marketing - Nissan &

Maruti

2. Ifham MohamedBusiness Development Manager

- BP/Goodyear

3. Reginald HayzerSales Manager - Renault

4. Pradeep WijeratneMarketing Manager/Nissan

5. Ranil de SilvaSales Manager/Eicher

6. Virann de ZoysaBusiness Development Manager

7. Hema de ZoysaSnr. Marketing Manager/Maruti

8. Suneth SudasingheSales Manager/Piaggio

9. David WeerasingheAGM/Moped/AGT

10. Ruwan PereraMarketing Manager/

Outboard Motors

11. Gajaba de SilvaMarketing Manager/Yamaha

Our “team leaders” - our “playmakers” who enthuse the AMW familyto score goals


29

Functional Managers

Spares & Services

1. Shantha PereraParts Controller/Nissan

2. Ananda PereraParts Manager/Yamaha

3. Mahen de SilvaSnr. Service Manager/Nissan

4. Chinthaka RanaweeraService Manager/

Outboard Motors

5. Senaka JayasekeraService Manager

6. Sanath GamageService Manager/

Yamaha Motor Cycles

7. Daya de SilvaService Manager/

Accident Repair

8. Waruna DahanayakeParts Manager/Maruti

9. Anura AbeygoonaratneService Manager/

Diesel & Heavy Veh.

10. Dushantha AbeysingheService Manager/Maruti

11. Nilantha NanayakkaraAssistant Parts Manager/

Outboard Motors

8 2 4 611

93

15107


30

Manufacturing Operations

1. Mahen AdihettySnr. GM/Marketing

2. Bandula JayasuriyaDGM/Supplies - Factories

3. Kosala WijesingheDGM/Manufacturing &

Engineering

4. Ms. Yugantha PiyadasaSnr. Manager/Quality Assurance

& Development

5. Chandra WeeramanthrySnr. Manager/Personnel &

Administration - Factories

6. Premalal PereraFactory Manager/AUPL

7. Wimal WijendraAGM/AAW

8. P P PereraDGM/Technical & Exports

Functional Managers

6 75 2

4

3 81


31

Support Services

1. Leo SamsonHuman Resources Manager

2. Chaminda SampathDGM/Finance

3. Ranjit de A RajapakseGM/Supplies

4. Marcus LiyanagePersonnel Manager

5. Krishan NadesapillaiGM/Information Technology

6. Ms. Parami MalawanaLegal Officer

7. Ms. Janaki JayasingheSnr. DGM/Commercial

8. Royce FernandoDGM/Insurance

9. Ms. Nirmala GoonewardenaGroup Internal Auditor

10. Ms. Dayani de SilvaCompany Secretary/

AMW Capital Leasing Limited

Functional Managers

2 6 4

3

7 58

101

9

Our co-ordinates on the map of thefuture….focussing on efficiency and growth

Positioning

Capital Expenditure

30.264.8

Rs. Mn

63.2 50691.6

02 03 0604 05

Proposed OBM Marina


33

Widening the Core

An integral part of AMW’s identity is

to be found not only through its

business positioning but through

the incorporation of its socio-

environmental positioning within

core business activities. Thus,

AMW’s business is consonant with

a continuous drive to enhance,

enrich and protect the society and

environment within which we

operate.

The Company thus places

emphasis on three broad

categories of endeavour -

Employee Development,

Community Development and

Environmental Initiatives.

Employee Development

Concerted efforts were made to

improve the quality of life of our

employees through planned

interventions targeting their

physical and social well-being.

Health check programmes were

arranged for all grades of

employees through reputed

medical establishments.

During the year the Company

signed a Memorandum of

Co-operation with the International

AMW’s business is consonant with a continuous drive to enhance,enrich and protect the society and environment

Labor Organization (ILO) for a

HIV/Aids awareness programme

amongst factory employees. A

residential training programme for

factory management was

undertaken by the ILO in this

regard.

Support and recognition was

extended to employees whose

children achieved success in their

respective areas of education.

Financial grants were awarded to

children who passed the Year 5

scholarship examination and

financial and non-financial awards

were bestowed upon children who

excelled in education, sports and

other areas of development.

Exercise books, uniforms and

shoes were distributed to children

of employees on a most needed

basis.

Another highlight during the year

was the launching of a structured

programme to support the

differently abled children of our

employees. In this endeavour we

hope to assist our fellow brothers

and sisters by providing them the

much needed assistance and

comfort in their hour of need.

Traditional recreational activities

such as sports events and family

get-togethers are annual events in

the Company’s calendar and serve

to foster unity and team building

amongst all employees.

Community Development

The Company selected

communities to whom support was

extended in the fields of education,

training, and upliftment of quality of

life in general. Education is

considered an important area for

development, as we believe the

support extended will eventually

benefit the community at large

through greater literacy rates and

better employment opportunities

whilst providing a foundation for an

educated society.

During the year, two additional

schools were identified, and

support was extended in various

forms. School uniforms and shoes

were presented to the students of

Siri Sariputta Maha Vidyalaya

situated at Slave Island,

Colombo 02. In addition, a

sponsorship package for the

school’s Annual Sports meet was

donated in response to a request

1. Health checks in progress

2. Presenting school uniformsand footwear to students

11111 22222


34

Widening the Core

made by the Principal of the

school. Bollywood film actor

Mr. John Abraham, who visited us

as the Yamaha Brand ambassador,

patronized this event and made the

presentation on behalf of the

Company.

Huluganga Muslim Maha Vidyalaya

situated 20 miles off Wattegama

town was identified as yet another

school needing assistance. The

construction project carried out to

provide basic sanitary facilities was

successfully completed during the

year.

This year too the Company

continued to assist the Ranna

Kahandawa Junior School situated

in Kahandawa in the Hambantota

District. On a request made by the

school, a set of oriental music

instruments, a public address

system, furniture and a computer

were donated by the Company.

We will continue to uplift the

standards of these three schools

whilst paying particular attention to

the well-being of the students. It is

our hope that through our efforts,

the basic facilities that these

schools lack will be developed in

order to provide the children a

sound educational environment.

Our commitment to offer training to

trainees of the National

Apprentices Industrial Training

Institute, the Automobile Training

Institute and the Technician

Training Institute continues with

great enthusiasm and interest.

During the year, we were

presented with an award by the

National Apprentices Industrial

Training Institute for the significant

contribution made in the field of

training. The Company also

supports Government vocational

training programmes such as the

Tharuna Aruna Programme.

During the year, the Company

sponsored the Gold Medal

awarded to the best student

following the course of instruction

for the Master of Business

Administration in Management of

Technology conducted by the

Faculty of Engineering of the

University of Moratuwa. This

award was approved by the

University Grants Commission and

has been titled the Chulaka de

Zoysa Memorial Gold Medal.

This year too the annual blood

donation campaign was held and a

number of employees rallied round

to support this worthy cause.

Fourteen surgical beds were

donated to the Katugahahena Rural

Hospital in Matugama on a request

made by the Medical Officer of the

Hospital.

In relation to social, cultural and

religious activities the Company

continues to extend its support and

sponsorship to the National Vesak

Festival and the Nawam Perahera.

The Visaka Orphanage situated in

Kalutara, which was founded by

the late Sir Cyril de Zoysa, was

given a new look through an

interior/exterior paint job and

general maintenance work carried

out in the building. In addition, a

health camp and awareness

programme was conducted on

health & care for the inmates of the

orphanage.

Direction boards, Police Post units

and street name boards were

supplied for various cities, roads

and places of national importance.

A structured programme was

launched during the year to provide

direction boards to the Galvihara,

Polonnaruwa and the Samadi

Pilimaya.

Assisting the Ranna Kahandawa Junior School, Hambantota AMW wins NAITA award for training Donating hospital beds to Katugahahena Rural Hospital


35

Widening the Core

Environmental Initiatives

A number of activities were carried

out in support of the Company’s

overall commitment to the

protection of the environment.

Trial runs were made during the

year on the new Piaggio three

wheeler which runs on LP gas.

Once operational, this vehicle will

make a significant impact on air

pollution levels through its cleaner

fuel source, LP gas.

Manufacturing processes carried

out at our three factories in

Kalutara, Pallekelle and

Anuradhapura are certified under

ISO 9001:2000 and during the year

steps were taken towards

obtaining the ISO 14000

Environmental Management

System Certification. This initiative

was driven by the attempt to make

all manufacturing plants non-

harmful to the environment. The

Company’s Environmental Policy is

guided by the ISO 14000

requirements, and we strive to

comply with other environmental

statutory regulations and promote

our concern for public well-being.

Much progress has been made at

the Pallekelle and Anuradhapura

factories and work has

commenced in the Kalutara factory

as well. We believe the process will

educate employees on the

necessity to protect the

environment and to encourage

them to show their continued

commitment to care for the

environment.

Garbage bins with symbolic logos

and messages were placed in key

locations that included places of

religious worship, schools and

hospitals.

Tree planting campaigns were

carried out both in and outside the

factories. Upon a request made by

the Kalutara Urban Council, the

Company has undertaken to up-

grade and maintain the children’s

park at the Kalutara Town Hall

premises, which is the only public

children’s park located in the

Kalutara city.

A project to educate wildlife

enthusiasts was commenced

during the year through the

construction of an environmental

library situated at the Wilpattu

National Park. The environmental

library once completed will provide

the much needed reference

material regarding wildlife in the

reserve for environmentalists and

enthusiasts who visit the park.

AMW sponsored name and directional signage Binning litter - courtesy AMW


36

Date of Incorporation:

10.02.1983

Corporate Status:

Public Limited

Liability Company

AMW Shareholding in

the Company:

2,845,230 90.09%

Directors:

Ajita de Zoysa

Tilak de Zoysa

U Hulugalle

N P Lenaduwa

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Ashan de Zoysa

(Appointed as

Director w.e.f.

07.06.2005)

A J de A Abraham

(Alternate Director

to Ajita de Zoysa)

AssociatedPropertyDevelopmentLimited


26.11.1962

Corporate Status:

Public Limited

Liability Company

AMW Shareholding in

the Company:

638,523 60.2%

Directors:

Ajita de Zoysa

Tilak de Zoysa

N P Lenaduwa

Ranjith Jayawardene

Saroj Perera

Anomal Abeysekera

T Tsuji

T Sakai

Associated YuasaBatteries (Lanka)Limited


30.03.1979

Corporate Status:

Public Limited

Liability Company

AMW Shareholding in

the Company:

9,993 99.93%

Directors:

Ajita de Zoysa

Tilak de Zoysa

U Hulugalle

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Ashan de Zoysa

(Appointed as

Director w.e.f.

07.06.2005)

A J de A Abraham

(Alternate Director

to Ajita de Zoysa)

Associated Travels& Tours Limited


12.01.1959

Corporate Status:

Public Limited

Liability Company

AMW Shareholding in

the Company:

1,885,772 69.84%

Directors:

Ajita de Zoysa

Tilak de Zoysa

U Hulugalle

N P Lenaduwa

H S A K Caldera

T Inoue

A J de A Abraham

(Alternate Director

to Ajita de Zoysa)

AssociatedRubber IndustriesLimited


11.03.1985

Corporate Status:

Public Limited

Liability Company

AMW Shareholding in

the Company:

2,299,993 95.8%

Directors:

Ajita de Zoysa

Tilak de Zoysa

G B R de Silva

H P G E Peiris

(Deceased on

07.05.2005)

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Ashan de Zoysa

(Appointed as

Director w.e.f.

07.06.2005)

Dilani Yatawaka

(Appointed as

Director w.e.f.

07.06.2005)

A J de A Abraham

(Alternate Director

to Ajita de Zoysa)

Associated Motor(Lanka) CompanyLimited

Group Structure


20.12.1999

Corporate Status:

Private Limited

Liability Company

AMW Shareholding in

the Company:

2,600,010 50%

Directors:

Ajita de Zoysa

Tilak de Zoysa

H S M Pieris

H S A K Caldera

(Alternate Director

to Ajita de Zoysa)

S D de Zoysa

(Alternate Director

to Tilak de Zoysa)

N P Lenaduwa

(Alternate Director

to H S M Pieris)

Dennis L Raney

Roland H Bauer

Joe Colebank

James McCready

(Alternate Director

to D L Raney )

Terrance O’Rourke

(Alternate Director

to Roland H Bauer)

David Langtry

(Alternate Director

to Joe Colebank)


08.12.1992

Corporate Status:

Private Limited

Liability Company

AMW Shareholding in

the Company:

100 99.9%

Directors:

Ajita de Zoysa

Tilak de Zoysa

U Hulugalle

A J de A Abraham

E Abeysiriwardane

H S M Pieris

N P Lenaduwa

H S A K Caldera

G B R de Silva

S M de Zoysa

S C de Zoysa

Ms. D D

Kumarasinghe

Y T de Zoysa

Ms. D Yatawaka

E P A Fernando

A M Jayasuriya

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Ashan de Zoysa

(Appointed as

Director w.e.f.

07.06.2005)

S D de Zoysa

(Appointed as

Director w.e.f.

18.05.2006)

AssociatedMotorwaysManagements(Private) Limited


06.01.1999

Corporate Status:

Private Limited

Liability Company

AMW Shareholding in

the Company:

3,684,211 36.84%

Directors:

Ajita de Zoysa

Tilak de Zoysa

P K Chowdhary

O Braganza

K J Rao

(Appointed w.e.f.

03.01.2006)

S Tamhane

(Appointed as

Alternate Director to

K J Rao w.e.f.

25.01.2006)

K K Paul

(Resigned w.e.f.

03.01.2006)


16.03.1992

Corporate Status:

Private Limited

Liability Company

AMW Shareholding in

the Company:

2,745,350 79.96%

Directors:

Ajita de Zoysa

Tilak de Zoysa

K L Goh

U Hulugalle

H S A K Caldera

Ashan de Zoysa

E Abeysiriwardane

(Resigned w.e.f.

07.06.2005)

H S M Pieris

(Resigned w.e.f.

07.06.2005)

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Erantha Fernando

(Appointed as

Director w.e.f.

07.06.2005)

A J de A Abraham

(Alternate Director

to Ajita de Zoysa)

AssociatedAutoways (Private)Limited


24.02.2000

Corporate Status:

Private Limited

Liability Company

AMW Shareholding in

the Company:

400,000 99.9%

Directors:

Ajita de Zoysa

Tilak de Zoysa

G B R de Silva

A J De A Abraham

E Abeysiriwardane

(Resigned w.e.f.

07.06.2005)

Ashan de Zoysa

(Appointed as

Director w.e.f.

07.06.2005)

Aswin de Silva

(Appointed as

Director w.e.f.

07.06.2005)

Associated GlobalTrading (Private)Limited

AssociatedUniversal (Private)Limited

Associated CeatHoldings Company(Private) Limited

SUBSIDIARYCOMPANIES

ASSOCIATECOMPANIES

JOINTLYCONTROLLED

ENTITIES

ASSOCIATED MOTORWAYS LIMITED


38

Corporate Governance

A foundation of a sound and

acceptable Corporate

Governance, would essentially

involve strong organisational

controls and decision-making

procedures, in order to:

a) Monitor, assess, and initiate

appropriate action with regard

to all external and operational

risks affecting the businesses

of the Company.

b) Safeguard the Assets of the

Company and

c) Enhance Stakeholder value.

The Board of Directors

The Board of Directors of the

Company is inter-alia responsible

for ensuring best practices of

Corporate Governance and

Compliance of all legal and ethical

standards. These include the

standards outlined by The Institute

of Chartered Accountants of Sri

Lanka, The Colombo Stock

Exchange, along with other

regulatory bodies.

Salient responsibilities of the Board

include:

Identifying, implementing, and

monitoring key business

growth opportunities of the

group of companies.

Goal setting and performance

monitoring for each functional

area of the group.

Review and analyse financial

budgets of each area of

activity.

Discuss, review and approve

business strategies presented

by Functional Heads.

Implementation of control

procedures and compliance

standards to meet all internal

and Regulatory requirements.

Review and approve monthly,

quarterly and annual accounts

and recommendation of final

dividend payouts for approval

by the Shareholders.

Evaluate, monitor, and take

appropriate action on

operational and commercial

risks affecting the Company

businesses.

The Board of Directors meet

regularly with meetings chaired by

the Chairman, with constructive

discussions amongst the

participants.

The routine operations are under

the purview of the Board of

Management of the Group. The

Board of Management, which is

headed by the Chairman, includes

Deputy Chairman/Managing

Director, Executive Directors and

Heads of all business units. The

primary objective of this Board of

Management is implementation and

management of goals and targets

formulated by the Board of

Directors.

Risk Management

The management of commercial

and operational risks primarily

rests with the Board of Directors

and Board of Management of the

Group. Compliance to legal

requirements and application of

sound internal controls and

systems are the necessary tools

used to monitor and evaluate the

levels of risks involved.

All investments in projects,

ventures and capacity expansions,

reconstruction of existing

operations are adequately reviewed

by the Board of Management and

appropriately submitted to the

Board of Directors for approval.

Internal Controls andCompliance

The Group Internal Auditor under an

Executive Director heads the

Internal Audit function. All functions

of the Group are subjected to a

regular review by Internal Audit with

periodic reports on observations and

findings presented to Functional

Heads. Following a detailed

discussion, these findings are

presented to the Audit Committee for

formalisation of appropriate remedial

action. The Internal Audit

Department works totally

independent of the management of

all the other functions.

The Company operations and

activities are in conformity to all

Regulatory guidelines and

applicable legal framework. The

Company is in compliance of

operational ethical standards and

generally acceptable practices.

FINANCIAL REPORTS

Report of the Directors 40

Directors’ Responsibility for Financial Reporting 42

Audit Committee Report 43

Report of the Auditors 44

Income Statement 45

Balance Sheet 46

Statement of Changes in Equity 47

Cash Flow Statement 48

Significant Accounting Policies 50

Notes to Financial Statements 57

Report of the Directors

The Directors present their Report for the year ended 31st March 2006 together with the Audited Balance Sheet,

Income Statement and Consolidated Financial Statements of the Group for the year under review.

Review of the year

The Chairman’s and the Deputy Chairman’s messages highlight the Company’s performance during the year and the Group

affairs as at 31st March 2006.

Profits and Appropriations

Group CompanyFor the year ended 31st March 2006 2005 2006 2005

Rs. '000 Rs. '000 Rs. '000 Rs. '000

The profit before taxation amounted to 825,953 383,845 596,456 333,761

Taxation (246,428) (92,190) (160,058) (79,068)

The balance of profit after taxation amounted to 579,525 291,655 436,398 254,693

From which the amount attributable to

minority interest has to be adjusted (7,634) (2,718) – –

Leaving a balance of 571,891 288,937 436,398 254,693

And to this is added the balance brought forward

from previous year 155,696 97,667 102,941 79,157

Resulting in profit available for appropriation of 727,587 386,604 539,339 333,850

The amount available has been appropriated as follows:

Interim dividend on 8,242,369 Ordinary Shares

- (2003/04 - 1st Interim Dividend of 10%) – (8,242) – (8,242)

- (2004/05 - 1st Interim Dividend of 12.5%) – (10,303) – (10,303)

- (2004/05 - 2nd Interim Dividend of 7.5%) (6,182) (6,182)

- (2005/06 - 1st Interim Dividend of 25%) (20,606) (20,606)

Final Divdend on 8,242,369 Ordinary Shares

- (2003/04 - 15%) – (12,364) – (12,364)

- (2004/05 - 20%) (16,485) (16,485)

Transfer to Revenue Reserves – (200,000) – (200,000)

Unappropriated balance carried forward 684,314 155,695 496,066 102,941

Corporate Governance

The Directors are responsible for the Governance of the Company including the internal financial controls. The Directors are

of the opinion that the Company has an effective internal control system. There are nine Executive Directors and three

Non-Executive Directors. They are provided with timely and relevant information so that they are briefed on all matters arising

at Board Meetings thus ensuring that they make effective contributions to the Board deliberations.

In addition, the Directors of Associated Motorways Managements (Pvt) Limited, deliberate the working of all the divisions

within the Group in detail. The Board of Directors of Associated Motorways Managements (Pvt) Limited, consists of

working Directors and senior executives of the Group.

Statutory Payments

All known statutory payments have been made by the Company.


40


41

Post Balance Sheet Events

No circumstances have arisen since the Balance Sheet date which would require adjustments to or disclosure in the

Financial Statements other than those disclosed in Note 35 to the Financial Statements.

Going Concern

The Board is satisfied that the Company will continue its operations in the foreseeable future. For this reason, the Company

continues to adopt the going concern basis in preparing the Financial Statements.

Directors

Messrs. J B L de Silva, A R Peiris and D A de Zoysa retire by rotation in accordance with the Articles of Association and being

eligible, offer themselves for re-election.

Mr. U Hulugalle was appointed as Executive Director/Corporate Affairs, Mr. G B R de Silve as Deputy Managing Director/

Motor, Mr. H S A K Caldera as Deputy Managing Director/Manufacturing and Mr. Ashan de Zoysa as Director/Group

General Manager with effect from 7th June 2005.

Mr. Eric Abeysiriwardane resigned as the Finance Director and was appointed as the Executive Director. w.e.f. 15th June 2005.

Mr. Aswin de Silva was appointed as the Finance Director w.e.f. 15th June 2005.

Directors' Interests in Contracts

The Directors’ Interests in contracts with the Company are stated in Note 36 to the accounts.

Dividends

The Board of Directors has recommended a final dividend of 50% amounting to Rs. 41,211,845/-, in addition to the 25%

interim dividend already paid.

Donations

Donations amounting to Rs. 4,132,417/- were made during the year under review.

Appointment of Auditors

Messrs. Kreston MNS & Co. have expressed their willingness to continue in office as Auditors of the Company for the year

ending 31st March 2007. A resolution pertaining to their reappointment and authorizing the Directors to determine their

remuneration will be proposed at the Annual General Meeting.

By Order of the Board

Ms. D Kumarasinghe

Company Secretary

14th June 2006

Report of the Directors


42

The Financial Statements are prepared in conformity with generally accepted accounting principles and the Accounting

Standards laid down by the Institute of Chartered Accountants of Sri Lanka. The Financial Statements reflect a true and fair

view of the state of affairs of the Company and the Group as at 31st March 2006 and provide the information required by the

Companies Act No. 17 of 1982. The Financial Statements have been prepared on the going concern basis as the Board is

satisfied that the Company will continue its operations in the foreseeable future.

The Board of Directors has instituted an effective and comprehensive system of internal checks, internal audits and the whole

system of financial and other controls required to carry on the business of the Company in an orderly manner, safeguard its

assets and ensure as far as practicable the accuracy and reliability of the records. These controls are regularly reviewed.

The Company Auditors, Messrs. Kreston MNS & Co., Chartered Accountants, carry out reviews and test checks the

effectiveness of internal controls as they consider appropriate and necessary for providing their opinion on the

Financial Statements.

The Board of Directors oversees the management’s responsibilities for financial reporting at their regular meetings. In

addition the Audit Committee and the Board of Directors of Associated Motorways Managements (Pvt) Limited, which

comprises of Executive Directors and senior members of the Group review the financial reporting regularly.


Ms. D Kumarasinghe

Company Secretary

14th June 2006

Directors’ Responsibility for Financial Reporting


43

The Audit Committee which comprises of three Non-Executive Directors assist the Board of Directors in discharging their

responsibilities. The Company Secretary acts as the Secretary to the Audit Committee.

The Audit Committee reviews the Internal Control Procedures and ensures that the systems of internal control are soundly

conceived and are effectively administered in compliance with established policies, guidelines and regulatory requirements.

The Audit Committee also provides a forum for the review of Internal Audit Reports and creates a climate of discipline and

control to limit opportunities for fraud. Department/Unit Heads are called in when their reports are discussed whilst

Representatives from the Audit firm are invited to meetings convened to discuss their reports.

On behalf of the Board the Audit Committee reviews the Company’s financial and accounting systems in order to ensure the

provision of reliable and up to date information and to improve the quality of financial reporting.

The Audit Committee, together with other Board Directors reviewed the annual financial statements and approved them for

publication.

The Audit Committee has recommended to the Board of Directors that Messrs. Kreston MNS & Co., Chartered Accountants,

be re-appointed as Auditors for the year ending 31st March 2007 subject to the approval of shareholders at the

Annual General Meeting.

A R Peiris

Chairman

Audit Committee

7th June 2006

Audit Committee Report


44

TO THE MEMBERS OF ASSOCIATED MOTORWAYS

LIMITED, COLOMBO

We have audited the Balance Sheet of ASSOCIATED

MOTORWAYS LIMITED, as at 31st March 2006, the

Consolidated Balance Sheet of the Company, and its

subsidiaries as at that date and the related Statements of

Income, Changes in Equity and Cash Flows, for the year

then ended, together with the Accounting Policies and

Notes as set out on pages 45 to 79.

Respective Responsibilities of Directorsand 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 maintained proper books of account for the year

ended 31st March 2006, and to the best of our information

and according to the explanations given to us, the said

Report of the Auditors

Balance Sheet and the related Statements of Income,

Changes in Equity and Cash Flows 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 31st March 2006, and of

its Profit, Changes in Equity and Cash Flows for the year

then ended.

In our opinion, except for the effects of such adjustments if

any, as might have been determined to be necessary had

the audited Financial Statements of the Companies referred

to in Note 5 been available, the Consolidated Balance Sheet

and the related Statements of Income, Changes in Equity

and Cash Flows 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 31st March 2006 and of the

Profit, Changes in Equity 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’ Interests in Contracts with theCompany

According to the information made available to us, the

Directors of the Company were not directly or indirectly

interested in any contract with the Company during the year

ended 31st March 2006 except as stated in Note 36 to

these Financial Statements.

Kreston MNS & Co.

Chartered Accountants

Colombo

14th June 2006

Grant Thornton International

Ms. Y. SHIRANI DE SILVA

Ms. SIVASELVI BALACHANDRAN

S. RAJANATHAN

N. K. ATUKORALA

Ms. H. D. S. C. A. TILLEKERATNE

K. I. SKANDADASAN B Sc. (Madras),

R. L. R. BALASINGHAM

FCA, FSCMA

FCA, FSCMA

FCA, FCMA

ACA, ASCMA

FCA, ASCMA

ACA, ASCMA

ACA, ASCMA

Chartered Accountants

Correspondent Firm of

P. O. Box 210

50/2, Sir James Peiris Mawatha

Colombo 2, Sri Lanka

Tel: (94-11) 2323571 (Auto) Fax: (94-11) 2433388

E-mail: [email protected]

www: webasia.com/kreston

City Office at:

& Branches at:

Colombo 1 - 18 A, 1 Floor, State Bank of India Building. Telephone: 94-11 2327444

• Anuradhapura • Badulla • Batticaloa • Hatton • Kalmunai • Kandy • Kurunegala

• Matara • Negombo • Nuwara Eliya • Ratnapura • Trincomalee

1 st

2


45

Income Statement


Note Rs. Rs. Rs. Rs.

Gross Turnover 1 9,079,192,988 5,440,301,955 7,946,852,853 4,963,191,261

Turnover Tax (96,289,721) (54,021,764) (85,102,488) (50,757,571)

Net Turnover 8,982,903,267 5,386,280,191 7,861,750,365 4,912,433,690

Cost of Sales (7,463,221,459) (4,492,424,398) (6,624,102,315) (4,108,051,212)

Gross Profit 1,519,681,808 893,855,793 1,237,648,050 804,382,478

Other Operating Income 2 100,814,662 53,122,726 108,240,966 56,960,189

Distribution Cost (183,704,932) (137,588,895) (131,627,766) (101,030,399)

Administrative Expenses (451,825,735) (341,241,771) (435,374,616) (331,428,845)

Other Operating Expenses (17,454,861) (9,062,258) (16,334,750) (6,930,141)

Profit from Operations 3 967,510,942 459,085,595 762,551,884 421,953,282

Finance Cost 4 (149,065,734) (89,296,458) (166,095,841) (88,192,290)

Profit from Operations after

Finance Cost 818,445,208 369,789,137 596,456,043 333,760,992

Profit/(Loss) from Associate Companies/

Jointly Controlled Entities 5 7,508,045 14,055,842 – –

Profit before Taxation 825,953,253 383,844,979 596,456,043 333,760,992

Taxation 6 (246,428,632) (92,190,094) (160,058,446) (79,068,002)

Profit after Taxation 579,524,621 291,654,885 436,397,597 254,692,990

Minority Interest (7,633,940) (2,718,013) – –

Net Profit for the year 571,890,681 288,936,872 436,397,597 254,692,990

Earnings per Share 7 69.38 35.06 52.95 30.90

Dividend per Share 8 7.50 4.00 7.50 4.00

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 50 to 79 form an integral part of these Financial Statements.


46

Balance Sheet

Group CompanyAs at 31st March 2006 2005 2006 2005


ASSETSNon-Current AssetsProperty, Plant & Equipment 9 1,023,452,773 573,093,690 912,781,951 494,262,329Capital Work-in-Progress 16,204,802 63,990,238 15,850,028 59,990,970Intangible Assets 10 307,490 464,941 – –Investments in Subsidiaries 11 – – 85,792,977 85,792,977Investments in Associates 12 57,998,250 52,374,467 37,210,532 35,000,000Investments in Jointly Controlled Entities 13 22,314,179 25,418,097 26,000,000 26,000,000Investments in Other Companies 14 79,365,463 18,585,295 78,390,443 17,610,275

1,199,642,957 733,926,728 1,156,025,931 718,656,551

Assets of Associated Rubber Industries Limited 15 13,913,250 14,492,223 – –Assets of Associated Yuasa Batteries (Lanka) Limited 15 1,524,614 2,679,842 – –

Current AssetsInventories 16 1,054,516,426 587,973,277 982,770,186 520,006,383Trade and Other Receivables 17 1,557,918,956 1,113,498,762 1,438,046,330 959,396,101Amounts due from Related Companies 18 9,989,879 5,771,384 99,658,522 64,983,773Cash in Hand and at Bank 19 490,518,011 467,793,300 470,026,727 440,261,752

3,112,943,272 2,175,036,723 2,990,501,765 1,984,648,009Total Assets 4,328,024,093 2,926,135,516 4,146,527,696 2,703,304,560

EQUITY AND LIABILITIESCapital and ReservesShare Capital 20 82,423,690 82,423,690 82,423,690 82,423,690Capital Reserves 21 264,691,085 264,691,085 228,876,540 228,876,540Revenue Reserves 22 653,122,000 653,122,000 652,102,000 652,102,000Retained Profit 684,313,731 155,695,488 496,066,451 102,941,292Shareholders' Funds 1,684,550,506 1,155,932,263 1,459,468,681 1,066,343,522Minority Interest 30,960,999 25,435,434 – –

1,715,511,505 1,181,367,697 1,459,468,681 1,066,343,522

Non-Current LiabilitiesInterest Bearing Borrowings 23 255,211,740 62,087,780 255,211,739 55,421,113Deferred Income 25 1,689,805 2,505,966 – –Deferred Tax 26 40,184,000 49,724,000 28,150,000 36,650,000Retirement Benefit Obligation 27 84,382,171 65,656,347 80,946,838 63,119,072

381,467,716 179,974,093 364,308,577 155,190,185

Liabilities of Associated Rubber Industries Limited 15 488,704 1,585,152 – –Liabilities of Associated Yuasa Batteries (Lanka) Limited 15 15,000 84,076 – –

Current LiabilitiesTrade and Other Payables 28 315,166,049 474,765,794 223,297,935 381,717,874Short-Term Borrowings 29 1,274,574,936 759,713,517 1,259,417,740 717,885,517Current Portion of Interest Bearing Borrowings 23 60,775,917 36,381,264 60,775,917 31,381,264Current Portion of Finance Lease Obligation 24 – – – –Amounts due to Related Companies 30 – – 279,181,719 65,555,920Provision for Taxation 31 150,812,646 44,443,449 86,815,504 42,135,903Bank Overdrafts 19 429,211,620 247,820,474 413,261,623 243,094,375

2,230,541,168 1,563,124,498 2,322,750,438 1,481,770,853Total Equity and Liabilities 4,328,024,093 2,926,135,516 4,146,527,696 2,703,304,560


The Board of Directors is responsible for the preparation and presentation of these Financial Statements.Signed on behalf of the Board of Directors,

Tilak de Zoysa Aswin de SilvaDeputy Chairman/Managing Director Finance Director

14th June 2006


47

Statement of Changes in Equity

Group

Share Capital Revenue RetainedCapital Reserves Reserves Profit Total

Rs. Rs. Rs. Rs. Rs.

Balance on 1st April 2004 82,423,690 264,691,085 453,122,000 97,667,500 897,904,275

Net Profit for the year – – – 288,936,872 288,936,872

Dividends – – – (30,908,884) (30,908,884)

Transferred to Revenue Reserves – – – (200,000,000) (200,000,000)

Transferred from Retained Profit – – 200,000,000 – 200,000,000

Balance on 31st March 2005 82,423,690 264,691,085 653,122,000 155,695,488 1,155,932,263


Dividends – – – (43,272,438) (43,272,438)


COMPANY

Share Capital Revenue RetainedCapital Reserves Reserves Profit Total

Rs. Rs. Rs. Rs. Rs.

Balance on 1st April 2004 82,423,690 228,876,540 452,102,000 79,157,186 842,559,416


Dividends – – – (30,908,884) (30,908,884)

Transferred to Revenue Reserves – – – (200,000,000) (200,000,000)

Transferred from Retained Profit – – 200,000,000 – 200,000,000



Dividends – – – (43,272,438) (43,272,438)




48

Cash Flow Statement



Cash Flows from Operating Activities

Profit before Taxation 825,953,253 383,844,979 596,456,043 333,760,992

Adjustments for:

Share of (Profit)/Loss of Associate Companies

and Jointly Controlled Entities 5 (7,508,045) (14,055,842) – –

Profit on Sale of Property, Plant & Equipment 2 (7,666,014) (7,173,013) (6,528,555) (6,661,713)

(Profit)/Loss on Sale of Investments 2 (20,350,246) (8,614,361) (20,350,246) (8,614,361)

Provision for Bad & Doubtful Debts 3 8,023,656 23,053,287 5,565,674 20,303,645

Interest Income 2 (20,814,391) (9,553,805) (25,921,343) (11,794,167)

Finance Cost 4 149,065,734 89,296,458 166,095,841 88,192,290

Dividend Income 2 (511,277) (676,378) (24,383,973) (7,426,354)

Depreciation 9 53,003,157 60,978,546 43,744,665 51,111,816

Provision for Retiring Gratuity 27 22,687,040 12,953,162 21,352,332 12,245,480

Amortization of Goodwill 10 157,451 157,453 – –

Amortization of Negative Goodwill 25 (1,362,187) (1,260,095) – –

Provision for Irrecoverable Amount 3 – – 2,981,831 –

Operating Profit before Working Capital Changes 1,000,678,131 528,950,391 759,012,269 471,117,628

(Increase)/Decrease in:

Inventories 16 (466,543,149) 148,167,207 (462,763,803) 153,878,913

Trade and Other Receivables 17 (452,443,850) (647,165,916) (484,215,903) (575,673,225)

Amounts due from Related Companies 18 (4,218,495) 7,653,534 (37,656,580) (2,361,477)

Assets & Liabilities of

Associated Rubber Industries Limited 15 420,463 (760,559) – –

Assets & Liabilities of

Associated Yuasa Batteries (Lanka) Limited 15 1,061,980 324,503 – –

Increase/(Decrease) in:

Trade and Other Payables 28 (159,599,747) 104,131,612 (158,419,939) 57,202,333

Short-Term Borrowings 29 514,861,419 195,054,102 541,532,223 157,024,102

Amounts due to Related Companies 30 – (263,532) 213,625,799 18,769,331

Cash Generated from Operations 434,216,752 336,091,342 371,114,066 279,957,605


49

Cash Flow Statement



Interest Received 20,814,391 9,241,947 25,921,343 11,482,309

Finance Cost Paid 4 (149,065,734) (87,656,338) (166,095,841) (86,567,290)

Retiring Gratuity Paid 27 (5,098,355) (5,151,209) (3,524,566) (4,580,225)

WHT on Dividend Paid by Subsidiary 6 (2,015,517) (569,046) – –

Tax Paid less Refunds Received 31/6 (145,733,918) (71,274,049) (123,878,845) (59,679,519)

Net Cash from Operating Activities 153,117,619 180,682,647 103,536,157 140,612,880

Cash Flows from Investing Activities

Purchase of Property, Plant & Equipment 9 (418,698,890) (91,588,293) (392,840,482) (86,169,298)

Purchase of Investments in Subsidiary Companies 11 – (4,711) – (4,711)

Purchase of Investments in Associate Companies 12 (2,210,532) – (2,210,532) –

Purchase of Investments in Other Companies 14 (127,216,906) (13,368,385) (127,216,906) (13,368,385)

Proceeds on Sale of Investments in

Other Companies 86,786,984 33,961,090 86,786,984 33,961,091

Dividend Received 2 6,406,015 2,426,378 24,383,973 7,426,354

Capital Work-in-Progress (39,637,645) (41,816,565) (27,832,758) (37,817,297)

Proceeds on Sale of Property, Plant & Equipment 10,649,117 8,056,493 9,078,450 7,256,756

Net Cash from/(used in) Investing Activities (483,921,857) (102,333,993) (429,851,271) (88,715,490)

Cash Flows from Financing Activities

Loans obtained during the year 23 280,391,427 75,000,000 280,391,427 75,000,000

Repayment of Interest Bearing Borrowings 23 (62,872,814) (27,049,640) (51,206,148) (21,383,040)

Repayment of Finance Leases 24 – (210,091) – –

Dividends Paid (43,272,438) (30,908,884) (43,272,438) (30,908,884)

Dividends Paid by Subsidiaries to Minorities (2,108,372) (626,148) – –

Net Cash from/(used in) Financing Activities 172,137,803 16,205,237 185,912,841 22,708,076

INCREASE/ (DECREASE) IN CASH &

CASH EQUIVALENTS (158,666,435) 94,553,891 (140,402,273) 74,605,466

CASH & CASH EQUIVALENTS

AT THE BEGINNING OF THE YEAR 219,972,826 125,418,935 197,167,377 122,561,911

CASH & CASH EQUIVALENTS

AT THE END OF THE YEAR 19 61,306,391 219,972,826 56,765,104 197,167,377



50

Significant Accounting Policies

1. General

1.1 Basis of Preparation

The Financial Statements of the Group presented in Sri Lanka Rupees, have been prepared in accordance with

Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka on a historical cost

basis except for certain items of Property, Plant & Equipment which are at valuations.

Subsidiary Company, Associated Rubber Industries Limited, ceased operations and is not a going concern. The

Property, Plant & Equipment were revalued in September 2002 and these values were incorporated in the Financial

Statements as at 31st March 2002. The assets and liabilities as at 31st March 2006 in the said Company have been

disclosed separately.

Subsidiary Company, Associated Yuasa Batteries (Lanka) Limited curtailed trading in automotive batteries under the

Yuasa brand name during the year 2002/2003. The Financial Statements have been prepared on the basis that the

Company is not a going concern. The assets and liabilities as at 31st March 2006 in the said Company have been

disclosed separately.

1.2 Comparative Information

The accounting policies are consistent with those used in the previous year. Figures & phrases relating to the

previous year have been re-arranged where necessary, to conform to the current year’s presentation.

1.3 Basis of Consolidation

The Group’s Financial Statements comprise a consolidation of Financial Statements of the Company, its Subsidiaries,

Associate Companies and Jointly Controlled Entities.

a) Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company has the

power, directly or indirectly to govern the financial & operating policies of an entity so as to obtain benefits

from its activities. The Financial Statements of Subsidiaries are included in the Consolidated Financial

Statements from the date that control commences until the date that control ceases.

Acquisition of Subsidiaries are accounted using the purchase method of accounting. The interest of the

outside shareholders of the Group is disclosed separately under the heading “Minority Interest”.

b) Associate Companies and Jointly Controlled Entities

Companies in which the Group has significant influence but not control, over the financial & operating policies

are treated as Associate Companies. Jointly Controlled Entities are those enterprises over whose activities the

Group has joint control.

The Consolidated Financial Statements include the Group’s share of the total gains & losses of Associates on

an equity accounted basis, from the date that significant influence commences until the date that significant

influence ceases.

The Consolidated Financial Statements include the Group’s share of the total gains & losses of Jointly

Controlled Entities on an equity accounted basis, from the date that joint control commences until the date

that joint control ceases.

c) No adjustments are made on account of Subsidiaries holding shares in the Parent Company where the

effective holding by the Subsidiary in the Parent Company is insignificant.


51

d) Goodwill / Negative Goodwill arising on the acquisition of shares in Subsidiaries, Associates & Jointly

Controlled Entities, is the difference between the cost of acquisition and the fair value of the Group’s share of

net tangible assets acquired.

Acquired goodwill is recognized as an intangible asset and negative goodwill as deferred income in the

Consolidated Financial Statements and stated at cost less amortization. Amortization is on a straight line basis

over a period of five years from the year of initial recognition. In accordance with SLAS 25 (Revised 2004)

goodwill arising on business combinations after 1st June 2005 are not amortized, but tested for impairment

annually.

e) The Company, its Subsidiaries, Associate Companies and Jointly Controlled Entities are incorporated in

Sri Lanka and have a common financial year which ends on 31st March.

f) Intra-group balances and transactions and any unrealised gains arising from intra-group transactions are

eliminated in preparing the Consolidated Financial Statements.

1.4 Foreign Currency Transactions

Transactions in foreign currencies are translated into Sri Lankan Rupees at the foreign exchange rate ruling at the

date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated to rupees

at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognized

in the Income Statement.

1.5 Events occurring after the Balance Sheet Date

All material post Balance Sheet events have been considered and where appropriate adjustments or disclosures

have been made in the respective Notes to the Financial Statements.

1.6 Deferred Income

Grants received are recognized in the Balance Sheet initially as Deferred Income. Grants that compensate the

Company for the cost of an asset are recognized in the Income Statement as revenue on a straight line basis over

the useful life of such assets.

1.7 Taxation

Current Tax

The provision for income tax is based on the elements of income and expenditure as reported in the Financial

Statements and computed in accordance with the provisions of the Inland Revenue Act No. 38 of 2000 and

amendments thereto.

Deferred Taxation

Deferred Taxation is provided on the liability method. The tax effect of all timing differences, which occur as a result

of items being allowed for income tax purposes in a period different from that when they are recognized in the

Financial Statements, are included as a Provision for Deferred Taxation at current rates of taxation.

Turnover Based Taxes

Turnover based taxes include Value Added Tax (VAT) payable to the Department of Inland Revenue and Turnover

Tax (TT) payable to the Provincial Council in respect of Trading Activities. The Companies in the Group pay such

taxes in accordance with the respective statutes.



52

Economic Service Charges (ESC)

As per the provisions of the Finance Act No. 11 of 2004, ESC is payable on the liable turnover at specified rates.

ESC paid is deductible from the Company’s income tax liability, and any excess can be carried forward and set off

against the income tax payable within two years. No refund of ESC is due thereafter.

Social Responsibility Levy (SRL)

As per the provisions of the Finance Act No. 5 of 2005, a new levy namely, Social Responsibility Levy (SRL) was

introduced with effect from 1st January 2005. SRL is payable at the rate of 0.25% on all taxes and levies

chargeable as specified in the first schedule of the Act.

1.8 Segment Reporting

A segment is a distinguishable component of an enterprise that is engaged either in providing products or services

(industry segment), or in providing products or services within a particular economic environment (geographical

segment), which is subject to risks and rewards that are different from those of other segments.

2. Assets and Bases of their Valuation

Assets classified as current assets on the Balance Sheet are cash and bank balances and those which are expected to be

realized in cash during the normal operating cycle or within one year from the Balance Sheet date, whichever is shorter.

Non-current assets are those which the Company intends to hold beyond a period of one year from the Balance Sheet date.

2.1 Property, Plant & Equipment

a) Owned Assets

Items of Property, Plant & Equipment are stated at cost/valuation less accumulated depreciation and any

impairment in value.

The cost of Property, Plant & Equipment is the cost of acquisition or construction together with any expenses

incurred in bringing the asset to its working condition for its intended use. Where an item of Property, Plant &

Equipment comprises major components having different useful lives, they are accounted for as separate

items of Property, Plant & Equipment.

A revaluation of Property, Plant & Equipment is done when there is a substantial distinction between the fair

value (market value) and the book value of the asset and is undertaken by professionally qualified valuers.

When an asset is revalued, any increase in the carrying amount is transferred to a revaluation reserve, unless it

reverses a previous revaluation decrease relating to the same asset, which was recognized in the Income Statement.

Where Group Companies occupy a significant portion of the investment property of a subsidiary, such

investment properties are treated as Property, Plant & Equipment in the Consolidated Financial Statements and

accounted for as per SLAS 18 - Property, Plant & Equipment.

b) Leased Assets

Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified

as finance leases. Assets acquired by way of finance leases are stated at an amount equal to the lower of their fair

value and the present value of minimum lease payments at the inception less accumulated depreciation.



53

2.2 Subsequent Expenditure

Expenditure incurred to replace a component of an item of Property, Plant & Equipment that is accounted for

separately, including major inspection and overhaul expenditure, is capitalized. Other subsequent expenditure is

capitalized only when it increases the future economic benefits embodied in the item of Property, Plant &

Equipment. All other expenditure is recognized in the Income Statement as an expense as incurred.

2.3 Depreciation

The method of providing for depreciation on Property, Plant & Equipment was changed from reducing balance

method to straight line method from 01.04.2003 at the rates referred to in the paragraph below.

In accordance with Sri Lanka Accounting Standard 18, Property, Plant & Equipment, the written down value of

Property, Plant & Equipment as at 31st March 2003 is being written off over the remaining useful lives of such

assets, commencing from 2003/2004.

Depreciation on all Property, Plant & Equipment, other than freehold land, is provided on the straight line basis over

the estimated useful lives of such assets.

The principal annual rates of depreciation used are as follows:

On cost/valuation:

Buildings 2.5% - 5%

Machinery & Equipment 10% - 20%

Furniture, Fittings & other Equipment 10% - 25%

Motor Vehicles 10% - 20%

Leasehold land of Associated Property Development Limited, is being amortized over the lease period of 99 years

from 19th December 1984.

No depreciation is charged in the year of purchase/construction and full provision is made in the year of disposal.

2.4 Impairment of Property, Plant & Equipment

The carrying values of Property, Plant & Equipment are reviewed for impairment either annually or when events or

changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and

where the carrying value exceeds the estimated recoverable amount, the assets are written down to their

recoverable amount. Impairment losses are recognized in the Income Statement unless it reverses a previous

revaluation surplus for the same asset.

2.5 Investments

Investments in Subsidiary Companies

Investments in Subsidiary Companies are treated as non-current assets and stated at cost in the Financial

Statements of the Company.

Provision is made for diminution in value of investments in the Financial Statements of the Company if the decline in

value is expected to be of a permanent nature.



54

Investments in Associate Companies and Jointly Controlled Entities

Investments in Associate Companies and Jointly Controlled Entities are treated as non-current assets and accounted

under the equity basis of accounting to reflect Group’s share of retained assets in the entity. Dividends declared by

the Associates and Jointly Controlled Entities are recognized against the equity value of Group’s investment.

In the Parent Company’s Financial Statements the investments are stated at cost and a provision is made for

diminution in value of investments if the decline in value is expected to be of a permanent nature.

Other Investments

Investments in other Quoted and Unquoted Companies are stated at cost and provision is made for diminution in

value of such investments where it is considered to be of a permanent nature.

2.6 Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in

the ordinary course of business less the estimated cost of completion and selling expenses.

The cost incurred in bringing inventories to its present location and condition are accounted as follows:

Raw Materials - at actual cost on weighted average basis

Work-in-Progress & Finished Goods - at cost of direct materials, labour and an appropriate

proportion of production overheads.

Trading Stock

Motor Vehicles - at purchase cost

Others - at actual cost on weighted average basis

2.7 Trade Debtors & Receivables

Trade Debtors, advances and other receivables are stated at the amounts that they are estimated to realize, net of

provision for bad & doubtful receivables.

Amounts due from Related Companies are stated at cost less provision for bad & doubtful receivables.

2.8 Cash & Cash Equivalents

Cash & cash equivalents comprise of cash at bank and in hand. Bank overdrafts that are repayable on demand and

form an integral part of the Company cash management are included as a component of cash & cash equivalents

for the purpose of the Cash Flow Statement.

The Cash Flow Statement has been prepared using the indirect method.

3. Liabilities and Provisions

3.1 Liabilities classified as current liabilities on the date of the Balance Sheet are those which fall due for payment on

demand or within one year from the Balance Sheet date. Non-current liabilities are those balances that fall due for

payment later than one year from the Balance Sheet date.

All known liabilities as at the Balance Sheet date have been accounted for in preparing the Financial Statements.

3.2 Defined Benefit Plan - Gratuity

Provision has been made in the Financial Statements for retiring gratuity which may fall due for payment under the

Payment of Gratuity Act No. 12 of 1983 in respect of all employees including those who have less than 5 years

continued service, other than in respect of Associated Rubber Industries Limited.



55

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

continued service. The provision is based on an actuarial valuation carried out once in every 2 years on a Projected

Unit Credit (PUC) method as recommended by Sri Lanka Accounting Standard - 16 “Retirement Benefit Cost.”

The principal actuarial assumptions used in the valuation incorporate provision for increase in salaries, early

withdrawal from service, retirement on medical grounds and death before retirement.

This liability is not externally funded.

The liability in respect of Associated Rubber Industries Limited, on cessation of manufacture in November 2000,

has been computed in accordance with the voluntary retirement scheme offered and payments awarded by the

Commissioner of Labour.

3.3 Defined Contribution Plans - Employees’ Provident Fund and Employees’ Trust Fund

All employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in

line with respective statutes and regulations. The Company contributes 12% / 15% of gross emoluments of

employees to an approved Provident Fund and 3% of gross emoluments of employees to the Employees’ Trust Fund.

3.4 Provisions, Contingent Assets and Contingent Liabilities

Provision is recognized in the Balance Sheet when the Company has a legal or constructive obligation as a result of

a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.

All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote.

All contingent assets are disclosed where inflow of economic benefits is probable.

3.5 Trade and Other Payables

Trade and other payables are stated at their cost.

3.6 Capital Commitments

Capital commitments of the Company are disclosed in the respective Notes to the Financial Statements.

4. Income Statement

For the purpose of presentation of the Income Statement, the function of expense method is adopted, as it represents

fairly the elements of Group’s performance.

4.1 Turnover

Gross Turnover represents the invoiced value of goods and services to customers.

4.2 Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the

revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair

value of the consideration received or receivable, net of trade discounts and value added taxes. The following

specific criteria are used for recognition of revenue.

a) Sale of Goods

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the

goods have passed to the buyer with the Company retaining neither a continuing managerial involvement to

the degree usually associated with ownership, nor an effective control over the goods sold.



56

b) Rendering of Services

Revenue from rendering of services is recognized in the accounting period in which the services are rendered

or performed.

c) Interest

Interest Income is recognized on accrual basis.

d) Dividends

Dividend income is recognized when the shareholders right to receive is established.

e) Rental Income

Rental Income is recognized on accrual basis.

f) Other Gains and Losses

Net gains and losses of a revenue nature arising from the disposal of Property, Plant & Equipment and other

non-current assets, including investments, are accounted for in the Income Statement, after deducting from

the proceeds on disposal, the carrying amount of such assets and the related selling expenses.

On the disposal of any revalued Property, Plant & Equipment, the amount remaining in the Revaluation

Reserve, relating to that particular asset is transferred directly to Retained Profit. Gains and losses arising from

activities incidental to the main revenue generating activities and those arising from a group of similar

transactions which are not material are aggregated, reported and presented.

g) Others

Other Income is recognized on accrual basis.

4.3 Expenditure

a) Expenses are recognized in the Income Statement on the basis of a direct association between the cost

incurred and the earning of specific items of income.

b) All expenditure incurred in the running of the business and in maintaining the Property, Plant & Equipment in

a state of efficiency has been charged to revenue in arriving at the profit for the year.

c) Borrowing Costs

Borrowing costs are recognized as an expense in the period in which they are incurred.

d) Finance Cost

Finance cost comprises interest payable on borrowings and leases.

The interest expense component of finance lease payments is recognized in the Income Statement using the

effective interest rate method.



57


Rs. Rs. Rs. Rs.

1. Gross Turnover

Associated Motorways Limited 7,946,852,853 4,963,191,261 7,946,852,853 4,963,191,261

Associated Rubber Industries Limited – – – –

Associated Yuasa Batteries (Lanka) Limited – – – –

Associated Travels & Tours Limited – – – –

Associated Motor (Lanka) Company Limited 977,288,626 258,212,939 – –

Associated Property Development Limited 17,159,790 14,090,940 – –

Associated Autoways (Pvt) Limited 287,546,352 266,187,310 – –

Associated Global Trading (Pvt) Limited 16,763,965 27,259,043 – –

Associated Motorways Managements (Pvt) Limited – – – –

9,245,611,586 5,528,941,493 7,946,852,853 4,963,191,261

Inter Company Turnover (166,418,598) (88,639,538) – –

9,079,192,988 5,440,301,955 7,946,852,853 4,963,191,261

2. Other Operating Income

Dividends 511,277 676,378 24,383,973 7,426,354

Interest 20,814,391 9,553,805 25,921,343 11,794,167

Commission 1,500,000 2,750,000 – –

Profit on Sale of Property, Plant & Equipment 7,666,014 7,173,013 6,528,555 6,661,713

Profit on Sale of Investments 20,350,246 8,614,361 20,350,246 8,614,361

Amortization of Negative Goodwill 1,362,187 1,260,095 – –

Net Gain on Conversion of Foreign Currency 10,832,135 3,753,351 10,832,134 3,753,351

Rent* 5,018,195 4,059,560 4,418,195 4,059,560

Administration Charges 7,365,244 7,752,590 7,365,244 7,752,590

Lease Income 750,000 950,000 750,000 950,000

Unclaimed Dividends 585,017 251,206 585,017 251,207

Reimbursement of Expenses 9,351,778 10,481,694 – –

Debtors General Provision Written Back 6,369,809 – – –

Other Amounts Written Back 511,368 – – –

Others 12,448,948 8,280,763 7,106,259 5,696,886

105,436,609 65,556,816 108,240,966 56,960,189

Inter-Company Income (4,621,947) (12,434,090) – –

100,814,662 53,122,726 108,240,966 56,960,189

* The Company occupied a significant portion of the land & building at No. 185, Union Place, Colombo 2. As such, the

property is considered as Property, Plant & Equipment in the Financial Statements and not considered as Investment

Property as per SLAS-40.

Notes to the Financial Statements


58


3. Profit from Operations


Rs. Rs. Rs. Rs.

Is stated after charging

Directors' Emoluments 43,979,353 31,078,347 43,691,773 30,085,982

Auditors’ Remuneration 760,000 647,500 390,000 315,000

Provision for Doubtful Debts - General 8,023,656 14,002,228 5,565,674 12,074,983

Provision for Doubtful Debts - Specific – 9,051,059 – 8,228,662

Depreciation 53,003,157 60,978,546 43,744,665 51,111,816

Staff Cost 413,539,189 326,961,911 373,536,246 295,721,387

Defined Contribution Plan Cost - EPF & ETF 36,321,589 30,299,019 33,531,224 27,779,066

Defined Benefit Plan - Gratuity 22,687,040 12,953,162 21,352,331 12,245,480

Provision for Irrecoverable Amount – – 2,981,831 –

Amortization of Goodwill 157,451 157,453 – –

Donations 4,132,417 4,559,874 4,099,417 4,403,174

Profit from operations of the Group includes loss from Associated Rubber Industries Limited, of Rs. 233,195/-

(2005 profit of Rs. 365,968/-) and loss of Associated Yuasa Batteries (Lanka) Limited, of Rs. 1,086,153/-

(2005 loss of Rs. 455,930/-) which companies are not considered to be going concerns.


Rs. Rs. Rs. Rs.

4. Finance Cost

Interest on Long-Term Borrowings 20,750,577 9,640,536 18,814,221 7,893,310

Interest on Short-Term Borrowings 128,315,157 79,655,922 147,281,620 80,298,980

149,065,734 89,296,458 166,095,841 88,192,290

5. Profit/(Loss) from Associate

Companies/Jointly Controlled Entities

Group Share of Profit/(Loss) before Tax

Associate Companies

Associated Ceat Holdings Co. (Pvt) Limited 10,611,963 14,356,240 – –

Jointly Controlled Entities

Associated Universal (Pvt) Limited (3,103,918) (300,398) – –

7,508,045 14,055,842 – –

Group share of profit/(loss) from Associated Ceat Holdings Co. (Pvt) Limited and Associated Universal (Pvt) Limited for

the year 2005/2006 is based on unaudited accounts.


59


6. Taxation


Rs. Rs. Rs. Rs.

On Profit of the year

Company 183,500,000 94,000,000 183,500,000 94,000,000

Subsidiaries 81,806,877 13,934,046 – –

265,306,877 107,934,046 183,500,000 94,000,000

Associates 1,850,000 – – –

Jointly Controlled Entities – – – –

Income Tax 267,156,877 107,934,046 183,500,000 94,000,000

Income Tax Refund Received (14,941,554) (8,731,998) (14,941,554) (8,731,998)

Under Provision for Previous year 1,737,792 – – –

WHT on Dividend Paid by Subsidiary 2,015,517 569,046 – –

255,968,632 99,771,094 168,558,446 85,268,002

Deferred Tax Charge/(Credit)

Company (8,500,000) (6,200,000) (8,500,000) (6,200,000)

Subsidiaries/Associates/Jointly Controlled Entities (1,040,000) (1,381,000) – –

(9,540,000) (7,581,000) (8,500,000) (6,200,000)

Total Tax Expense 246,428,632 92,190,094 160,058,446 79,068,002

Associated Motorways Limited and Associated Property Development Limited, are liable to Income Tax @ 30% (inclusive

of 2.5% contribution to Human Resource Endowment Fund). The other companies within the Group are liable to

Income Tax @ 32.5% (inclusive of 2.5% contribution to Human Resource Endowment Fund) and in the event the

taxable income is less than Rs. 5 Mn the Income Tax rate of 20% is applied. Further, Group Companies are liable to

Social Responsibility Levy at 0.25% of Income Tax payable.

No provision for Income Tax has been made for other companies mentioned below in view of tax losses:

Tax LossFor the year ended 31st March 2006 2005

Rs. Rs.

Company

Associated Rubber Industries Limited (25,704,941) (23,913,580)

Associated Yuasa Batteries (Lanka) Limited (3,056,788) (2,943,965)

Associated Travels & Tours Limited (131,495) (119,094)

Associated Autoways (Pvt) Limited – (3,522,876)

(28,893,224) (30,499,515)


60

Reconciliation between Tax Expense and Accounting ProfitGroup Company

For the year ended 31st March 2006 2005 2006 2005Rs. Rs. Rs. Rs.

Profit before Tax 825,953,253 383,844,979 596,456,043 333,760,992

(Profit)/Loss from Associates & Jointly

Controlled Entities (7,508,045) (14,055,842) – –

Adjustments on Consolidation 20,397,719 5,768,772 – –

Accounting Profit 838,842,927 375,557,909 596,456,043 333,760,992

Disallowed Items 152,769,005 102,918,281 134,398,212 87,017,520

Allowable Expenses (132,506,077) (114,066,986) (121,630,822) (106,459,925)

859,105,855 364,409,204 609,223,433 314,318,587

Tax Loss brought forward - from previous year (30,499,515) (35,249,940) – –

Tax Loss brought forward - disallowed 3,522,876 – – –

Tax Loss carried forward 28,893,224 30,499,515 – –

Taxable Income 861,022,440 359,658,779 609,223,433 314,318,587

Income Tax @ 20%, 30% & 32.5% 264,645,963 107,373,125 183,043,083 93,439,079

Income Tax @ 15% – 560,921 – 560,921

Social Responsibility Levy @ 0.25% 660,914 – 456,917 –

265,306,877 107,934,046 183,500,000 94,000,000

7. Earnings per Share

7.1 Basic Earnings per Share is calculated by dividing the net profit for the year attributable to Ordinary Shareholders of

the Company by the weighted average number of Ordinary Shares in issue during the year.

7.2 The following data has been used in the computation of the Basic Earnings per Share:


Amount used as the Numerator

Net Profit attributable to Ordinary Shareholders (Rs.) 571,890,681 288,936,872 436,397,597 254,692,990

Amount used as the Denominator

Weighted Average number of Ordinary Shares in Issue

Balance on 1st April 8,242,369 8,242,369 8,242,369 8,242,369

Balance on 31st March 8,242,369 8,242,369 8,242,369 8,242,369

Basic Earnings per Share (Rs.) 69.38 35.06 52.95 30.90



61

8. Dividend per ShareGroup Company

For the year ended 31st March 2006 2005 2006 2005Rs. Rs. Rs. Rs.

25% 12.5% 25% 12.5%

1st Interim - Paid 20,605,923 10,302,961 20,605,923 10,302,961

7.5% 7.5%

2nd Interim (since paid on 22.06.2005) – 6,181,777 – 6,181,777

50% 20% 50% 20%

FINAL - Proposed 41,211,845 16,484,738 41,211,845 16,484,738

TOTAL 61,817,768 32,969,476 61,817,768 32,969,476

Dividend per Share 7.50 4.00 7.50 4.00

The 25% 1st Interim Dividend is declared out of dividends received by the Company (16%) and profits and other

income liable to tax (9%).

The Directors have proposed the payment of a final dividend of 50% for the year ended 31st March 2006, which will be

declared at the Annual General Meeting to be held on 4th August 2006.

In accordance with SLAS - 12 "Events after the Balance Sheet Date", the proposed final dividend has not been recognized

as a liability in the Financial Statements at the year end.

9. Property, Plant & EquipmentFurniture,Fittings &

Land & Machinery & Other MotorBuildings Equipment Equipment Vehicles Total

Rs. Rs. Rs. Rs. Rs.

(a) GroupCost/Valuation

As at 1st April 2005 405,604,522 431,206,903 139,478,471 107,692,607 1,083,982,503

- Associated Rubber Industries Limited 12,968,300 – 2,129,361 1,466,133 16,563,794

- Associated Yuasa Batteries (Lanka) Limited – 404,285 285,869 – 690,154

418,572,822 431,611,188 141,893,701 109,158,740 1,101,236,451

Additions during the year 419,454,720 33,442,009 31,013,844 22,211,398 506,121,971

Disposals during the year – (400,000) (5,739,172) (10,590,643) (16,729,815)

Assets as at 31st March 2006 of

- Associated Rubber Industries Limited (12,968,300) – (2,129,361) (1,128,609) (16,226,270)

- Associated Yuasa Batteries (Lanka) Limited – (404,285) (285,869) – (690,154)

As at 31st March 2006 825,059,242 464,248,912 164,753,143 119,650,886 1,573,712,183



62

Furniture,Fittings &


Rs. Rs. Rs. Rs. Rs.

Accumulated Depreciation

As at 1st April 2005 59,119,469 286,907,313 80,020,818 84,841,213 510,888,813

- Associated Rubber Industries Limited – – 1,732,741 1,176,172 2,908,913

- Associated Yuasa

Batteries (Lanka) Limited – 343,097 277,294 – 620,391

59,119,469 287,250,410 82,030,853 86,017,385 514,418,117

Charge for the year 7,858,056 24,340,273 12,575,309 8,229,519 53,003,157

On Assets Disposed – (166,667) (4,018,336) (9,561,709) (13,746,712)

On Transfers

As at 31st March 2006 on Assets of

- Associated Rubber Industries Limited – – (1,793,214) (935,301) (2,728,515)

- Associated Yuasa

Batteries (Lanka) Limited – (404,285) (282,352) – (686,637)

As at 31st March 2006 66,977,525 311,019,731 88,512,260 83,749,894 550,259,410

Net Book Value

As at 31st March 2006 758,081,717 153,229,181 76,240,883 35,900,992 1,023,452,773

As at 31st March 2005 346,485,053 144,299,590 59,457,653 22,851,394 573,093,690

Furniture,Fittings &


Rs. Rs. Rs. Rs. Rs.

(b) Company

Cost / Valuation

As at 1st April 2005 352,815,891 341,836,539 134,854,493 100,095,210 929,602,133

Additions during the year 395,814,410 20,333,389 28,955,964 19,710,419 464,814,182

Disposals during the year – (400,000) (5,675,172) (9,182,755) (15,257,927)

As at 31st March 2006 748,630,301 361,769,928 158,135,285 110,622,874 1,379,158,388

Accumulated Depreciation

As at 1st April 2005 49,937,625 229,383,039 75,790,481 80,228,659 435,339,804

Charge for the year 6,189,854 18,210,725 11,901,608 7,442,478 43,744,665

On Assets Disposed – (166,667) (3,959,397) (8,581,968) (12,708,032)

As at 31st March 2006 56,127,479 247,427,097 83,732,692 79,089,169 466,376,437

Net Book Value

As at 31st March 2006 692,502,822 114,342,831 74,402,593 31,533,705 912,781,951

As at 31st March 2005 302,878,266 112,453,500 59,064,012 19,866,551 494,262,329



63


(c) Cost/valuation of land & buildings includes buildings constructed on leasehold land amounting to Rs. 7,705,656/-.

The lease period ends on 19.12.2083.

The Property, Plant & Equipment have been valued on different dates between 30.01.1977 to 10.09.2002 by

independent professional valuers.

Date of Valuation Basis of Valuation Valued AmountRs.

Associated Motorways Limited

Machinery & Equipment 30.01.1977 – 6,039,457

Vehicles 30.01.1977 – 643,757

Furniture & Fittings 30.01.1977 – 238,658

Head Office Land 01.12.1984 Rental Value Basis 37,580,000

Head Office Buildings 01.12.1984 Rental Value Basis 23,420,000

Factory Land 22.02.1985 Contractor's Basis 1,509,495

Factory Buildings 22.02.1985 Contractor's Basis 47,906,500

Factory Land and Buildings 10.09.2002 Market Value Basis 12,881,750

Plant & Machinery 10.09.2002 Market Value Basis 13,580,000

Associated Property Development Limited

Buildings on Leasehold Land 21.03.1987 – 28,472,085

The resulting revaluation surplus of the Group as at 31.03.2006 after utilization for issue of bonus shares etc., is

Rs. 125,791,885/-.

The carrying amount of revalued Property, Plant & Equipment as at 31st March 2006 if they are carried at cost is

as follows:

Cost Accumulated Net BookDepreciation Value

Rs. '000 Rs. '000 Rs. '000

Associated Motorways Limited 16,341 15,143 1,198

Associated Property Development Limited 14,076 2,960 11,116

10. Intangible Assets


Rs. Rs. Rs. Rs.

Goodwill on Consolidation

Balance on 1st April 1,101,696 1,101,012 – –

Goodwill on Acquisition of Shares during the year – 684 – –

Balance on 31st March 1,101,696 1,101,696 – –

Accumulated Amortisation

Balance on 1st April 636,755 479,302 – –

Amortized during the year 157,451 157,453 – –

Balance on 31st March 794,206 636,755 – –

Net Balance 307,490 464,941 – –


64


11. Investments in Subsidiaries

% Holding No. of Shares Value - Rs.

As at 31st March 2006 2005 2006 Movement 2005 2006 Movement 2005

Company

At Cost

Quoted

Associated Property

Development Limited 90.09 90.09 2,845,230 – 2,845,230 15,897,464 – 15,897,464

Market Value as at

31st March 2006

Rs. 170,713,800/-

Market Value as at

31st March 2005

Rs. 139,416,270/-

Total Cost of Quoted

Investments 15,897,464 15,897,464

Unquoted

Associated Rubber

Industries Limited 69.84 69.84 1,885,772 – 1,885,772 17,349,931 – 17,349,931

Less: Provision for

Diminution in Value (10,632,678) – (10,632,678)

Associated Yuasa Batteries

(Lanka) Limited 60.20 60.20 638,523 – 638,523 6,382,440 – 6,382,440

Less: Provision for

Diminution in Value (6,382,440) – (6,382,440)

(Group Holding 63%)

Associated Travels &

Tours Limited 99.93 99.93 9,993 – 9,993 99,930 – 99,930

Associated Motor

(Lanka) Co. Limited 95.80 95.80 2,299,993 – 2,299,993 22,999,930 – 22,999,930

Associated Global

Trading (Pvt) Limited 99.90 99.90 400,000 – 400,000 4,000,000 – 4,000,000

Associated Autoways

(Pvt) Limited 79.96 79.96 2,745,350 – 2,745,350 36,077,400 – 36,077,400

Associated Motorways

Managements (Pvt) Limited 98 98 100 – 100 1,000 – 1,000

Total Cost of Unquoted

Investments 69,895,513 – 69,895,513

Total Cost of Investments

in Subsidiaries 85,792,977 – 85,792,977


65

12. Investments in Associates

% Holding No. of Shares Value - Rs.


Company

At Cost

Unquoted

Associated Ceat Holdings Co.

(Pvt) Limited 36.84 35 3,684,211 184,211 3,500,000 37,210,532 2,210,532 35,000,000

Total Cost of Investments in

Associate Companies 37,210,532 2,210,532 35,000,000

Group

Associated Ceat Holdings

Co. (Pvt) Limited

Group Share of Retained Assets

at the beginning of the year 52,374,467 39,768,227

Acquisition of Shares

during the year 2,210,532 –

Current year's Share of

Profit/(Loss) after Tax 8,761,963 14,356,240

Less: Dividend Received (5,894,738) (1,750,000)

Add: Negative Goodwill

on Acquisition of Shares 546,026 –

Group Share of Retained

Assets at the end of the year 57,998,250 52,374,467

Group share of retained assets from Associated Ceat Holdings Co. (Pvt) Limited, is based on unaudited accounts.

13. Investments in Jointly Controlled Entities% Holding No. of Shares Value - Rs.


Company

At Cost

Unquoted

Associated Universal

(Pvt) Limited 50 50 2,600,000 – 2,600,000 26,000,000 – 26,000,000


Jointly Controlled Entities 26,000,000 – 26,000,000

Group


(Pvt) Limited


Assets at the beginning

of the year 25,418,097 25,718,495

Current year's Share of

Profit/(Loss) after Tax (3,103,918) (300,398)


Assets at the end of the year 22,314,179 25,418,097



66


As at 31st March 2006 2005Rs. Rs.

Group Share of Aggregate Assets and Liabilities of

Associated Universal (Pvt) Limited

Non-Current Assets 16,169,188 18,261,550

Current Assets 19,966,103 18,215,803

36,135,291 36,477,353

Non-Current Liabilities (421,016) (289,904)

Current Liabilities (13,400,096) (10,769,352)

22,314,179 25,418,097

Group Share of Aggregate Income and Expenses of

Associated Universal (Pvt) Limited

Income 50,739,371 38,823,564

Expenses (53,843,289) (39,126,662)

Net Loss (3,103,918) (303,098)

Difference in Loss between previous year

Unaudited Accounts and Audited Accounts – 2,700

Adjusted Net Loss (3,103,918) (300,398)

Group Share of Retained Assets from Associated Universal (Pvt) Limited, is based on unaudited accounts.

14. Investments in Other Companies

As at 31st March 2006 As at 31st March 2005No. of Shares Cost Market Value No. of Shares Cost Market Value

Rs. Rs. Rs. Rs.

Company

At Cost

Quoted

Banking, Finance & Insurance

DFCC Bank 106 2,796 23,347 106 2,796 24,566

Hatton National Bank Limited -

Non-Voting 60 2,189 3,300 20,960 761,319 806,960

Hatton National Bank Limited -

Voting – – – 12,600 836,574 759,150

Nations Trust Bank Limited 139,800 3,730,058 3,425,100 – – –

Seylan Bank Limited - Non-Voting – – – 26,700 1,115,553 487,275

Seylan Merchant Bank Limited 24,300 215,661 212,625 – – –

Chemicals & Pharmaceuticals

Haycarb Limited 18,800 739,389 686,200 – – –

Lankem (Ceylon) Limited 48 325 2,592 1,648 11,160 115,360

Hotels & Travels

AHOT Properties Limited 45,400 2,514,160 2,531,050 – – –


67



Rs. Rs. Rs. Rs.

Land & Properties

Overseas Realty Limited 100 1,000 2,000 500 5,000 4,000

Property Development Limited 100 1,000 3,100 500 5,000 12,000

Manufacturing

Acme Printing & Packaging Limited 87 1,165 2,262 287 3,844 8,467

Caltex Lubricants Lanka Limited 20,000 1,300,741 1,335,000 – – –

Grain Elevators Limited – – – 107,800 2,027,174 1,697,850

Kelani Tyres Limited 960 20,800 13,200 960 20,800 10,560

Lanka Ceramic Limited 79,800 2,449,230 2,773,050 – – –

Dankotuwa Porcelain Limited 81,200 1,209,321 1,157,100 – – –

Power & Energy

Lanka Indian Oil Company Limited 400,600 16,416,628 11,717,550 – – –

Telecommunications

Sri Lanka Telecom Limited 125,000 2,329,134 2,250,000 – – –

Trading

Brown & Co. Limited 2,700 8,998 1,431,000 2,700 8,998 677,700

Ceylon & Foreign Trades Limited 600 3,300 35,850 600 3,300 28,350

30,945,895 27,604,326 4,801,517 4,632,238

Unquoted

Elite Packaging Limited 5,350 208,758 5,350 208,758

(Sterling Pounds 1/- each)

Union Bank Limited 3,583,330 35,833,300 1,250,000 12,500,000

Wellassa Rubber Co Limited 35,000 350,000 10,000 100,000

Associated Ceat -

Kelani Radials Limited

Preference Shares 1,105,200 11,052,000 – –

Lankem (Ceylon) Limited -

Preference Shares 48 480 – –

AMW Capital Leasing Limited 1 10 – –

47,444,548 – 12,808,758

Total cost of Investments in

Other Companies -

by Associated Motorways Limited 78,390,443 17,610,275


68



Rs. Rs. Rs. Rs.

Investments by Subsidiary Companies

At Cost

Quoted

DFCC Bank Limited 3,316 109,940 730,349 3,316 109,940 768,483

Overseas Realty (Ceylon) Limited 500 5,000 10,000 500 5,000 4,000

Kelani Tyres Limited 3,000 65,000 41,250 3,000 65,000 33,000

Associated Motorways Limited 29,306 795,080 9,561,082 29,306 795,080 4,306,901


Other Companies -

by Subsidiary Companies 975,020 10,342,681 975,020 5,112,384

Total Cost of Investments -

by the Group 79,365,463 18,585,295

15. Assets/Liabilities of Subsidiaries


Rs. Rs. Rs. Rs.

(a) Associated Rubber Industries Limited

AssetsProperty, Plant & Equipment (Note 9) 13,497,755 13,654,882 – –Investments 37,724 37,724 – –Trade & Other Receivables 77,500 87,619 – –Amount due from Related Company 2,054 2,054 – –Cash & Cash Equivalents 298,217 709,944 – –

13,913,250 14,492,223 – –LiabilitiesRetirement Benefit Obligation (Note 27) 431,818 1,526,883 – –Trade & Other Payables 56,886 58,269 – –

488,704 1,585,152 – –

(b) Associated Yuasa Batteries (Lanka) Limited

AssetsProperty, Plant & Equipment (Note 9) 3,516 69,763 – –Investments 25,810 25,810 – –Inventories – 51,842 – –Trade & Other Receivables 1,433,694 2,288,935 – –Cash & Cash Equivalents 61,594 243,492 – –

1,524,614 2,679,842 – –

LiabilitiesRetirement Benefit Obligation (Note 27) – 42,075 – –Trade & Other Payables 15,000 42,001 – –

15,000 84,076 – –

Subsidiaries, Associated Rubber Industries Limited and Associated Yuasa Batteries (Lanka) Limited are not consideredto be going concerns. Hence, assets & liabilities are stated separately.


69


Rs. Rs. Rs. Rs.

16. Inventories

Raw Materials 64,172,263 64,327,065 47,602,882 36,988,845

Work-in-Progress 52,615,103 49,900,941 34,406,777 30,982,071

Trading Stock 908,217,796 446,405,453 873,187,016 431,072,518

Others 29,511,264 27,339,818 27,573,511 20,962,949

1,054,516,426 587,973,277 982,770,186 520,006,383

17. Trade and other Receivables

Trade Debtors 920,117,212 961,566,801 824,024,013 816,084,772

Provision for Bad & Doubtful Debts (31,771,159) (46,426,226) (30,495,637) (37,508,708)

888,346,053 915,140,575 793,528,376 778,576,064

Advances, Deposits & Prepayments 602,522,167 168,646,773 584,266,353 152,050,893

Staff Debtors 4,398,636 3,424,293 4,394,536 3,418,693

Other Receivables 62,652,100 26,287,121 55,857,065 25,350,451

1,557,918,956 1,113,498,762 1,438,046,330 959,396,101

18. Amounts due from Related Companies

Associated Rubber Industries Limited – – 3,164,808 2,411,898

Associated Yuasa Batteries (Lanka) Limited – – – 2,981,831

Associated Autoways (Pvt) Limited – – 75,382,652 39,545,697

Associated Global Trading (Pvt) Limited – – 11,923,162 14,608,710

Associated Universal (Pvt) Limited 3,892,894 2,616,559 3,394,822 2,582,665

Associated Ceat (Pvt) Limited 6,096,985 3,154,825 5,793,078 2,852,972

9,989,879 5,771,384 99,658,522 64,983,773

19. Cash & Cash Equivalents

Cash in Hand and at Bank

Cash at Bank

Local Currency 53,876,942 127,685,617 34,671,679 100,635,089

Foreign Currency Accounts (Interest Bearing) 420,188,735 331,852,327 420,188,734 331,852,327

Cash in Hand 16,452,334 8,255,356 15,166,314 7,774,336

490,518,011 467,793,300 470,026,727 440,261,752

Bank Overdrafts (429,211,620) (247,820,474) (413,261,623) (243,094,375)

Total 61,306,391 219,972,826 56,765,104 197,167,377



70


20. Share Capital


Rs. Rs. Rs. Rs.

Authorized

15,000,000 Ordinary Shares of Rs. 10/- each 150,000,000 150,000,000 150,000,000 150,000,000

Issued and Fully Paid

Balance on 1st April


Balance on 31st March


The holders of Ordinary Shares are entitled to receive dividends declared from time to time and are entitled to one vote

per Share at meetings of the Company. All Shares rank equally with regard to the Company's residual assets.

21. Capital Reserves


Rs. Rs. Rs. Rs.

Share Premium



Surplus on Revaluation of Property,

Plant & Equipment



Total 264,691,085 264,691,085 228,876,540 228,876,540

Share Premium which is a Capital Reserve, represents the premium received from issue of Shares. The Share Premium

cannot be directly distributed to Shareholders. The Share Premium can only be utilized for purposes specified under the

Companies Act.

Surplus on revaluation of Property, Plant & Equipment is a Capital Reserve arising from net surplus on revaluation of

Property, Plant & Equipment. The unrealized surplus cannot be directly distributed to Shareholders.

22. Revenue Reserves


Rs. Rs. Rs. Rs.

General Reserve


Transferred from Retained Profit – 200,000,000 – 200,000,000


Property, Plant & Equipment Replacement Reserve 23,000,000 23,000,000 23,000,000 23,000,000

Total 653,122,000 653,122,000 652,102,000 652,102,000

General Reserve represents the amount set aside for general application. Property, Plant & Equipment Replacement

Reserve represents the amount set aside for replacement of Property, Plant & Equipment.


71

23. Interest Bearing Borrowings


Rs. Rs. Rs. Rs.

Loans


Loans Received during the year 280,391,427 75,000,000 280,391,427 75,000,000

378,860,471 125,518,684 367,193,804 108,185,417

Payments during the year (62,872,814) (27,049,640) (51,206,148) (21,383,040)


Loan Instalments payable within one year (60,775,917) (36,381,264) (60,775,917) (31,381,264)

Loan Instalments payable after one year 255,211,740 62,087,780 255,211,739 55,421,113

Company

Lender Balance on Terms of Repayment and Security31.03.2006

Rs.

(a) National Development Bank Term Loan 235,000,000 Commencing November 2005, 1st

of Sri Lanka (Loan disbursed instalment of Rs. 4,895,849/- and thereafter

Rs. 235 Mn) 47 equal monthly instalments of

Rs. 4,895,833/- ending in

October 2010. (Security - Mortgage of Land

at Bauddhaloka Mawatha)

(b) National Development Bank Term Loan 43,096,233 Commencing September 2004, 1st

(Loan disbursed Rs. 65 Mn) instalment of Rs. 834,900/- and thereafter

7 equal monthly instalments of Rs. 833,300/-

and 4 instalments of Rs. 1,208,300/- and

one instalment of Rs. 1,486,105/- and

35 instalments of Rs. 1,486,077/- ending in

August 2008. (Security - Mortgage of

Kitulwatte Land)

(c) DFCC Bank 20,391,427 Commencing April 2006 35 equal monthly

(Loan disbursed Rs. 20.391 Mn) instalments of Rs. 566,429/- and

1 instalment of Rs. 566,412/- (Security -

Mortgage of equipment procured under

this loan)

(d) National Development Bank 17,499,996 Commencing October 2004, 1st instalment of

(Loan disbursed Rs. 35 Mn) Rs. 972,230/- and thereafter 35 equal

monthly instalments of Rs. 972,222/- ending

in September 2007. (Security - Further

mortgage of Kitulwatte Land)

315,987,656

The rate of interest applicable to loans

(a) Fixed at 10.65% for 1st two years and thereafter AWLR plus 3.5%. The rate is revised half yearly.

(b) Fixed at 10.25%.

(c) Fixed at 11%.

(d) Fixed at 11.25%.



72



Rs. Rs. Rs. Rs.

24. Finance Lease Obligation

National Development Bank of Sri Lanka

Lease Obligation

Balance on 1st April – 210,091 – –

On Leases obtained during the year – – – –

– 210,091 – –

Repayments during the year – (210,091) – –

Balance on 31st March – – – –

Interest in Suspense

Balance on 1st April – 15,122 – –

On Leases obtained during the year – – – –

– 15,122 – –

Charged to Income Statement – (15,122) – –

Balance on 31st March – – – –

Net Finance Lease Obligation – – – –

Instalments Payable in the ensuing year

Lease Obligation – – – –

Interest in Suspense – – – –

– – – –

25. Deferred Income

Negative Goodwill on Consolidation


Negative Goodwill on Acquisition of Associate

Company shares 546,026 – – –

Balance on 31st March 7,692,119 7,146,093 –

Accumulated Amortization


Amortized during the year 1,362,187 1,260,095 – –

Balance on 31st March 6,002,314 4,640,127 – –

Net Balance 1,689,805 2,505,966 – –

26. Deferred Tax


Transferred (to)/from Income Statement (9,540,000) (7,581,000) (8,500,000) (6,200,000)



73

27. Retirement Benefit Obligation


Rs. Rs. Rs. Rs.

Gratuity


Provision for the year 22,687,040 12,953,162 21,352,331 12,245,480

89,912,345 72,376,514 84,471,403 67,699,297

Payments during the year (5,098,356) (5,151,209) (3,524,565) (4,580,225)


Gratuity of Associated Rubber Industries Limited (Note 15) (431,818) (1,526,883) – –

Gratuity of Associated Yuasa Batteries

(Lanka) Limited (Note 15) – (42,075) – –

84,382,171 65,656,347 80,946,838 63,119,072

The last actuarial valuation was carried out as at 31st March 2006 by an actuary to ascertain the liability.


Rs. Rs. Rs. Rs.

28. Trade and Other Payables

Trade Creditors 70,509,839 44,919,970 19,081,799 17,428,075

Others including Accrued Expenses 193,452,227 216,116,362 153,591,171 150,842,328

Bank Deferred Payments on Imports 47,755,570 210,747,726 47,755,570 210,747,726

Unclaimed Dividends 3,448,413 2,981,736 2,869,395 2,699,745

315,166,049 474,765,794 223,297,935 381,717,874

29. Short-Term Borrowings

Import Loans 602,633,648 232,683,517 587,476,452 196,257,517

Other Loans 671,941,288 527,030,000 671,941,288 521,628,000

1,274,574,936 759,713,517 1,259,417,740 717,885,517

30. Amounts due to Related Companies

Associated Motor (Lanka) Co. Limited – – 275,781,811 53,716,076

Associated Travels & Tours Limited – – 310,356 10,356

Associated Electrical Corporation Limited – – – –

Associated Property Development Limited – – 3,089,552 11,829,488

– – 279,181,719 65,555,920

31. Provision for Taxation


Provision for the year 267,044,669 107,934,046 183,500,000 94,000,000

311,488,118 124,449,496 225,635,903 110,547,420

Payments made during the year (160,675,472) (80,006,047) (138,820,399) (68,411,517)




74

Motor Division Retreading, Compounding Tyres, Batteries Others Total(including Spares & Services) & other Related Services & Lubricants

2006 2005 2006 2005 2006 2005 2006 2005 2006 2005Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

32. Segment Information

Revenue

Total Revenue 8,109,258,463 4,576,249,878 836,635,395 702,057,314 282,557,938 236,543,361 17,159,790 14,090,940 9,245,611,586 5,528,941,493

Inter-Segment Sales – – – – – – – – (166,418,598) (88,639,538)

External Sales – – – – – – – – 9,079,192,988 5,440,301,955

Results

Operating Profit 967,849,651 478,517,785 (11,218,535) 1,173,416 2,908,000 (11,240,844) 12,489,956 9,299,153 972,029,072 477,749,510

Other Operating Income

Net of Unallocated

Expenses – – – – – – – – (4,518,130) (18,663,915)

Operating Profit

before Interest – – – – – – – – 967,510,942 459,085,595

Finance Cost – – – – – – – – (149,065,734) (89,296,458)

Income from

Associate Companies/Jointly

Controlled Entities – – 7,508,045 14,055,842 – – – – 7,508,045 14,055,842

Profit on Disposal of Investment – – – – – – – – – –

Taxation – – – – – – – – (246,428,632) (92,190,094)

Profit after Taxation – – – – – – – 579,524,621 291,654,885

Assets

Segment Assets 3,156,100,099 1,505,713,224 509,533,855 516,852,711 187,370,212 136,939,696 55,067,422 40,182,698 3,908,071,588 2,199,688,329

Investment in

Associates/Jointly

Controlled Entities – – 80,312,429 77,792,564 – – – – 80,312,429 77,792,564

Unallocated

Corporate Assets – – – – – – – – 339,640,076 648,654,623

Total Assets 4,328,024,093 2,926,135,516

Liabilities

Segment Liabilities 1,331,908,585 921,349,073 218,199,295 178,064,622 47,472,835 37,778,534 4,975,786 5,679,870 1,602,556,501 1,142,872,099

Unallocated Corporate

Liabilities – – – – – – – – 1,009,956,087 601,895,720

Total Liabilities 2,612,512,588 1,744,767,819

Capital Expenditure

Segment Capital

Expenditure 456,061,237 57,687,141 36,056,748 33,282,739 – – 14,003,986 – 506,121,971 90,969,880

Unallocated Capital

Expenditure – – – – – – – – – 618,413

Total Capital Expenditure 506,121,971 91,588,293

Depreciation

Segment Depreciation 26,463,741 25,860,807 25,031,615 33,586,699 – – 1,284,429 – 52,779,785 59,447,506

Unallocated Depreciation – – – – – – – – 223,372 1,531,041

Total Depreciation 53,003,157 60,978,547

Subsidiary Companies

Associated Rubber Industries Limited, ceased manufacturing operations in November 2000.

Associated Travels & Tours Limited, ceased transport activities in August 2000.

Associated Yuasa Batteries (Lanka) Limited, ceased trading activities during the year 2002/2003.

Inter-segment Pricing is determined on an arm's length basis.



75

33. Contingent Liabilities

Associated Motorways Limited has guaranteed to:

(i) Bank of Ceylon an overdraft facility of Rs. 4 Mn to Associated Autoways (Pvt) Limited. The balance outstanding as

at 31.03.2006 was Rs. 8,891,591/-.

(ii) Commercial Bank of Ceylon Limited., an overdraft and import loan facility amounting to Rs. 10 Mn granted to

Associated Global Trading (Pvt) Limited. The balance outstanding as at 31.03.2006 was nil.

(iii) Bank of Ceylon an import loan facility of Rs. 260 Mn granted to Associated Motor (Lanka) Co Limited. The balance

outstanding as at 31.03.2006 was Rs. nil.

34. Capital Commitments

There were no significant capital commitments as at the Balance Sheet date.

35. Post Balance Sheet Events

The Board of Directors of the Company has recommended a declaration of a final dividend of 50% for the financial year

ended 31.03.2006, subject to approval by the shareholders.

The Company has invested Rs. 100,000,000/- on 04.04.2006 in AMW Capital Leasing Limited.

36. Directors' Interests in Contracts with the Company

The interests in contracts of each Director, direct or indirect in all financing and other arrangements are as indicated below:

A de Zoysa, T de Zoysa, A R Peiris, U Hulugalle, J B L de Silva, G B R de Silva, H S A K Caldera,

E Abeysiriwardane, A J de A Abraham and D A de Zoysa were Directors of the Company during the year. A S de Zoysa

and A A de Silva were appointed w.e.f. 15th June 2005. S M de Zoysa is the alternate Director to Mr. T de Zoysa.

The Company had the undermentioned financial dealings during the year with the following Subsidiaries, Associates

and Jointly Controlled Entities. The following Directors of Associated Motorways Limited who held office as described

were also Directors of the Subsidiaries, Associates and Jointly Controlled Entities of the Company as indicated below:

2006 2005Company Name of Director Position Particulars of the Contracts Rs. Rs.

Associated Rubber A de Zoysa Chairman

Industries Limited T de Zoysa Deputy Chairman/ No transactions during the year

Managing Director

U Hulugalle Director Amount due from 3,164,808 2,411,898

H S A K Caldera Director

Associated Yuasa A de Zoysa Chairman No transactions during the year

Batteries (Lanka) Limited T de Zoysa Deputy Chairman/ Amount due from – 2,981,831

Managing Director



76



Associated Travels & A de Zoysa Chairman

Tours Limited T de Zoysa Deputy Chairman/

Managing Director

U Hulugalle Director

A A de Silva Director

A S de Zoysa Director Amount due to 310,356 10,356

A J de A Abraham Alternate Director

to A de Zoysa

Associated Property A de Zoysa Chairman Rent Paid 15,491,230 12,374,460

Development Limited T de Zoysa Deputy Chairman/ Interest Paid 519,852 1,363,267

Managing Director Electricity Bills Reimbursed 1,057,327 2,103,750

U Hulugalle Director Water Bills Reimbursed 306,180 364,098


A S de Zoysa Director Amount due to 3,089,552 11,829,488

Associated Motor A de Zoysa Chairman Interest Received – 563,498

(Lanka) Co. Limited T de Zoysa Deputy Chairman/ Administration Income 960,000 1,240,000

Managing Director Interest Paid 19,702,293 1,080,884

G B R de Silva Director

A A de Silva Director Associated Motorways Limited

A de Zoysa Director has guaranteed an import loan

facility amounting to Rs. 260 Mn

obtained by Associated Motor

(Lanka) Co. Limited from Bank of Ceylon.

The balance outstanding as at 31st March

2006 was nil

Amount due to 275,781,811 53,716,076

Associated Autoways A de Zoysa Chairman Sales (Raw Material) 76,718,406 74,548,598

(Pvt) Limited T de Zoysa Deputy Chairman/ Service Income 72,540,402 72,338,874

Managing Director Administrative Income 2,304,625 3,235,000

U Hulugalle Director Rent Received 1,151,819 1,224,713

H S A K Caldera Director Interest Income 4,471,728 408,880

E Abeysiriwardane Director Rent Paid – 150,000

(Resigned w.e.f.7th June 2005)


A S de Zoysa Director Associated Motorways Limited,

has guaranteed:

(i) An overdraft facility of Rs. 4 Mn

taken by Associated Autoways

(Pvt) Limited from the Bank of

Ceylon. The balance outstanding

as at 31st March 2006 was

Rs. 8,891,591/-

Amount due from 75,382,652 39,545,697


77


Associated Motorways A de Zoysa Chairman No Transactions

Managements (Pvt) T de Zoysa Deputy Chairman/

Limited Managing Director

U Hulugalle Director

A J de A Abraham Director

G B R de Silva Director

H S A K Caldera Director

E Abeysiriwardane Director


A S de Zoysa Director

Associated Global A de Zoysa Chairman Administrative Income 165,244 272,590

Trading (Pvt) Limited T de Zoysa Deputy Chairman/ Salaries Reimbursed 1,237,527 1,093,939

Managing Director Interest Received 1,830,266 1,880,719

G B R de Silva Director Repairs & Servicing of

Motor Vehicles 230,934 –

E Abeysiriwardane Director Sale of Moped 360,086 –

(Resigned w.e.f. 7th June 2005)

A J de A Abraham Director Associated Motorways Limited

A A de Silva Director has guaranteed an overdraft

A S de Zoysa Director and import loan facility

amounting to Rs. 10 Mn

granted to Associated Global

Trading (Pvt) Limited by

Commercial Bank of Ceylon

Limited. The balance outstanding

as at 31st March 2006 was nil

Amount due from 11,923,162 14,608,710

Associated Ceat A de Zoysa Chairman No Transactions

Holdings Co. (Pvt) Limited T de Zoysa Director


(Pvt) Limited A de Zoysa Chairman Sales (Services & Raw Materials) 22,835,881 20,846,834

T de Zoysa Deputy Chairman/ Management Fees Received 5,460,000 5,460,000

Managing Director Rent Received 360,000 360,000

H S A K Caldera Alternate Director to Repairs & Servicing of Motor Vehicles 34,635 –

A de Zoysa Amount due from 3,394,822 2,582,665

In addition to the above, certain Directors of the Company are also Directors of the following entities which have had transactions in the normal course

of business:

Associated Ceat

(Pvt) Limited A de Zoysa Vice Chairman Sales (Services including

T de Zoysa Director Compounding, Buffing &

Transport) 13,622,647 15,029,135

Rent Income 150,000 150,000

Repairs & Servicing of

Motor Vehicles 208,611 415,823

Purchase of Tyres – 57,657

Interest Income 268,599 509,173

Amount due from 5,793,078 2,852,972



78


Ceat Kelani A de Zoysa Vice-Chairman Services (Compounding) 134,352 4,181,704

International Tyres Purchase of Tyres 26,778 58,383

(Pvt) Limited Repairs & Servicing of

Motor Vehicles – 10,629

Purchase of Calandering 1,347,097 4,031,572

Associated Electrical A de Zoysa Chairman/ Sale of Motor Vehicles – 7,123,117

Corporation Limited Managing Director Repairs & Servicing of Motor Vehicles 135,602 314,318

T de Zoysa Director

J B L de Silva Director Purchase of Electrical Items

and Computers 50,000 404,480

Purchase of Right of Way – 737,500

Electricity Bills Reimbursed 211,451 482,381

D A de Zoysa Director Purchase of Vehicles 3,268,650 –


Amount due to – –

Trelleborg Lanka (Pvt) Limited A de Zoysa Director Services 8,365,368 10,089,279T de Zoysa Alternate Director to Repairs & Servicing of Motor Vehicles 5,660 –

A de Zoysa

ADZ Insurance Brokers A de Zoysa Chairman Insurance Agent No payments

(Pvt) Limited D A de Zoysa Director made


Lanka Walltiles Limited T de Zoysa Director Repairs and Servicing of Vehicles 455,896 290,271

Donation 10,000 10,000

Purchase of Tiles – 77,458

Taj Lanka Hotels Limited T de Zoysa Director Hospitality Charges Paid 404,703 348,775

Repairs and Servicing of Vehicles – 222,572

Nela de Zoysa S M de Zoysa Director Architectural Fees 229,250 458,500

Design Corporation Repairs and Servicing of Vehicles 81,678 –

Eastern Merchants Limited J B L de Silva Director Sale of Motor Vehicles – 4,248,691

Repairs and Servicing of Vehicles 285,682 52,886

Purchase of Rubber 9,379,005 4,868,703

Union Bank A de Zoysa Chairman Investment in Shares 23,333,300 –

Repairs and Servicing of Vehicles – 7,735

Nawaloka Hospitals T de Zoysa Director Sale of Motor Vehicles 1,060,000 3,828,445

Limited Repairs and Servicing of Vehicles 224,548 65,377

Purchase of Shares – 2,000,000

Young Men's Buddhist A de Zoysa Governor Repairs and Servicing of Vehicles – 22,962

Association T de Zoysa Vice-President Rent Paid – 900,000

Kalutara Bodhi Trust A de Zoysa Chairman Donation - Dialysis Machine – 500,000

T de Zoysa Hony. Secretary Donation - Tsunami Relief Work – 1,500,000

Donation 30,000

Repairs and Servicing of Vehicles 443,365

All transactions between the Company and Related Companies were made under normal commercial terms.

Directors have no direct or indirect interest in any other contracts with the Company. The above interests in contracts have been declared at

Board Meetings by the Directors concerned.



79

37. Related Party Disclosure

All related party transactions have been identified and disclosed in Note 36 to the Financial Statements.

38. Corporate Information

Name of the Company - Associated Motorways Limited

Registered Office - No. 185, Union Place, Colombo 2

Domicile and Legal Form - A Limited Liability Company Incorporated under the

Companies Ordinance and domiciled in Sri Lanka

Registration Number of the Company - PBS 168

Date of Incorporation - 01.10.1949

Nature of Business - Rebuilding of Tyres, Sale of Motor Vehicles, Motor Cycles,

Three Wheelers, Spares and Lubricants, Repairs & Service

of Vehicles, Services to Subsidiary Companies and Associate

Companies, Marketing & Trading and Export of Rubber Goods

Number of Employees at the end of the year - 1,591 in 2006

1,162 in 2005



80

Statement of Value Added


For the year ended 31st March 2006 % 2005 % 2004 % 2003 % 2002 %Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

Turnover 7,946,853 4,963,191 3,398,917 2,222,277 1,623,337

Add: Other Income 108,241 56,960 43,086 38,736 79,445

8,055,094 5,020,151 3,442,003 2,261,013 1,702,782

Less: Purchase of Goods & Services 6,691,583 4,130,496 2,860,512 1,800,179 1,283,237

Value Added 1,363,511 889,655 581,491 460,834 419,545

Distributed as follows:

To Government

(excluding Value Added Tax) 253,660 19 136,026 15 67,821 12 41,062 9 22,592 5

To Employees 472,112 35 365,832 41 308,307 53 267,288 58 238,000 57

To Lenders 166,096 12 88,192 10 75,390 13 72,769 16 105,800 25

To Shareholders 61,818 5 32,970 4 20,605 3 – – 20,606 5

Retained in the Business

Depreciation & Amortization 43,745 3 51,112 6 86,016 15 34,591 7 37,049 9

Deferred Tax (8,500) (1) (6,200) (1) (7,000) (1) 3,650 1 (1,600) –

Retained Profit 374,580 27 221,723 25 30,352 5 41,474 9 (2,902) (1)

1,363,511 100 889,655 100 581,491 100 460,834 100 419,545 100

Statement of Value Added

To Government

To Employees

To Lenders

To Shareholders

Retained in the Business

2006 2005

12%

5%

29%19%

35%10%

4%

30%

15%

41%


81

Ten Year Financial Summary


Year ended 31st March 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

Trading Results

Turnover 7,946,853 4,963,191 3,398,917 2,222,277 1,623,337 1,690,905 1,548,203 1,452,749 1,438,970 1,188,347

Profit before Taxation 596,456 333,761 77,407 61,324 16,106 66,790 119,194 148,077 94,766 27,621

Taxation (160,058) (79,068) (26,450) (19,850) 1,600 (26,300) (33,600) (26,500) (33,500) (14,000)

Net Profit attributable to

Shareholders’ Funds 436,398 254,693 50,957 41,474 17,706 40,490 85,594 121,577 61,266 13,621

Share Capital

& Reserves

Paid-Up Capital 82,424 82,424 82,424 82,424 82,424 82,424 82,424 68,686 68,686 68,686

Capital Reserves 228,877 228,877 228,877 228,877 228,877 228,877 228,877 242,614 242,614 242,614

Revenue Reserves 1,148,168 755,043 531,259 500,908 459,434 462,334 430,086 369,219 268,249 225,871

Shareholders' Funds 1,459,469 1,066,344 842,560 812,209 770,735 773,635 741,387 680,519 579,549 537,171

Assets Less Liabilities

Current Assets 2,990,502 1,984,648 1,456,719 1,097,733 911,298 931,294 809,672 620,937 667,227 441,212

Current Liabilities (2,322,750) (1,481,771) (1,150,736) (814,357) (596,141) (619,388) (519,573) (354,071) (464,023) (247,661)

NET CURRENT ASSETS 667,752 502,877 305,983 283,376 315,157 311,906 290,099 266,866 203,204 193,551

NON-CURRENT ASSETS 1,156,026 718,657 658,350 653,276 580,428 594,541 540,437 510,632 483,212 452,333

Provisions and Long Term Liabilities

Long Term Loans (255,212) (55,421) (23,470) (27,800) (36,140) (47,380) (6,908) (15,050) (25,316) (31,587)

Deferred Income – – – – – (96) (191) (287) (2,632) (4,978)

Deferred Taxation (28,150) (36,650) (42,850) (49,850) (46,200) (47,800) (47,500) (50,900) (49,400) (45,900)

Retirement Benefit

Obligation (80,947) (63,119) (55,453) (46,793) (42,510) (37,536) (34,550) (30,742) (29,519) (26,248)

1,459,469 1,066,344 842,560 812,209 770,735 773,635 741,387 680,519 579,549 537,171

Figures in brackets indicate deductions.


82

Ten Year Financial Summary

Associated Motorways Group of Companies

Year ended 31st March 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000 Rs. '000

Trading Results

Turnover 9,079,193 5,440,302 3,720,430 2,502,151 1,798,067 1,871,083 1,768,933 1,680,231 1,659,833 1,336,667

Profit before Taxation 825,953 383,845 66,995 95,300 42,954 40,759 105,493 169,282 128,417 42,127

Taxation (246,428) (92,190) (32,936) (28,827) (2,077) (33,058) (37,780) (34,869) (36,132) (15,710)

Profit after Taxation 579,525 291,655 34,059 66,473 40,877 7,701 67,713 134,413 92,285 26,417

Minority Interest (7,634) (2,718) 1,437 (5,281) (4,985) 11,673 (3,834) (7,408) (4,787) (2,999)

Net Profit attributable to

Shareholders’ Funds 571,891 288,937 35,496 61,192 35,892 19,374 63,879 127,005 87,498 23,418

Share Capital & Reserves

Paid-Up Capital 82,424 82,424 82,424 82,424 82,424 82,424 82,424 68,686 68,686 68,686

Capital Reserves 264,691 264,691 264,691 264,691 264,691 243,197 243,197 260,343 259,509 257,828

Revenue Reserves 1,337,435 808,817 550,789 535,899 474,707 459,420 448,289 409,898 305,179 237,925

Shareholders' Funds 1,684,550 1,155,932 897,904 883,014 821,822 785,041 773,910 738,927 633,374 564,439

Minority Interest 30,961 25,435 23,348 27,935 39,946 28,353 42,356 44,002 41,338 36,493

Non-Current

Liabilities

Interest Bearing

Borrowings & Lease

Creditors 255,212 62,088 35,137 28,658 43,140 74,468 47,056 39,800 39,539 49,870

Retirement Benefit

Obligation 84,382 65,656 57,805 48,596 44,064 44,239 40,383 36,500 36,666 31,534

Deferred Taxation 40,184 49,724 57,305 66,189 59,418 59,847 58,874 55,716 49,769 45,900

Deferred Income 1,690 2,506 3,766 5,026 21 188 320 480 2,890 4,978

Deferred Expenditure – – – – – – – – (1,654) (1,654)

Liabilities of Associated

Rubber Industries Limited 489 1,585 1,713 2,444 2,640 – – – – –

Liabilities of Associated

Yuasa Batteries

(Lanka) Limited 15 84 78 1,068 – – – – – –

2,097,483 1,363,010 1,077,056 1,062,930 1,011,051 992,136 962,899 915,425 801,922 731,560

Assets Less Liabilities

Current Assets 3,112,943 2,175,036 1,564,496 1,219,313 960,144 992,347 924,447 730,914 747,790 511,805

Current Liabilities (2,230,541) (1,563,124) (1,166,459) (864,962) (626,638) (652,060) (552,303) (391,454) (496,905) (277,658)

Net Current Assets 882,402 611,912 398,035 354,351 333,506 340,287 372,144 339,460 250,885 234,147

Property, Plant &

Equipment & Investments 1,199,643 733,926 661,936 690,046 634,943 651,849 590,755 575,965 551,037 497,413

Assets of Associated

Rubber Industries Limited 13,913 14,492 13,956 14,490 42,602 – – – – –

Assets of Associated Yuasa

Batteries (Lanka) Limited 1,525 2,680 3,129 4,043 – – – – – –

2,097,483 1,363,010 1,077,056 1,062,930 1,011,051 992,136 962,899 915,425 801,922 731,560

Figures in brackets indicate deductions


83

Statement of Shareholdings

Summary of Shareholdings

Resident Non-Resident TotalRange of No. of No. of % of No. of No. of % of No. of No. of % of

Shareholding Share- Shares Share- Share- Shares Share- Share- Shares Share-holders holding holders holding holders holding

1 - 1,000 1,347 205,905 2.50 16 2,533 0.03 1,363 208,438 2.53

1,001 - 5,000 139 294,007 3.57 2 5,503 0.06 141 299,510 3.63

5,001 - 10,000 19 135,871 1.65 1 8,240 0.10 20 144,111 1.75

10,001 - 50,000 21 511,348 6.20 4 73,927 0.90 25 585,275 7.10

50,001 - 100,000 1 72,624 0.88 0 0 0.00 1 72,624 0.88

100,001 - 500,000 3 978,893 11.88 1 185,352 2.25 4 1,164,245 14.13

500,001 - 1,000,000 0 0 0.00 0 0 0.00 0 0 0.00

1,000,001 & Above 2 5,768,166 69.98 0 0 0.00 2 5,768,166 69.98

Total 1,532 7,966,814 96.66 24 275,555 3.34 1,556 8,242,369 100.00

Summary of Shareholdings

Individual Company TotalRange of No. of No. of % of No. of No. of % of No. of No.of % of

Shareholding Share- Shares Share- Share- Shares Share- Share- Shares Share-holders holding holders holding holders holding

1 - 1,000 1,297 193,860 2.35 66 14,578 0.18 1,363 208,438 2.53

1,001 - 5,000 126 262,434 3.18 15 37,076 0.45 141 299,510 3.63

5,001 - 10,000 16 109,309 1.33 4 34,802 0.42 20 144,111 1.75

10,001 - 50,000 22 530,677 6.44 3 54,598 0.66 25 585,275 7.10

50,001 - 100,000 1 72,624 0.88 0 0 0.00 1 72,624 0.88

100,001 - 500,000 3 832,518 10.10 1 331,727 4.03 4 1,164,245 14.13

500,001 - 1,000,000 0 0 0.00 0 0 0.00 0 0 0.00

1,000,001 & Above 0 0 0.00 2 5,768,166 69.98 2 5,768,166 69.98

Total 1,465 2,001,422 24.28 91 6,240,947 75.72 1,556 8,242,369 100.00

Statement of Shareholders as at 31st March 2006

Category No. of Shareholders No. of Shares % of Shareholding

1 – 1,000 1,363 208,438 2.530

1,001 – 5,000 141 299,510 3.630

5,001 – 10,000 20 144,111 1.750

10,001 – 50,000 25 585,275 7.100

50,001 – 100,000 1 72,624 0.880

100,001 – 500,000 4 1,164,245 14.130

500,001 – 1,000,000 0 0 0.000

1,000,001 & Above 2 5,768,166 69.980

1,556 8,242,369 100.000


84


Twenty largest Shareholders and their Holdings as at 31st March 2006

As at 31st March 2006 As at 31st March 2005Name of Shareholder No. of Shares Percentage No. of Shares Percentage

Associated Electrical Corporation Limited 4,023,866 48.82 3,862,566 46.86Richard Pieris & Co. Limited - Account No. 01 1,744,300 21.16 – –Mr. S C de Zoysa 392,525 4.76 392,525 4.76Associated Investments (Pvt) Limited 331,727 4.02 331,727 4.02Mr. S M de Zoysa 254,641 3.09 254,641 3.09Mr. L Karunatileke 185,352 2.25 146,576 1.78Sir Cyril de Zoysa (Decd.) 72,624 0.88 72,624 0.88Mrs. J A U M Samarasinghe 47,520 0.58 47,520 0.58Mrs. D A Fernando 44,186 0.54 44,186 0.54Mr. K M Wickremasinghe (Decd.) 43,473 0.53 43,473 0.53Mr. E G P Karunaratne 35,941 0.44 35,941 0.44Mr. A C Gooneratne, Q.C. (Decd.) 35,812 0.43 35,812 0.43Associated Travels & Tours Limited 29,306 0.36 29,306 0.36Mr. V T de Zoysa 29,149 0.35 29,149 0.35Mrs. B Gunasekera - HENOPP 27,087 0.33 27,087 0.33Mrs. G P de Zoysa 27,033 0.33 52,033 0.63Mrs. R A P K Fernando 25,961 0.31 25,961 0.31Mr. S D de Zoysa 24,481 0.30 26,481 0.32Mr. T de Zoysa 21,725 0.26 21,725 0.26Mr. I R de Silva 20,700 0.25 20,700 0.25Other Shareholders 824,960 10.01 2,742,336 33.28

Total 8,242,369 100.00 8,242,369 100.00

Share Information

The aggregate shareholding by the Directors and their spouses as at 31st March 2006:

Shareholdings

2006 2005

A de Zoysa 11,259 11,759

T de Zoysa 21,725 21,725

Mrs. S R de Zoysa 2,576 2,576

J B L de Silva 2,254 2,254

U Hulugalle 500 15,100

Mrs. S M Hulugalle (Decd.) 18 28

A J de A Abraham 2,150 2,150

G B R de Silva 686 686

Mrs. S K de Silva 2,769 2,769

H S A K Caldera 2,280 2,280

E Abeysiriwardane 500 500

D A de Zoysa 500 500

A R Peiris 600 600

A A de Silva* 1,000 –

A S de Zoysa* 500 –

S M de Zoysa (Alternate Director) 254,641 254,641303,958 317,568

*Shares were bought after their appointments as Directors (w.e.f. 07.06.2005)


85


Public Shareholding

31st March 2006 Percentage 31st March 2005 Percentage

Public 1,809,212 21.95 2,584,939 31.36Directors, Spouses, Subsidiary & Controlled Companies and Shareholders whose holding exceeds 10% of the issued Share Capital 6,433,157 78.05 5,657,430 68.64Total 8,242,369 100.00 8,242,369 100.00


Ratios and Statistics 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997

Return on Capital & Reserves % 41 31 9 8 2 9 16 22 16 5

Rates of Dividends % 75 40 25 25 25 10 30 30 27.5 10

Dividends per share Rs. 7.50 4.00 2.50 2.50 2.50 1.00 3.00 3.00 2.75 1.00

Price/Earnings Ratio Times 6.16 4.46 13.59 9.94 13.5 5.9 4.14 2.82 3.92 16.67

Market Price per Share

as at 31st March Rs. 326.25 137.75 84.00 50.00 29.00 29.00 43.00 50.00 35.00 33.00

Earnings per Share Rs. 52.95 30.90 6.18 5.03 2.15 4.91 10.38 17.70 8.92 1.98

Net Assets per Share as

at 31st March Rs. 177.07 129.37 102.22 98.54 93.51 93.86 89.97 99.12 84.76 78.21

Earnings per Share

For the purpose of computing Earnings per Share, Net Profit after Taxation has been divided by the number of Shares of the Company

issued and fully paid as at the Balance Sheet date of the respective years. However, the Earnings per Share disclosed in the Income

Statement is as stated in Note 7 to the Financial Statements.

2005/2006 2004/2005

AMW AMW

Rs. Rs.

Price Movements

Highest 450.00 139.00

Lowest 137.00 70.00

Closing Price 326.25 137.75

AMW Share at Colombo Stock Exchange

No. of Share Transactions for the year 510 393

No. of Shares Traded 2,077,900 342,800


86

Our Heritage

Sir Cyril de Zoysa

It is difficult to

contemplate the

development of

Sri Lanka’s manufacturing

Industry without recalling the

unique contribution made by

Sir Cyril de Zoysa (Former

Chairman of the Senate). He was

a dominant figure in the

commercial scene for over 30 years

commencing from the late forties.

When Associated Motorways

Limited was established in 1949

the industrial climate as such in

this country had no attraction for

the entrepreneur but Sir Cyril had

the basic attributes of a successful

pioneer, sagacity and foresight

combined with grit and

determination.

Past Chairmen

E G Wickramanayaka,Q.C.

(1959-1974)

Chulaka de Zoysa(1987-1990)

V T de Zoysa(1978-1987)

The Associated Motorways Group has indeed come a

long way since its inception almost six decades ago. The

Group has grown considerably in size and scope since

Sir Cyril de Zoysa first planted the valuable seeds of its

incorporation in 1949. With this commenced the truly

impressive growth of a Sri Lankan company which today

stands as a premier blue chip of stature not just in the

motor industry but in the overall business firmament of

the country.

Thus AMW stands today as a fitting tribute to the genius

and vision of our illustrious founder.


87

Our Heritage

1949Incorporated as a pioneer tyre rebuilder

1957Sole distributorship of the popular Nissan brand of vehicles

1981Sole agency for distribution of ‘Yamaha’ motor cycles

1992Tyre retreading using precure technology - a Joint Venture with Autoways Berhad of Malaysia

Authorized agency for Goodyear tyre distribution in Sri Lanka

Sole distributor in Sri Lanka for Maruti range of motor vehicles

1993Sole distributor of Mopeds from Majestic Auto Limited, India

1996Sole distributorship of Eicher trucks & buses

1998Sole agency to sell Piaggio three wheelers

1999Sole distributorship for British Petroleum and (Castrol lubricants - 2002)

2000A Joint Venture with UPR Import Export Limited, USA for manufacture & export of moulded rubber products

2003Sole distributor for Renault motor cars.

2005Sole distributorship of Suzuki vehicles

Our overall performance is backed by these strong brands and partnerships. These will greatly

facilitate the sustainability of our business in the years ahead.


88

Notice of Meeting

NOTICE is hereby given that the FIFTY SEVENTH ANNUAL GENERAL MEETING OF ASSOCIATED MOTORWAYS LIMITED will

be held at the Registered Office of the Company, No. 185, Union Place, Colombo 2 on 4th August 2006 at 9.30 a.m. for the

following purposes:

1. To receive and adopt the Report of the Directors and the Statement of Accounts for the year ended 31st March 2006

and to receive the Report of the Auditors thereon.

2. To declare a Dividend.

3. To re-elect Directors in place of Directors retiring by rotation.

4. To re-elect Mr. U Hulugalle as a Director of the Company. Special Notice has been given by a Shareholder

(Mr. S C de Zoysa) pursuant to Section 138 of the Companies Act No. 17 of 1982, of his intention to propose the

following Resolution as an Ordinary Resolution:

“That Mr. U Hulugalle who is over 70 years of age be and is hereby elected a Director of the Company, and that the age

limit referred to in the Companies Act is not applicable to the said Director”.

5. To appoint Auditors and authorize the Directors to determine their remuneration.

6. To approve donations.

7. To transact any other business that may properly be brought before the meeting.


Ms. D Kumarasinghe

Company Secretary

Colombo

14th June 2006

Note

1. A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote on his behalf.

2. A proxy need not be a member of the Company. The form of proxy will be found at the back of the Annual Report.

3. The completed form of proxy should be deposited at the Registered Office of the Company No. 185, Union Place, Colombo 2 not less than

48 hours before the time appointed for the holding of the meeting.

REGISTRATION NO.PBS - 168

DATE OF INCORPORATION

01.10.1949

CORPORATE STATUS

Public LimitedLiability Company

STOCK EXCHANGE LISTING

The Ordinary Shares of the Company are listed with theColombo Stock Exchange of Sri Lanka

DIRECTORS

Ajita de Zoysa (Chairman)Tilak de Zoysa (Deputy Chairman/Managing Director)U HulugalleJ B L de SilvaG B R de SilvaH S A K CalderaE AbeysiriwardaneA J de A AbrahamA R PeirisD A de ZoysaA A de SilvaA S de Zoysa

S M de Zoysa (Alternate Director to Mr. T de Zoysa)

SECRETARY

Ms. D Kumarasinghe

AUDIT COMMITTEE

A R PeirisJ B L de SilvaD A de Zoysa

REGISTERED OFFICE

No. 185, Union Place, Colombo 2.Tel: 2309300, 2433371-6Fax: 2449909Web Address: www.amwltd.comE-mail Address: [email protected]

AUDITORS

Kreston MNS & CompanyChartered Accountants

BANKERS

Bank of CeylonCitibank, N ACommercial Bank of Ceylon LimitedDFCC Vardhana Bank LimitedHatton National BankHongkong and Shanghai Banking Corporation LimitedNations Trust BankNDB Bank LimitedPan Asia BankPeople’s BankSampath BankSeylan Bank LimitedStandard Chartered Bank

LAWYERSPrasanna Goonewardene & Co.

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