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Finlays Colombo PLCAnnual Report 2012

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Contents

Name of Company & NumberFinlays Colombo PLC - PQ 61

Legal FormPublic quoted company with limited liability

DirectorsC. L. K. P. Jayasuriya (Chairman & Managing Director)S. C. Swire (appointed w.e.f. 1st October 2012)E. R. Croos MoraesJ. L. CasperszMs. M. C. PieterszN. K. H. RatwatteC. Jayaratne (retired w.e.f. 31st May 2012)J. D. BandaranayakeN. G. WickremeratneR. A. Ebell (appointed w.e.f. 1st June 2012)R. J. MathisonP. R. Henson (resigned w.e.f. 31st January 2013)J. M. Rutherford (appointed w.e.f. 1st February 2013)

Company SecretaryMrs. D. M. E. Thirukumar ACIS

Registered OfficeFinlay House186, Vauxhall Street, Colombo 2Telephone : 011 2421931-7, 011 4725200Facsimile : 011 2448216

AuditorsKPMG,Chartered Accountants,P.O. Box 186, Colombo, Sri Lanka

BankersStandard Chartered BankCommercial Bank of Ceylon PLCNDB Bank PLCSampath Bank PLCThe Hongkong & Shanghai Banking CorporationHatton National Bank PLCCitibank NADeutsche Bank AG

Legal AdvisersM/s. Julius & CreasyAttorneys-at-LawP.O. Box 154, Colombo 1.

M/s. Nithi Murugesu & AssociatesAttorneys-at-Law28, (Level 2), W.A.D Ramanayake Mawatha, Colombo 2.

M/s. F. J. & G. De SaramAttorneys-at-Law216, De Saram Place, Colombo 10.

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About Us 1 Our Mission & Core Values 2 Financial Highlights 3 Chairman’s Review 4 Business Portfolio 7 Review of Operations 10 Financial Review 14 Risk Management 16 Corporate Governance 18 Report of the Remuneration Committee 24 Annual Report of the Board of Directors on the Affairs of the Company 25 Directors Profiles 29

Statement of Directors Responsibility 32 Report of the Audit Committee 33 Independent Auditors' Report 35 Statement of Financial Position 36 Statement of Comprehensive Income 37 Statement of Changes in Equity 38 Statement of Cash Flows 39 Notes to the Financial Statements 40 Ten Year Summary 73 Share Information 74 Notice of Meeting 76 Form of Proxy - Enclosed Corporate Information Inner Back Cover

1Finlays Colombo PLC | Annual Report 2012

about usFinlays Colombo PLC is a diversified holding company with a core focus on the blending and packaging of tea for export. Established in Sri Lanka in 1893 when Sir John Muir opened an office in Colombo, the initial focus was on managing tea and rubber plantations. Other measured thrusts into various aspects of business and commerce followed. With a parent company in the UK having a history going back over 260 years, Finlays has a rich tradition of long-term sustainable relationships with its stakeholders - including employees, customers, principals, the community and the environment.

From relatively modest beginnings, Finlays has grown steadily but strongly, diversifying into a number of areas to become one of the most respected business conglomerates in Sri Lanka. Apart from beverage blending and packaging, the Company is also involved in insurance brokering, temperature controlled logistics, environmental services and airline agencies.

Enriched by its past, the Company is actively shaping a future for itself, one which is sustainable - because there is no other future.

2 Finlays Colombo PLC | Annual Report 2012

OUR MISSIONTo use our experience of over 100 years to manage our range of businesses, adding value to Sri Lanka’s resources for the mutual benefit of all who play a part in our endeavours - our shareholders, customers, employees, suppliers and the community - growing, expanding and changing with thought and care in order to remain resilient and sustainable, always using new systems and better technology to be ahead in competitiveness, acceptability and service.

CORE VALUESWe are committed to respect the rule of law, conduct our business with integrity and set high standards of corporate behaviour showing respect for human dignity and the rights of the individual.

Our business dealings will always be conducted on the principle of enabling mutual reward, so that people will trust us and develop long-term relationships with us.

We are committed to treat our employees fairly, without discrimination, showing respect for their rights and dignity, and remunerate them according to skills and performance, thereby creating a stimulating work environment. The business will promote achievement orientation, innovation and teamwork amongst all levels of employees. We shall be a preferred employer.

We acknowledge and pledge our responsibility to our shareholders who have reposed their trust in us for sound corporate governance and a fair return on their investment. We are committed to pursuing strategies that will maximise long-term value for our shareholders.

We will contribute to the prosperity of future generations by creating economic value, while minimising the impact on the natural environment and ensuring sustainable growth. We will discharge our corporate social responsibilities with vigour and will enthusiastically support initiatives to uplift health, education, arts and the environment in the communities that we do business in.


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2012 2011 LKR. 000 LKR. 000

Revenue 5,091,642 4,971,581 Earnings before interest and tax 483,343 344,161 Profit before tax 462,619 317,397 Profit after tax 367,624 213,798 Dividends 157,500 122,500 Cashflow from Operations 346,157 448,112 Market Capitalization 8,183,000 9,100,000 investor information

Earnings per share LKR 10.50 6.11Market Value per share LKR 233.80 260.00 Net Assets per share LKR 155.58 149.87Dividend per share LKR 4.50 3.50 Price earnings ratio No.of times 41.07 18.24 Dividend yield % 1.9% 1.3% Current Ratio No.of times 2.27 1.95 Interest Cover No.of times 15.82 9.33


We have always believed that to achieve long term growth and keep the business on a sound footing,we have a responsibility to focus on innovation, the spirit of entrepreneurship, the awareness and management of risks, and a commitment to operate in a way that is economically, socially, and environmentally sustainable.

CHAIRMAN’SREViEW

Overview

In 2012, our businesses responded well to the challenges posed by an uncertain and unstable world economy, as well as the significant policy-induced macro-economic changes in Sri Lanka.

Performance for the year showed a growth of 2% in turnover which reached LKR 5.1 billion, while profit before taxation increased by 46% and amounted to LKR 463 million. Profit after tax amounted to LKR 368 million, an increase of 72%. Earnings per share increased to LKR 10.50 compared to LKR 6.11 realised in the previous year. The Directors have recommended a final dividend, to be approved by shareholders at the Annual General Meeting on 28th March 2013, of LKR 2/- per share. This, together with the two interim dividends already paid during the year, aggregating LKR 3/-, will make the total dividend payout of the profit for the year LKR 5/- per share, compared with LKR 3.50 in 2011.

This year’s results, together with comparative figures for the previous year, have been presented in full compliance with recently updated Sri Lanka Accounting Standards (SLFRSs/LKASs) which are in line with International Financial Reporting Standards (IFRS’s).

sectoral performance

In our Tea Exports business, the continuing unrest in the Middle East has necessitated a cautious approach, mindful of the enhanced risks of doing business in the region. Consequently, the total volume of exports declined with Syria in particular, an important market where our Istikan brand enjoys a strong market presence, recording a significant reduction. We, however, continued to focus on the value added segment – exports in consumer packs of 1 Kg and under – which accounted for 84% of the volume of our exports. Exports under the Alwazah brand to Iraq, Kuwait, Saudi Arabia and the UAE, as well as ethnic Arab communities in North America, Europe and Australasia remained at around the same level as the previous year, while exports under private label brands to Japan and Europe increased.

While the decision by the Central Bank in February 2012 to adopt a flexible exchange rate policy, where the value of the Rupee is determined by market forces, resulted in a devaluation of the currency and helped the competitiveness of our exports, the subsequent pressures brought to bear on banks to check the slide of the currency through moral


persuasion,took away some of that advantage. It is disappointing that at a time when Sri Lanka’s exports as a percentage of GDP and also as a percentage of world exports is declining rapidly, the authorities continue to give inconsistent signals by way of policy direction that are confusing and do little to assist this important segment.

Our Non-Tea businesses enjoyed mixed fortunes. While Temperature Controlled Logistics and Environmental Services continued to forge ahead, Insurance Brokering and the Airline Agency had a challenging year.

Occupancy in the Cold Store was well near full capacity for several months of the year, as we continued to penetrate into new customer segments and provide more value added services.

In Environmental Services, the Pest Control business in particular made vast strides securing many high value contracts, while Sterifirst – the medical waste disposal service – continued to be much sought after by an increasing number of institutions in the Healthcare sector.

Insurance Brokering which had recorded consistent growth until 2011, was constrained by the new regulations imposed by the Government of the Republic of Maldives, which required all Insurance Brokers transacting business in the archipelago to be licensed.This process was frustratingly slow and meant that we could not do any business for the better part of the year. The good news, however, is that the license was finally obtained in December 2012.

In the Airline Agency, passenger numbers and yields declined drastically as airlines operating eastwards out of Colombo, including low cost carriers, increased their capacity and reduced fares to attract clientele. On the other hand cargo volumes continued to be buoyant and recorded a significant growth over the previous year.

New initiatives

During the year we continued our efforts to improve the services we provide to our customers. New initiatives launched included:

• the development of fully biodegradable packaging for a customer in Japan; • accreditation of our laboratory with Bureau Veritas to issue certificates of compliance acceptable by Iraqi authorities; • establishment of three new branch offices to market Insurance; • inauguration of a weekly freighter into Colombo by Cathay Pacific; • introduction of Pest Control Services to resorts in the Maldive Islands; and • the commencement of construction for the expansion of capacity in the Cold Store.

Export Development Rewards scheme

There was no change in status in respect of the monies due to us under the Export Development Rewards Scheme, which was introduced by the Government in 2009, under which we received only LKR 10 million out of a sum of LKR 37 million due to us on our export performance in the first quarter of 2009, and where our applications for sums due in the second, third and fourth quarters were not even entertained. It is disappointing that numerous representations made to Government, including those made by the Trade Chambers on behalf of exporters, calling on the Government to honour the commitments made, have not been successful.

Outlook and strategy

Our ongoing efforts at keeping the fundamentals of our business intact will be continued. Predominantly operating on a B2B business model, we have focused on developing competitive advantages in all our businesses through operational excellence, value addition, the consistent delivery of products and services of high quality and the forging of long term relationships that are mutually rewarding. These and our long established reputation for integrity and enduring commitment to sustainability are what attracts and retains our customers.


Looking ahead, we do not foresee a major change in the world economy nor the imminent resolution of the social and political developments sweeping the Middle East. In our Tea business we must therefore continue to be conscious of the risks associated with doing business in the region, and our currently large dependence there. Our focus therefore will be to enter new markets where hitherto we have not had a sizable presence. We will allocate more resources to pursue these opportunities, while drawing on our network of international trading connections. Migrant populations in the Western world and in Australasia of ethnic Arab and Turkish origin, familiar with and having affinity towards our Alwazah and Istikan brands in their home countries, are consumer groups that we will target. In doing so, the challenge would be to ensure that we develop channels of distribution that position and place our products enabling convenient access. There are also numerous opportunities for private label business, which though price sensitive, offer large volume commitments that will enable optimisation of capacity utilisation.

In Temperature Controlled Logistics, the additional capacity of nearly 3,500 pallet positions that will become available after the completion of the expansion project will permit us to cater to new product lines. In addition to the ease of functioning as a distribution centre, the additional capacity will also be used to attract commodity customers requiring temperature control to preserve their produce and avoid waste that would otherwise be inevitable.

The growth prospects for the Sri Lankan economy spearheaded by the tourism, infrastructure development, and retail sectors, give us reason for optimism that as these sectors expand and become more sophisticated, they will increasingly require the solutions offered by our Environmental Services, Insurance Brokering and Airline Divisions through internationally renowned brand names.

We have a strong Statement of financial position and possess the financial strength to make strategic investments that will enhance returns to shareholders on a sustainable basis. In doing so, we have always believed that to achieve long term growth and keep the business on a sound footing,we have a responsibility to focus on innovation, the spirit of entrepreneurship, the awareness and management of risks, and a commitment to operate in a way that is economically, socially, and environmentally sustainable. While holding fast to our core values, this is the path we will continue to tread in order to create value for all our stakeholders.

Board of Directors

Since the last Annual General Meeting there were several changes to the composition of our Board. Chandra Jayaratne who served as a Non-Executive Director and as Chairman of the Audit Committee retired in May 2012, after serving the Board for 18 years. Richard Ebell succeeded Mr. Jayaratne as an Independent Non Executive Director and Chairman of the Audit Committee. Sam Swire joined the Board from November 2012 as an Executive Director. Paul Henson left the Board in January 2013, upon his resignation as Finance Director of James Finlay Limited and was replaced on our Board by his successor Julian Rutherford as a Non-Executive Director. Whilst thanking Chandra and Paul for their contributions, I would warmly welcome Richard, Sam and Julian.

Acknowledgements

The commitment and hard work of all our employees are pivotal to our continuing success. I take this opportunity to thank them for their efforts.

I also thank our customers for their continued patronage, valuable feedback, and the sense of co-operation and goodwill that have characterized our relationships.

Finally, to our shareholders I say thank you for their understanding and the trust and confidence placed in my team and me.

C. L. K. P. JayasuriyaColombo

26th February, 2013

CHAIRMAN’SREVIEW CONtd...


BUSINESSPORtFOLIOtea Exports

A pioneer in value-added exports from Sri Lanka, Finlays’ Tea division markets bulk and packeted black tea, teabags and flavoured teas internationally. We also operate our own green tea factory, though black tea accounts for the bulk of sales. In addition to processing and packaging clients’ brands, we also market our own; our Alwazah brand is among the most popular in the Arab world, and is available in 23 countries. Another Company brand, Istikan, is popular in Syria and Turkey.

Tea is Finlays’ traditional activity; worldwide, the Finlays Group specialises in all aspects of the tea business. Operations in Sri Lanka are state-of-the-art, with the latest staple-free bagging machinery used for teabag production. Marketing is supported by extensive research and development, with facilities ranging from the traditional tasting rooms to a sophisticated microbiological and analytical laboratory.

Logistics

Tea Warehousing

Finlays began commercial tea warehousing in 1997 and now stores the produce of most plantation companies active at the Colombo tea auctions - in effect, a large segment of national output. Its modern warehouse is fully automated, helping to preserve product quality through minimal handling and safe storage. The warehousing operation boasts a maximum delivery time of 24 minutes, an achievement unparalleled in the industry. It is also the only business of its kind to provide overnight parking facilities and accommodation for customer staff, and to extend operating hours on request at no additional charge. The close focus on quality has seen the warehouse receive ISO 9001:2000, ISO 22000:2005, ISO 14001:2004 and HACCP certification.

Temperature Controlled Logistics

Finlay Cold Storage (Pvt) Ltd. is Sri Lanka’s largest and technologically most advanced cold storage service provider, offering consistent, professionally managed and monitored cold room space with temperatures ranging between -25˚C and +15˚C. The fully-racked facility has airbag-enclosed dock areas, electric reach trucks and forklifts. It offers a clean, hygienic operating environment and full cold-chain compliance.

Customers receive a full-feature service that eliminates the need for them to invest in their own expensive storage facilities, and enables them to benefit from the economies of scale and synergies that Finlays commands. A state-of-the-art online inventory management system that can be integrated with most clients’ ERP systems, designed to operate on FIFO, batch-code and expiry-date criteria, is an important advantage to them.

The services offered include unloading of received product, inspection, documentation, Customs examination, palletising and variance reporting; storage, quarantine and inventory management; EDI generation, order picking, invoicing and last-in-first-out loading. Value-added services include weighing, sorting, labelling, price marking, and repacking.

Being part of the Swire Group, one of the largest cold storage operators in the world, produces important synergies with the Group’s cold-storage operations in the USA, Australia, Vietnam and China, providing Finlays with a wealth of experience unmatched in Sri Lanka.

Finlays Linehaul Express

Finlays Linehaul Express, a joint venture between Finlays Colombo and Linehaul Express (LINEX), a Hong Kong-based express logistics company, commenced operations on 1st August 2008. LINEX, part of the Lenton Group, acts as exclusive worldwide general sales agent for the wholesale courier operations of Cathay Pacific Cargo and Dragonair Cargo. With a twenty-year relationship with Cathay Pacific and offices in more than twenty countries, it is the largest wholesale airport-to-airport express service provider in the world. LINEX services focus primarily on air transportation and comprises a variety of express and cargo-based time-critical and time-definite services combined with warehousing and distribution capabilities.


BUSINESSPORtFOLIO CONtd...

services

Environmental Services

Finlays offers a range of pioneering environmental services under the umbrella of its subsidiary Finlay Rentokil Ceylon (Pvt.) Ltd.

• timber Preservation Finlays’ timber preservation service, operating since 1992, provides a value-added service to users of timber in all kinds of applications, especially to those in the construction industry. The service is marketed to corporate, public and individual clients. Timber is preserved through a unique vacuum pressure impregnation technique. By doing so, the durability of timber is increased without affecting its inherent strength and insect activity in the wood eliminated. It therefore enhances the quality of the application for which the timber is used. As the treated timber lasts longer, there are significant cost savings to the user over a period of time. Once treated, lesser known species of timber can be used in various applications ranging from furniture to construction. The entire treatment process, which is subject to a stringent quality control process, is ISO 9001:2008 certified and meets regulatory standards set out by authorities in respect of the health and safety of those employed and the environment. A positive side effect is that with timber lasting longer, the need for fresh timber is reduced thereby reducing the need to fell more trees. As an additional service the division offers clients the manufacture of treated wooden pallets and crates used for transportation and warehousing purposes. Solutions are tailor-made to meet customers’ specific requirements as well as the general requirements of discerning clients.

• Pest Control The division provides effective, environmentally friendly, pest control services to the industrial, commercial, and residential sectors on a need or on a contractual basis. A specialty service of the division is termite control: the division boasts a well-trained team of termite experts and offers treatment warranted for up to five years. The service is under a franchise agreement with Rentokil Initial of the UK. The Company also markets high-voltage electronic insect killers for use in hotels, supermarkets, restaurants, industrial kitchens and canteens.

• hygiene services The division provides Initial and Sanitact institutional sanitary services to hotels, office complexes, factories and other customers across the country. The range of products and services on offer includes washroom supplies, feminine sanitary dressing disposal and odour control products.

• Medical Waste Management Introduced by the subsidiary in response to a pressing need in the healthcare sector, “Sterifirst” is a medical waste management and disposal service for hospitals and laboratories. It is licensed by the Central Environment Authority to treat medical waste using hydroclave technology, disinfecting and sterilising waste prior to disposal or recycling. Sterifirst offers an end-to-end waste management solution including segregation at site, packing into WHO-approved containers, daily removal, transportation, treatment and disposal. The service assists the healthcare industry dispose of waste in a safe, efficient and environmentally friendly manner.


Insurance Brokering and Marine Cargo Surveying

Having been insurance intermediaries since 1893, Finlays in Sri Lanka brings a unique heritage of experience, expertise and professionalism to managing personal and corporate insurance in the country and the region. In this relatively traditional market, the Company’s insurance division is known for innovation, competitive pricing, strong claim settlement and the financial integrity of the underwriters it represents. Finlay Insurance Brokers (Pvt) Ltd., (FIBL) a wholly-owned subsidiary of the Group, is among the leading insurance brokers in Sri Lanka with services to clients in India as well. Another subsidiary of Finlays, Finlays Maldives Private Ltd., is licensed to operate in the Republic of the Maldives. FIBL represents a number of globally-recognised intermediaries, which, coupled with strong local relationships, results in clients being able to ensure that they have access to global benchmarking of their risk management requirements.

Whilst the key focus is on the large corporate sector, insurance solutions are also offered to individuals through a network of branches in Kandy, Kurunegala, Katunayake, Jaffna and Batticaloa.

A separate division offers marine cargo surveys and marine claim adjustment services to both Sri Lankan and numerous overseas insurers. The Company represents the global marine cargo survey specialists, W.K. Webster & Co. in respect of such services.

Airline GSA

Cathay Pacific Airways is one of the world’s leading airlines, offering scheduled cargo and passenger services to 118 destinations around the world, including daily return flights to Colombo from its Hong Kong hub. The airline also offers direct services from Colombo to Bangkok and Singapore. Finlays has served as general sales agent for Cathay Pacific since 1993.

A unique feature of the Cathay Pacific operation in Colombo has been the relative importance of its cargo business, consisting mainly of garments and tuna to the USA and Japan. Cathay Pacific is one of the world’s top-ten air cargo carriers.


REVIEW OFOPERAtIONStea ExportsBeverage Packing

2012 was another very challenging year for the Sri Lankan tea industry. In the plantation sector a prolonged drought resulted in reduced crops, inflicting a huge burden on the cost of production. With this, and with the overall reduction in tea production in the major tea-producing countries, prices of tea in most auction centres around the world increased steeply. Exporters therefore came under pressure to continue servicing their export orders effectively without incurring losses.

For the Beverage Packing division both the high prices of tea and the volatility in the Middle East, particularly the civil war in Syria, impacted heavily on the volumes exported during the year. Shipments to Syria ceased for a period of three months from July to October. Subsequently, we were successful in making a significant breakthrough in finding an alternate route to reach our customers in Syria, thereby regaining entry into our market. The mix of markets and the depreciation of the Sri Lankan Rupee provided some relief, in that the fixed price contracts for which teas were purchased earlier on in the year helped balance the equation favourably, enabling the division to realise a profit significantly higher than both 2011 and the budget.

The Alwazah and Istikan brands, despite the high tea prices, continued to grow with exports reaching 5.1 million kg in 2012. Export volumes to Japan remained steady.

The divison participated in global trade fairs to pursue fresh business opportunities, and also focused on increasing bulk trading activities.

Initiatives such as the implementation of the “5S” system in the Welisara factory complex were continued, and renewed efforts have been made in promoting a sustainable culture of “safety first” among all members of staff.

Green Tea

An unprecedented spell of drought in the Uva region up to September compelled us to close our Green Tea factory for four days of the week during August/September, due to the non-availability of leaf to continue manufacture. Despite subsequent rains, leaf intakes did not improve to desired levels following heavy winds that were not conducive for bush growth. The performance of the division was therefore heavily affected with losses recorded in some months. The division’s overall performance was profitable but below both the budget and the previous year.

LogisticsTea Warehousing

The unpredictable weather on the plantations had an effect on the warehousing division as well, with the number of packages stored fluctuating throughout the year. With the better management of warehousing space and a tighter control on costs the division has recorded only slightly lower profit than last year.

Temperature Controlled Logistics

Despite a slow start, the year ended with a strong finish with good capacity utilisation. We have also embarked on an expansion programme as part of our development strategy.

Average store occupancy stood at a healthy 77% for the year, a 4% increase over 2011, mainly driven by having a diverse mix of product streams.

The core activities of Freezer and Chiller storage continued to remain volatile throughout the year, with many peaks and troughs, and a lack of consistent volumes. However, the diversification of portfolio to a mix of value added services and new product streams enabled the division to post strong financial results for the year.

This diversification of its business model continues to remain the multi-pronged strategic focus in order to minimise overdependence on limited revenue streams and customer mix, which led to the division pursuing its third phase expansion project in August 2012.

This development also marks a new chapter in the division’s brief yet pioneering history in playing a pivotal role in the food logistics industry in Sri Lanka. The new expansion program will add a further 3,500 racked pallet positions to the existing


warehouse capacity at Welisara and is expected to commence commercial operations in March 2013. With this expansion the company will further consolidate its strategic position of being the country’s largest and technologically most advanced Cold Chain logistics facility, offering a portfolio of diversified solutions.

Finlays Linehaul Express (Linex)

Finlays Linehaul Express, a joint venture between Linehaul Express (Linex), a Hong Kong-based logistics company, and Finlays Colombo, commenced operations in August 2008. Linex is part of the Lenton Group and has held global Ground Service Agreements for wholesale courier operations with Cathay Pacific and Dragonair for over two decades. With owned offices in over twenty countries, Linehaul Express is the largest wholesale airport-to-airport express service provider in the world. Furthermore, with their strategic partnerships, they have a truly global presence.

Finlays Linehaul Express offers airport-to-airport wholesale courier services between Colombo and Hong Kong, Singapore, Dubai, Chennai and London, as well as airport-to-door services, import brokerage services, airfreight import and export, and premium services such as ‘hand carry’ and ‘next flight out’ to its valued customers.

This Finlays Company experienced accelerated growth in the wholesale business 2012. Noteworthy marketing and operational activities during the year included the introduction of airport-to-airport services to London Heathrow Airport. We also plan to introduce these services to Frankfurt and Sydney in the near future.

Linex has also introduced Passenger Travel solutions, a product that offers a tailor-made solution for passengers facing excess-baggage limitation, delivering door-to-door to any destination in the world. Potential customers will be reached through strategically-placed counters at airports and hotels.

With the recent acquisition of a global pharmaceutical/bio-logistics company by the Lenton Group, we are actively exploring the potential for temperature-controlled carriage of pharmaceutical products and lab specimens. The potential customer base includes private and public hospitals, clinics and pathology laboratories. We will leverage on Cathay Pacific’s global expertise in this field, in order to bring about further value addition to temperature-controlled transportation.

servicesInsurance

The insurance divisions had a challenging year and were behind their targeted revenue and hence profitability. Whilst premium under management did reflect a comfortable increase over the previous year, the figures achieved were behind budget. Nonetheless, the division continues to be the leading property and casualty insurance broker in the island and is on a firm footing to move forward in the markets in which it operates. The Maldives have been a key source for new business development for the division but, as reported last year, legislative changes in the country compelled the division to cease operations until its application for a licence to operate in the country was granted. This took up most of the year and approval by the Maldives Monetary Authority was only granted towards the end of December 2012. Finlays Maldives Private Ltd. was duly incorporated in the Maldives and will carry out the business of insurance brokering and connected services to clients in the archipelago.

The key focus on large corporate clients continued while the initiative into personal lines solutions to individuals grew encouragingly. Two additional branches in Jaffna and Batticaloa (in addition to the offices in Kandy, Katunayake and Kurunegala) will enhance the ongoing initiatives into developing services to individuals. The ISO 9001:2008 certification for quality management of systems and processes continues to allow the division to differentiate itself in a competitive market place whilst focusing on delivering value to clients. In life insurance, whilst progress has been made, especially to corporate entities, the company is still to make any significant progress in selling such services to individuals. The potential for business growth in this segment is significant.

A number of clients operating in India were also assisted in arranging their insurance requirements through agreements the division has with insurance intermediaries operating in that country.

The trend of self-funding medical insurance by large corporate entities consequent to sharp increases in medical premium rates continued during the year. Whilst premium under management for this class of business declined, the division developed specialized fee-based services to such clients which reflected a positive growth.


REVIEW OFOPERAtIONS CONtd...

The division now has a number of key agreements with many of international insurance intermediaries of repute. Coupled with its excellent relationship with local insurers (Sri Lankan and Maldivian) the division is therefore in a position to combine its strong local knowledge together with its international reach in delivering unique solutions to its clients.

The Marine cargo survey division had a satisfactory year exceeding its performance in 2011 by a comfortable margin. Expansion of services to local insurers is ongoing and will be further developed.

Environmental Services

The Environmental Services sector performed well in 2012. The division has plans for regional expansion coupled with a marketing strategy based on a segmentation of the market for developing business during 2013. We plan to further develop market opportunities in the Maldives whilst a second branch (in addition to the one in Kandy) will be opened in the south of Sri Lanka to service a growing business segment.

timber Preservation and Pallets Manufacturing DivisionThe Timber Preservation division of the group was unable to achieve its targets for the year although turnover did record an increase over the previous year. Although we were optimistic about the potential in the business environment with the development experienced in the construction industry, expected volumes of treated timber were not used for these constructions. It was observed that some of the contractors use steel and aluminum structures for constructions as alternatives to timber, while many of them use untreated imported timber as there is no regulatory requirement for the use of treated timber for construction.

The division anticipates that ICTAD will specify the vacuum pressure impregnation treatment as an approved recommendation in their construction industry guidelines manual in 2013. Also, the division is working towards developing the SLSI mark for vacuum pressure impregnation. These two factors will significantly enhance the value of the service provided.

The Pallets Manufacturing division had a very good year and recorded significant growth in terms of turnover and profit. Although there are many small to medium standard pallet manufacturing companies, the division successfully differentiated its service by offering treated pallets using the vacuum pressure impregnation method. Additionally, the division was successful in catering to certain customer requirements by supplying specially designed treated pallets. Service differentiation and the unique solutions offered to customers gave the division a competitive advantage. Pest ControlThe Pest Control division had another excellent year recording a significant growth in terms of turnover and profit. The division continued to focus on service differentiation and to improve the service delivery as a key to overcoming stiff competition in a crowded market.

The strategic decision to build contractual portfolios helped improve contribution of this line of business to 63% of the divisional turnover, and thereby improved the sustainability of the business. With the development of tourism and the leisure sector, the division initially focused on providing pest control services to five-star hotels in Colombo and plans to move in to other up market hotels in the outstations. The division was successful in signing up annual service contracts with all five-star hotels in Colombo and secured services from hotels along the southern belt of the island as well.

The first of a planned network of branches commenced in April 2012 in Kandy and has proved to be successful. The division will open a second branch office in the south towards the last quarter of 2013.

We have successfully established our services in the Maldives during the year, securing contractual pest control agreements with two well known resorts in the country. We plan to further develop opportunities in this market.

hygiene services DivisionThe division performed well during 2012, recording significant growth in terms of revenue and profitability, and comfortably exceeding the previous year’s performance. The division faced many challenges in terms of its operations and these were successfully addressed. We focused on differentiation of service with improved quality standards. The service differentiation and improved standards of quality helped to secure most of our renewals with price increases, correcting the issues the division faced with its profitability margins.


We experienced a steady growth in the number of monthly services and over 16,700 services per month had been handled by December 2012. A strategic approach to develop business based on a segmentation of the market helped the division to achieve significant increase in volumes.

sterifirstThe Sterifirst division ended its third successful year by recording a significant growth in terms of turnover and profit.

However, the division faced challenges in disposing treated medical waste. This was mainly due to Sri Lanka not having proper landfill sites for the disposal of such waste. As medical waste management is considered a national issue, the Central Environmental Authority and other local authorities such as the Health Ministry encouraged the division to continue services. Nonetheless, the division had to incur increased expenditure on waste disposal utilizing alternate waste disposal methods. The relevant authorities should support the services offered and resolve the issue of a final disposal site for the treated waste. Without the services offered by the division such waste, untreated, finds its way into the dump sites and is therefore hazardous.

Due to the issues faced with regard to treated waste disposal, the division was compelled to restrict its sales development efforts. Hence potential markets were not fully explored.

The Sterifirst division has plans for relocation of its operations with an expansion during 2013 but will, as an initial step, focus on finding a permanent solution for the disposal of treated clinical waste

Airline GSA: Cathay Pacific

Cathay Pacific Sri Lanka has seen a mixed 2012. The challenging economic conditions continued from 2011 for the passenger business, with load factors staying under pressure as competitors added further capacity to Cathay’s key markets. Fuel prices remained high throughout 2012, and the visa restrictions are still in force for Sri Lankan nationals entering and transiting Hong Kong, limiting growth.

Cargo demand, however, was bolstered by a long tuna season, and recorded significant growth over the year. To cater to the overall increase in demand, a weekly freighter service was launched in December, offering a direct service to Hong Kong, with good connections onto North Asia and America.

Passenger revenue was supported through a focus on corporate client agreements and online selling, while a new revenue channel of holiday package sales has started to show promise. November saw the launch of a local Facebook site to raise our online profile. Cathay Pacific also cut over to a new reservations system in February, which will allow us to further enhance our service proposition in the coming years.

Cathay Pacific’s investment in its long haul product was recognized by Skytrax in July with the airline receiving the award for “World’s Best Business Class”. This was followed by the announcement of a new regional business class, which will enter service in 2013.

With inbound visitor numbers continuing to grow, and the Sri Lankan economy forecasting growth for 2013, Cathay Pacific looks forward to marking its 20th year of online operations in the country. The Company has built a talented and committed team, with a world-class international network centered on Asia’s premier aviation hub.


FINANCIALREVIEWThe Group recorded a profit before tax of LKR 462 million in 2012 compared to LKR 317 million the previous year and total comprehensive income for the period amounted to LKR 362 million compared to LKR 222 million the previous year. Profit after tax before other comprehensive income amounted to LKR 368 million.

Group turnover grew marginally to LKR 5,092 million from LKR 4,972.last year. Cost of sales, which amounted to LKR 4,006 million remained at almost the same level. Consequently, gross profit increased by 17% to LKR 1,086 million while the gross profit to sales ratio increased to 21.3% compared to 18.6% last year. Tax expense was LKR 95 million compared to LKR 104 million the previous year.

Revenue

Revenue from tea exports decreased by LKR 28 million from LKR 4,019 million in 2011 to LKR 3,991 million in 2012. The revenue attributable to the logistics operation and the services segment grew by LKR 70 million and LKR 50 million respectively.

Tea Exports

6,000

5,000

4,000

3,000

2,000

1,000

0

Logistics

Services

Others

segmental Revenue

LKR

Mn.

20112012

Earnings before interest and tax

Earnings before interest and tax, (EBIT)amounted to LKR 484 million compared to LKR 344 million last year

The increase in EBIT was attributable mainly to the improved performance of tea exports. The profit from the export of tea increased from LKR 166 million in 2011 to LKR 248 in 2012 a growth of LKR 82 million. Other sectors too contributed to the increase. The EBIT of the logistics sector increase from LKR 80 million to LKR 137 million and the EBIT of the services segment from LKR 208 million to LKR 225 million.

Administrative costs increased by 17% from last year. Distribution costs decreased marginally from LKR 124 million to LKR 123 million.

Non-current Assets

Total non- current assets amounted to LKR 4,580 million as at 31st December representing 84% of capital employed. Property, Plant and Equipment, amounted to LKR 4,457 million.

Working Capital

Current assets amounted to LKR 1,882 million compared to LKR 1,967 million as at the end of the previous year while current liabilities decreased by LKR 179 million to LKR 828 million from the previous year. Overall Group net working capital increased to LKR 1,055 million,compared to LKR 960 million in 2011.

The current ratio improved from 1.95 to 2.27 and the quick ratio from 1.52 to 1.60 during the period under review.


Cash Flow

The Group generated a cash inflow of LKR 638 million before working capital changes compared to LKR 489 million last year. Cash generated from operations amounted to LKR 346 million and the net cash outflow during the period was LKR 182 million.

Cash conversion was 7% in 2012 compared to 9% in 2011.

Capital structure

The gearing ratio remained low, reinforcing the strength of the balance sheet in terms of opportunity to raise funds for future investment.

157

155

153154

156

151152

149150

147146

148

0

12.00

10.00

8.00

6.00

4.00

2.00

0.00

Net assets per share vs EPs

LKR

000

's

LKR

20122011

Net Assets per share

Earnings per share

7,000

5,000

6,000

4,000

3,000

2,000

1,000

0

Equity

Non -current liabilities

Current liabilities

Capital structure

LKR

Mn.

20112012

Return on EquityReturn on Equity stood at 14% compared to 11.9% in 2011.

Earnings per share (EPs) and Dividend

The Group recorded an EPS at LKR 10.50 as against LKR 6.11 in 2011. After including the proposed final dividend of LKR 2/- per share, the total dividend distribution for the year amounted to LKR 5/- per share representing a pay-out of 48% out of the annual EPS.


RISkMANAgEMENtFinlays Colombo PLC and its subsidiaries (Finlays), operating in diverse and globally-distributed activities, are exposed to many unavoidable business risks. Finlays is completely aware that understanding risk is what drives achievement of corporate objectives and that without this understanding, enterprises are ill equipped to make investments and implement initiatives required to succeed.

Accordingly, Finlays has evolved a management model that assesses opportunities and the potential rewards arising out of business decisions, and the risks associated therewith. Such assessment is followed by measuring the financial consequences of a possible loss, with an analysis of severity and impact, and then identifying and implementing controls to minimize or avoid the financial consequences of any such loss.

Finlays recognises the contribution of intelligent Risk Management to shareholder value. The market environment in which Finlays operates locally and internationally is one which is dynamic and changing. This is as much so with issues that are global in nature but local in impact, as with issues that are entirely local. The management of risk is part of Finlays' corporate culture and governance philosophy and is embedded in daily operations.

Finlays follows a clearly defined process in which the management team is directly involved. Each Business Unit sets out its objectives and maps them against the processes in place or necessary to achieve them. Each process is then analysed in depth to identify all associated risk factors. These are then evaluated and ranked in terms of significance and likelihood. This exercise helps establish the management of these risks and procedures such as early warning systems, and enhances the culture of risk awareness amongst all employees.

The four Audit Supervisory Committees assess the identification of risks by each Business Unit on an ongoing basis, and reports progress to the Audit Committee.

Risk Management is not and cannot be viewed as an absolute safeguard against risk. It must be understood that no organization can completely prevent adverse impacts from the materialization of risks; uncertainty is a fundamental facet of business.

A summary of key risks and action taken to mitigate these risks is set out below:

industry Risk

Being a diversified Group, Finlays operates in several industries and is subject to many regulations, whether governmental or non-governmental. Constant and active awareness of changing market conditions is key, in mitigating such risks.

Market Risk

This is addressed through a policy of geographical as well as business diversification.

supply Risk

Individual business units constantly monitor changes in actual and potential supply sources and take appropriate action to minimize exposure to factors such as adverse movements in material cost. If raw material costs rise in spite of these measures, it is not always possible to pass on the higher costs in full to customers, at least in the short-term, since it could impact negatively on customer relationships and market share.

Credit Risk

This is the risk of potential losses arising from a counter party’s inability to meet its obligations. It is the most common form of risk faced by any organization.

Given the competitive environment in which Finlays operates, it is compelled to offer credit to customers. In doing so, a systematic process is followed, with clearly defined credit terms relating to each business unit. As a matter of policy, well-defined credit limits are set for all major parties dealt with.


Liquidity riskAny business can encounter difficulty in meeting obligations on its financial liabilities.

Finlays manages liquidity by endeavouring to always have sufficient liquidity to meet its liabilities when they fall due. It maintains cash and cash equivalents at a level exceeding expected cash outflows (other than on trade payables) in the immediate future, and closely monitors the levels of expected receivables and trade payables.

In addition, it maintains unutilized lines of credit adequate to meet any unforeseen circumstance.

Exchange Rate RiskMost of Finlays’ revenue is generated in foreign currency. Exposure to fluctuations in the relative values of these currencies is substantial.

Finalys’ foreign exchange payments are matched against export receipts creating a natural hedge. A substantial proportion of the remaining receipts are hedged by way of forward-rate contracts. It is Finlays policy not to engage in foreign currency speculation.

Operational Risk

This category of risk arises as a result of business process errors, systems and procedural failures, natural disasters, human error, non-compliance with internal policies and external laws and regulations, and fraud. Although such risks cannot be completely avoided, Finlays strives to minimize them by actively evaluating and refining its internal controls and reviewing its operational processes.

At Finlays, audits on internal controls are carried out or overseen by Finlays’ systems audit function, which reports findings regarding internal control weaknesses and noncompliance to the Audit Committee.

Finlays is committed to ‘Business Continuity Planning’ (BCP), by means of which operational risks flowing from a disaster are managed by early preparation. The BCP process at Finlays considers each division on an individual basis, with the aim of facilitating business recovery within the shortest possible time, and with minimization of any adverse impact on stakeholder value.

Reputation Risk

The reputation of Finlays is of utmost importance in maintaining and expanding business. Finlays strongly believes that the success it has achieved is primarily due to focus on high standards in all activities.

A series of stringent quality initiatives has been established during the year to ensure that customers receive products and services best suited to them. Finalys strives to make products unique and as difficult as possible to counterfeit.


CORPORAtEgOVERNANCESet out below are the Corporate Governance Practices adopted and practiced by Finlays Colombo PLC (Finlays) against the background of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

the Board of Directors

The Board of Directors of Finlays acts in the best interests of the Company, its shareholders and other stakeholders on a basis of responsibility, transparency and accountability. The Board ensures that the objectives of the Company are achieved lawfully and ethically.

The Board of Directors is also responsible for governance of all companies which Finlays controls.

1. Composition of the Board The Board comprises eleven Directors, of whom five are Executive Directors (including the Chairman & Managing

Director), three are non-independent, Non-Executive Directors and three are Independent Non-Executive Directors. Non-Executive Directors comprise a majority on the Board.

2. Responsibilities of the Board The Board is responsible for the formulation of overall business policy and strategy, agreeing on priorities and setting

standards for the management and the conduct of the business. It reviews exposure to key business risks, the strategic direction and annual budget of each profit centre, their progress towards achieving those budgets and capital expenditure. The Board, in the furtherance of its duties, takes independent professional advice, if necessary, at Company expense.

The Board is ultimately responsible for the Group’s performance. It is in control of the Company’s affairs and is mindful of its obligations to all stakeholders.

3. Meetings and Attendance The Board has four scheduled meetings a year, and would meet further if necessary to consider specific matters which it

has reserved to itself for decision.

The following table shows the number of Board and Committee meetings held during the year and the attendance of individual Directors.

Board AuditCommittee

RemunerationCommittee

NominationCommittee

Number of meetings 4 3 1 1C. L. K. P. JayasuriyaChairman & Managing Director

4/4 By invitationN/A 1/1

E. R. Croos MoraesExecutive Director


J. L. CasperszExecutive Director


Ms. M. C. PieterszExecutive Director

4/4 By invitationN/A

1/1

S. C. SwireExecutive Director - appointed 8th October 2012

1/1 By invitationN/A

-

N. K. H. RatwatteNon-Executive Director

4/4 N/AN/A

1/1


Board AuditCommittee

RemunerationCommittee

NominationCommittee

C. JayaratneIndependent Non-Executive Director- retired 31st May 2012

2/2 1/1 1/1 1/1

J. D. BandaranayakeIndependent Non-Executive Director

4/4 3/3 1/1 1/1

N. G. WickremaratneIndependent Non-Executive Director

4/42/3 1/1 1/1

R. A. EbellIndependent Non-Executive Director – appointed 1st June 2012

2/2 2/2 - -

R. J. MathisonNon-Executive Director

4/4 N/A 1/1 1/1

P. R. HensonNon-Executive Director

4/4 N/A 1/1 1/1

4. Board Balance The blend and balance between Executive Directors, non-independent Non-Executive Directors and Independent

Non-Executive Directors on the Board ensures that no individual Director or small group of Directors dominates Board discussions and decision-making. Three of the Non-Executive Directors are considered independent, having no material relationship with the Company. The Board believes this independence is not compromised by the period of 12 years for which Mr. J. D. Bandaranayake has served on the Board, as they believe this has not impaired his objectivity in the role.

Independent Directors comprise one-third of the number of Directors. Their profiles reflect their calibre and the weight their views carry in Board deliberations. Each is independent of management and free from any relationship that can interfere with independent judgment.

5. Financial Acumen The Non-Executive Directors are from varied business and professional backgrounds. Their rich experience enables them

to exercise independent judgment on the Board and their views carry substantial weight in decision-making. The Board includes senior finance professionals, who possess the necessary knowledge to offer the Board guidance on matters of finance.

6. Company secretary The services and advice of the Company Secretary is available to Directors when necessary. The Company Secretary

keeps the Board informed of new laws, regulations and requirements coming into effect which are relevant to them as individual Directors and collectively to the Board.

7. supply of information Prior to each meeting, the Directors are provided with all management information and background material relevant to

the agenda to enable informed decision making. Board papers are submitted in advance on Group performance, new investments, capital projects and other matters that require Board approval.

Directors receive quarterly reports of performance and minutes of Board meetings.

8. Nomination Committee The Board Nomination Committee decides on the appointment of Directors. Its responsibilities include succession

planning for the Board as well as reviewing its structure, size and composition. The Nomination Committee comprises all Directors. It meets as and when required.


CORPORAtEgOVERNANCE CONtd...

9. Re-election of Directors The Company’s Articles of Association require a Director appointed by the Board to hold office until the next Annual

General Meeting and to seek reappointment by the shareholders at that meeting.

The Articles call for one-third of the Directors in office to retire at each Annual General Meeting. The Directors who retire are those longest in office since their appointment (or reappointment). Retiring Directors are eligible for re-election by the shareholders.

10. Remuneration Committee The Remuneration Committee comprises Messrs J. D. Bandaranayake (Chairman), C. Jayaratne (up to 31st May 2012),

N. G . Wickremeratne, R. A. Ebell (from 1st June 2012), R. J. Mathison, P. R. Henson (up to 31st January 2013) and J. M. Rutherford (from 1st February 2013).

The role of the Remuneration Committee is discussed in the report of the Remuneration Committee given on page 24.

11. Audit Committee The Audit Committee consists entirely of Independent Non-Executive Directors. It is chaired by Mr. Richard Ebell, a

Chartered Accountant, who possesses a wealth of knowledge and experience with respect to financial accounting. The Audit Committee is empowered to examine any matter relating to the financial affairs of the Group and its internal and external audits.

The Audit Committee report on page 33 and 34 describes the activities carried out by the Committee during the year.

Management structure

The Board has delegated to management the authority to implement the policy and achieve the strategic objectives it has laid down. This ensures greater focus on strategy and planning and empowers managers to run their businesses effectively.

internal Controls

The Directors are responsible for the Group’s system of internal controls. The system in place is designed to safeguard Company assets against unauthorised use or disposal, to ensure that proper records are maintained and that reliable financial information is generated. However, no system can provide absolute assurance that errors and irregularities are prevented or detected in time. Key control procedures in place are as follows:

• FinancialReporting A comprehensive budgeting system, including an annual budget and rolling three-year strategic plan, is in place.

Monthly results are reported against the budget. Monthly reports on cash flow and liquidity position are also generated and key performance indicators are considered by the Board. The Executive Committee reviews monthly reports on performance.

• Monitoring The Audit Committee reviews the plans and activities of Internal Audit and the management letters of the External

Auditors. In addition to considering and recommending to the Board any remedial action required in respect of control issues raised by the Auditors, the Audit Committee also monitors the process by which all major risks to which the business is exposed are identified.

• InvestmentAppraisal The Board has established policies in areas of investment and treasury management. Beyond agreed authorisation

levels, expenditure is subject to detailed written proposals submitted to the Board for approval.


• QualityandIntegrityofPersonnel The Group carefully selects and trains employees and provides appropriate channels of communication to foster a

control-conscious environment.

• EthicalConduct To ensure the well-being of all stakeholders, the Company requires the application of acceptable business and industry

practices and encourages its employees to be aware of and adhere to relevant rules and regulations.

The Board has reviewed the effectiveness of the system of financial control for the period up to the date of signing the accounts. The Directors’ Responsibility for the Financial Statements is described on page 32.

Disclosure

The Board places great emphasis on complete disclosure of both financial and non-financial information within the bounds of commercial realities, as well as on the early adoption of sound reporting practices. The Chairman’s Statement and the Operational and Financial Reviews in this Report present a balanced assessment of the Group’s performance and prospects.

shareholder Value and Return

The Board constantly strives to enhance shareholder value. It has been the policy of the Board to maintain a dividend rate in line with the expectations of shareholders, considering its level of performance and profit.

going Concern

The Directors believe, after reviewing the financial position and the cash flow of the Group, that the Group has adequate resources to continue in operation for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements.

CsE RuleNumber

CsE Listing Rules RequirementCompliance status

Details

7.10.1 (a)Non-Executive DirectorsAt least one third of the total number of Directors should be Non-Executive Directors.

CompliedSix of the eleven directors are Non-Executive Directors.

7.10.2 (a)Independent DirectorsTwo or one third of Non-Executive Directors, whichever is higher, should be independent.

CompliedThree of the six Non-Executive Directors are Independent.

7.10.2 (b)Independent Directors’ DeclarationEach Non-Executive Director should submit a declaration of independence/non-independence in the prescribed format.

Complied

7.10.3 (a)

Disclosure relating to DirectorsThe Board shall annually make a determination as to the independence or otherwise of the Non-Executive Directors and names of Independent Directors should be disclosed in the Annual Report.

Complied Please refer page 19.

7.10.3 (b)Disclosure relating to Directors The basis for the Board to determine a Director is Independent, if criteria specified for Independence is not met.



CORPORAtEgOVERNANCE CONtd...

CsE RuleNumber


Details

7.10.3 (c)Disclosure relating to DirectorsA brief resume of each Director should be included in the Annual Report and should include the Director’s areas of expertise.

Complied Please refer page 29 & 30.

7.10.3 (d)Disclosure relating to DirectorsForthwith provide a brief resume of new Directors appointed to the Board with details specified in 7.10.3 (a), (b) and (c) to the Exchange.

Complied

7.10.5Remuneration Committee A listed Company shall have a Remuneration Committee.


7.10.5 (a)Composition of Remuneration CommitteeShall comprise of Non-Executive Directors a majority of whom will be independent.


7.10.5 (b)Functions of Remuneration CommitteeThe Remuneration Committee shall recommend theremuneration of the Chief Executive Officer and Executive Directors.


7.10.5 (c)

Disclosure in the Annual ReportThe Annual Report should set out;a. Names of the Directors comprising the Remuneration

Committee.b. Statement of Remuneration Policy.c. Aggregated remuneration paid to Executive and Non-

Executive Directors.

CompliedComplied

Complied

Please refer page 24.Please refer page 24.

Please refer page 24.

7.10.6 Audit CommitteeThe Company shall have an Audit Committee. Complied

Please refer AuditCommittee report on page 33 & 34

7.10.6 (a)

Composition• ShallcompriseofNon-ExecutiveDirectorsamajority

of whom will be independent.• OneNon-ExecutiveDirectorshallbeappointedas

Chairman of the Committee.• ManagingDirectorandChiefFinancialOfficershall

attend Committee meetings.• The Chairman or one member of the Committee should

be a Member of a professional accounting body.

Complied

Complied

Complied

Complied

Please refer page 33 & 34.


CsE RuleNumber


Details

7.10.6 (b)

Functionsa. Overseeing the preparation, presentation and

adequacy of disclosures in the Financial Statements in accordance with Sri Lanka Accounting Standards.

b. Overseeing the compliance with financial reporting requirements, information requirements of the

Companies Act and other relevant financial reporting regulations and requirements.

c. Overseeing the process to ensure that the Entity’s internal controls and risk management, are adequate, to meet the requirements of the Sri Lanka Accounting Standards.

d. Assessment of the independence and performance of the Entity’s external auditors.

e. Make recommendations to the Board pertaining to appointment, re-appointment and removal of external

auditors and to approve the remuneration and terms of engagement of the external auditors.

Complied

Complied

Complied

Complied

Complied

Please refer AuditCommittee report on page 33 & 34.

7.10.6 (c)

Disclosure in Annual Report• ThenamesoftheDirectorscomprisingtheAudit

Committee.• BasisofthedeterminationoftheIndependenceofthe

Auditors.• ReportbytheAuditCommitteesettingoutthe

manner of compliance by the Company.

CompliedPlease refer AuditCommittee report on page 33 & 34.


The Remuneration Committee, appointed by and responsible to the Board of Directors, consists of the three Independent Non-Executive Directors and two of the Non-Independent Non-Executive Directors.

The Committee comprised Messrs J. D. Bandaranayake, C. Jayaratne (up to 31st May 2012), N G Wickremeratne, R. A. Ebell (from 1st June 2012), R. J. Mathison, P. R. Henson (up to 31st January 2013) and J. M. Rutherford (from 1st February 2013).

The Committee is chaired by Mr. J. D. Bandaranayake.

The Committee met once during the financial year.

Role of the Committee

The Remuneration Committee’s role is to provide local market perspectives and guidance to the major shareholder in the implementation of the remuneration policies of the James Finlay Group, as applicable in the Sri Lankan context. The major shareholder has communicated to the Committee that the policies of the group are intended to establish a performance driven reward structure with emphasis on the retention of key talent through market based rewards within defined cost parameters. A key element of the strategy on retention of talent includes the creation of opportunities for career development.

Accordingly, the Committee recognizes that the status of its pay and rewards policy is one of the more important elements of the Company’s ability to attract and retain high caliber talent, a key driver of its longer term ability to deliver projected business results. The Committee however, has left it to the major shareholder to make the final determination of the levels of remuneration applicable to the Executive Directors, after taking into account the aforesaid local market perspectives.

The aggregate remuneration received by the directors was LKR 39.5 million (LKR 27.5 million in the previous year).

Remuneration Policy

In a highly competitive environment, attracting and retaining high calibre executive is a key challenge faced by the Company. In this context, the Committee’s recommendation to the major shareholder was that competition and market information, in addition to performance evaluation methodology, be taken into account in declaring the overall Remuneration Policy.

J. D. BandaranayakeChairmanRemuneration CommitteeColombo.

26th February 2013

REPORt OF tHE REMUNERAtION COMMIttEE


ANNUAL REPORt OF tHE BOARd OF dIRECtORS ON tHE AFFAIRS OF tHE COMPANY

The details set out herein provide the pertinent information required by the Companies Act No. 7 of 2007 and the Colombo Stock Exchange Listing Rules, and are guided by recommended best practices.

Principal ActivitiesThe Company and its subsidiaries form a diversified business undertaking whose key activities comprise blending and packaging tea for export, insurance brokering, representation of foreign principals in respect of products imported into Sri Lanka and representation of international airlines as their General Sales Agent / wholesale courier agent. The Group is also engaged in warehousing tea, temperature controlled logistics, manufacture and export of speciality teas such as Green Tea and environmental and healthcare services.

Business Review/Future DevelopmentsA review of the business of the Company and its performance during the year, with comments on financial results and future strategic developments, is contained in the Chairman’s Review on pages 4 to 6 and the Review of Operations on pages 10 to 13 of these reports together with the Financial Statements reflect the state of affairs of the Company and the Group.

The Directors, to the best of their knowledge and belief, confirm that the Company has not engaged in any activities that contravene laws and regulations.

Financial statementsThe Financial Statements of the Company are given on pages 36 to 72.

Auditor’s ReportThe Auditor’s Report on the Financial Statements is given on page 35.

Accounting Policies The Accounting Policies adopted in the preparation of the Financial Statements are given on pages 40 to 49. These are the Group’s first consolidated financial statements prepared in accordance with SLFRSs/LKAS and SLFRS – 1 First-time Adoption of Sri Lanka Accounting Standards has been applied. The Accounting Policies have been changed to comply with the standards.

group turnover/ExportsGroup turnover amounted to LKR 5,092 million (2011 - LKR 4,972 million). An analysis of turnover is given in Note 22 to the Financial Statements. The export turnover of the Group amounted to LKR 3,991 million (2011 - LKR 4,019 million).

Results and DividendThe results of the Group for the year ended 31st December 2012 show a increase in profit before tax of LKR 463 million (2011- LKR 317 million) . The Group profit after tax amounted to LKR 368 million (2011 - LKR 214 million). The Company has paid interim dividends of LKR 3.00 per share amounting to LKR 105 million during the year. Total Comprehensive Income for the period amounted to LKR 363 million (2011 – LKR 222 million).

The Directors recommend a final dividend of LKR 2/- per share payable on 9th April 2013 to the holders of the issued ordinary shares of the Company as at the close of business on 1st April 2013. This dividend together with the interim dividends of LKR 3.00 per share results in a total dividend of LKR 5/- per share. The dividends represent a redistribution of dividends received by the Company and therefore will not be subject to the 10% tax deduction otherwise applicable.

stated CapitalThe stated capital of the Company is LKR 636 million, divided into 35 million ordinary shares. There was no change in the Stated Capital of the Company during the year.


ANNUAL REPORt OF tHE BOARd OF dIRECtORS ON tHE AFFAIRS OF tHE COMPANY CONtd...

ReservesReserves of the Group as at 31st December 2012 amounted to LKR 4,809 million (2011 - LKR 4,604 million). The movement of reserves is shown in the Statement of Changes in Equity.

Property, Plant & EquipmentDetails of Property, Plant & Equipment of the Group, additions and disposals made during the year and depreciation charged during the year are shown in Note 5 to the Financial Statements.

Events subsequent to the Balance sheet DateNo significant events have occurred since the Balance Sheet date other than those disclosed in Note 32 to the Financial Statements.

Employment PoliciesThe Group policies respect individuals and provide equal opportunities, irrespective of gender, race or religion. The Group now employs 753 persons (2011 - 761).

The Board appreciates that communication is the key to build trust and promote teamwork, and every opportunity is taken to keep employees informed of all events, activities and performance of the Group. Employees are encouraged to provide feedback to improve operational performance.

Training and competency development receive high priority, and ample growth opportunities are available to high performers.

Sporting and recreational activities are particularly encouraged.

Environment, health and safetyIt is the Group’s policy to actively manage any adverse effects on the environment as a result of the Group’s operations and to co-operate and comply with the relevant authorities and regulations. As part of the Group’s commitment to the preservation of the environment, the appraisal of all significant capital expenditure projects includes an assessment of the impact on the environment of such projects.

There is also a heightened awareness of safety, health and environmental issues among all employees and it is the Group’s endeavour to achieve continuous improvement through agreed upon targets.

Corporate governance/internal ControlThe Board of Directors is responsible for the operational and strategic performance of the business, as well as its conduct.

interests RegisterThe Company maintains a Directors’ Interests Register conforming to the provisions of the Companies Act No. 7 of 2007. The Directors of the Company have disclosed their interests in other companies to the Board and those interests are recorded in the Interests Register.

Directors’ RemunerationDirectors’ Remuneration in respect of the Company for the financial year ended 31st December 2012 is given on page 61, in Note 26 to the Financial Statements.

Corporate DonationsDonations made by the Group amounted to LKR 960,000/- (2011 - LKR 947,000/-). No donations were made for political purposes.


DirectorateThe Directors who served on the Board in the year 2012 are Messrs C. L. K. P. Jayasuriya, E. R. Croos Moraes, J. L. Caspersz, Ms. M. C. Pietersz, N. K. H. Ratwatte, C. Jayaratne (retired 31st May 2012), J. D. Bandaranayke, N. G. Wickremeratne, R. J. Mathison, P. R. Henson, R. A. Ebell (appointed 1st June 2012) and S. C. Swire (appointed 8th October 2012).

Mr. P. R. Henson ceased to be a director of the Board w.e.f. 31st January 2013. Mr J. M. Rutherford took his place on the Board w.e.f. 1st February 2013. Brief profiles of the Directors who held office at the date of this Report appear on page 29 & 30.

The following Directors were appointed during the year or later, and the Board of Directors propose their election at the forthcoming Annual General Meeting of the Company.

Director Date of appointmentMr. R. A. Ebell 1st June 2012Mr. S. C. Swire 8th October 2012Mr. J. M. Rutherford 1st February 2013

Messrs N. G. Wickremeratne, J. L. Caspersz and R. J. Mathison retire by rotation and being eligible, offer themselves for re-election.

Related Party transactionsThe Directors have disclosed transactions if any, that could be classified as related party transactions in terms of LKAS 24 “Related Party Disclosures” which is adopted in the preparation of financial statements. Those transactions disclosed by the Directors are given in Note 34 to the financial statements forming part of the Annual Report of the Board. In addition, the Company carried out transactions in the ordinary course of business with the following entities having one or more Directors in common.

Name of the Company/society

Director RelationshipNature of transaction

2012LKR ‘000

2011LKR ‘000

Fintravel (Pvt) Ltd., Mr. E.R.Croos Moraes

Mr. N.K.H. Ratwatte

Common Director Rent received625 601

Hatton National Bank PLCMr. N. G. Wickremeratne

Common DirectorBanking facilities (unutilized)

75,000 75,000

Central Finance Company PLC

Mr. C. L. K. P. Jayasuriya

Common Director Lease rentals Paid 1,414 N/A

Acme Printing and Packaging PLC

Mr. C. L. K. P Jayasuriya

Common DirectorPurchase of packing materials

3,468 N/A

The Directors at their meetings have declared all material interests in contracts involving the Company and have refrained from voting on matters in which they were materially interested.

AuditorsIn accordance with the Companies Act No. 7 of 2007, a resolution proposing the reappointment of Messrs KPMG, Chartered Accountants, as Auditors to the Company will be submitted at the Annual General Meeting.


ANNUAL REPORt OF tHE BOARd OF dIRECtORS ON tHE AFFAIRS OF tHE COMPANY CONtd...

The Auditors, Messrs KPMG, were paid LKR 1,598,000/- as audit fees by the Company. In addition, they were paid LKR 1,531,000/- by the Group for non-audit related work, which consisted mainly of tax consultancy services.

As far as the Directors are aware, the Auditors do not have any relationship with the Company other than those disclosed above. The Auditors also do not have any interest in the Company.

Directors’ shareholdings The Directors’ and their spouses’ holdings of ordinary shares in the Company are as follows:

As at 31.12.2012 31.12.2011C. L. K. P. Jayasuriya 6,000 6,000S. C. Swire - -E. R. Croos Moraes 4,335 4,335J. L. Caspersz - -Ms. M. C. Pietersz - -N. K. H. Ratwatte 600 600C. Jayaratne Not a director 2,333J. D. Bandaranayake - -N. G. Wickremeratne - -R. A. Ebell - Not a directorR. J. Mathison - - P. R. Henson - -

substantial shareholdingThe list of top twenty shareholders, the percentage of shares they hold, and the percentage of public holdings are given on pages 74 to 75 of this Annual Report.

Annual general MeetingThe Thirty Eighth (38th ) Annual General Meeting of the Company will be held at the Registered Office of the Company at Finlay House, No. 186, Vauxhall Street, Colombo 2 on Thursday, 28th March 2013 at 11.30 a.m.

By Order of the Board

C. L. K. P. Jayasuriya Ms. M. C. Pietersz Mrs. D. M. E. thirukumarChairman & Managing Director Director Company Secretary

26th February 2013


dIRECtORSPROFILESC. L. K. P. JAYAsURiYA

Having joined the Company in 1981 and served as an Executive Director since 1986, Mr. Jayasuriya was appointed Executive Chairman and Managing Director on 1st April 2006.

He is a Fellow of the Chartered Institute of Management Accountants, UK (FCMA) and a Fellow of the Chartered Association of Certified Accountants, UK (FCCA).

He is Chairman of the Mercantile Service Provident Society, a former Chairman of the Employers’ Federation of Ceylon, a Director of the Employees Trust Fund Board and a Committee Member of the Ceylon Chamber of Commerce. He is also a Director of several other public listed and non-listed companies incorporated in Sri Lanka.

s. C. sWiRE

Having joined the Company as Chief Operating Officer, Mr. Swire was appointed Executive Director in October 2012. He was educated at Eton College, Windsor, UK and holds a BA Hons: Degree in Modern History from the University of Oxford, UK. He has been employed in the Swire Group since 2003..

E. R. CROOs MORAEs

Mr. Croos Moraes joined the Company in 1977 and has been an Executive Director since 1991. He is currently the Board Member in charge of the Group’s marketing, export and tea warehousing operations. He is presently a member of the Tea Council of Sri Lanka and the Vice Chairman of the Tea Exporters Association of Sri Lanka. He is a Member of the Chartered Institute of Marketing, UK (MCIM).

J. L. CAsPERsZ

Mr. Caspersz joined the Company in 1997 and was appointed an Executive Director in February 2011. He is currently the Board Member in charge of the Environmental Services and Insurance Divisions of the Company and is a Director on the Boards of the respective subsidiaries. Mr Caspersz also heads the Corporate Communication initiatives of the Company. He is a past President of the Sri Lanka Insurance Brokers Association and has served on the Council of the Sri Lanka Insurance Institute for a number of years.

Ms. M. C. PiEtERsZ

Executive Director since November 2011, Ms. Pietersz is an associate member of the Institute of Chartered Accountants in England and Wales and a fellow member of the Institute of Chartered Accountants of Sri Lanka. She holds a B.Sc (Honours) degree in Physics from the University of Sussex and an MBA from Heriot-Watt University, Edinburgh.

N. K. h. RAtWAttE

Having joined the Group in 1991, Mr. Ratwatte was appointed an Executive Director in 1997 and since April 2007 he has been a Non-Executive Director of Finlays Colombo PLC.

He is the Chairman and Managing Director of Hapugastenne Plantations PLC Udapussellawa Plantations PLC, Newburgh Green Tea (Pvt) Ltd., and several other private companies registered in Sri Lanka. He is a Fellow of the National Institute of Plantation Management (FIPM).


dIRECtORSPROFILES CONtd...

J. D. BANDARANAYAKE

An Independent Non-Executive Director since July 2001, Mr. Bandaranayake is the Chairman of the Group Remuneration Committee and a Member of the Audit Committee. He serves as Chairman of Ceylon Tobacco Company PLC.

He has served as a past Chairman of the Employers' Federation of Ceylon and the Ceylon Chamber of Commerce. He is a graduate in Law, a Fellow of the Institute of Personnel Management, Sri Lanka (FIPM) and of the Institute of Chartered Secretaries of Sri Lanka and a Fellow of the Institute of Certified Professional Managers (ICPM).

N. g. WiCKREMERAtNE

An Independent Non-Executive Director since 1st July 2009. Mr. Wickremaratne is a member of the Group Remuneration Committee and the Audit Committee. He serves on the Board of Hatton National Bank PLC. He holds a B.Sc degree from the University of Ceylon, Peradeniya and was previously Chairman and CEO of Hayleys Group.

R. A. EBELL

Fellow of the Institute of Chartered Accountants Sri Lanka (ICASL) and of the Chartered Institute of Management Accountants, UK (CIMA). Worked for Hayleys PLC for many years (eventually as Finance Director), and for Loadstar (Pvt) Ltd., for 2 years (as CFO). Served as a Non Executive Director of Dankotuwa Porcelain PLC, and as Chairman of its Audit Committee. Past President of CIMA, Sri Lanka Division. Currently a member of the Quality Assurance Board of the ICASL.

R. J. MAthisON

A Non-Executive Director since September 2008, Mr. Mathison is the Managing Director of James Finlay Ltd., London. He is also a Member of the Remuneration Committee. Member of the Executive Committee of The Eastern Africa Association. Previously, he served as the Director and General Manager Cargo for Cathay Pacific Airways Ltd., which he joined in 1984.

J. M. RUthERFORD

Mr. Rutherford was appointed a Non-Executive Director on 1st February 2013 on becoming Finance Director of James Finlay Ltd., London. He is a qualified Chartered Accountant (ICAEW) and holds a Bachelor of Science (BSc) degree in Economics from the University of Southampton. Previously he spent 15 years with Associated British Foods, a UK listed company, where he held a variety of senior Finance and other related posts.

FINaNCIaL reportsSTATEMENT OF DIRECTORS RESPONSIBILITy 32

REPORT OF THE AUDIT COMMITTEE 33

INDEPENDENT AUDITORS' REPORT 35

STATEMENT OF FINANCIAL POSITION 36

STATEMENT OF COMPREHENSIVE INCOME 37

STATEMENT OF CHANGES IN EQUITy 38

STATEMENT OF CASH FLOWS 39

NOTES TO THE FINANCIAL STATEMENTS 40

TEN yEAR SUMMARy 73

SHARE INFORMATION 74

NOTICE OF MEETING 76

FORM OF PROXy Enclosed

CORPORATE INFORMATION inner Back Cover


StAtEMENt OF dIRECtORS RESPONSIBILItYThe following statement is made with a view to distinguishing the respective responsibilities of the Directors and of the Auditors in relation to the Financial Statements of the Company and its subsidiaries. It should be read in conjunction with the Report of the Auditors appearing on page 35 which sets out their responsibilities.

The Directors are required by the Companies Act No. 7 of 2007, to prepare Financial Statements for each financial year, which give a true and fair view of the state of affairs of the Company and its subsidiaries, as at the end of the financial year and of the profit or loss of the Company and its subsidiaries for the financial year.

The Directors are required to prepare these Financial Statements on the going concern basis, unless it is not appropriate. Since the Directors are satisfied that the Group has the resources to continue in business for the foreseeable future, the Financial Statements continue to be prepared on the said basis.

The Directors consider that the Financial Statements for the year ended 31st December 2012 set out on pages 36 to 72 are prepared and presented in accordance with Sri Lanka Accounting Standards, and provide the information required by the Companies Act No. 7 of 2007 and the Listing Rules of the Colombo Stock Exchange. The Company and its subsidiaries have used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgments and estimates have been made so that the form and basis of transactions are properly reflected. All accounting standards considered applicable have been followed.

The Directors are responsible for ensuring that all companies within the Group keep accounting records to disclose with reasonable accuracy the financial position of the Company and the Group.

A comprehensive system of internal controls has been implemented which provides reasonable assurance that all assets are safeguarded, transactions properly authorised and recorded and fraud and other irregularities either prevented or detected.

The Directors are responsible for providing the auditors, M/s KPMG, with every opportunity to carry out the audit work that they consider necessary and appropriate to form their audit opinion.

Compliance ReportThe Directors confirm that to the best of their knowledge all statutory payments that were due in respect of the Company and its subsidiaries as at the balance sheet date have been paid or where relevant, provided for.

The Directors are of the view that they have discharged their responsibilities as set out in this Statement.

By Order of the Board,

Mrs. D. M. E. thirukumarCompany Secretary

26th February 2013


REPORt OF tHEAUdIt COMMIttEERole and Composition of the Audit CommitteeThe primary role of the Audit Committee, which is a sub-committee of the Board of Directors, is to• Monitor the effectiveness of the Company’s internal controls through a process of objective internal audit and systems

review; • Seek assurance on the integrity of the Company’s financial accounting process and on the reliability of the Company’s

published Financial Statements;• Monitor the process through which business risks are identified for action by management and for the Board’s attention;

and• Advise the Board on the appointment of external auditors, discuss with the external auditors their areas of focus and their

audit findings, and recommend to the Board their remuneration.

The Audit Committee comprises three Non-Executive Directors. Mr. J. D. Bandaranayake and Mr. N. G. Wickremeratne served on the committee throughout the year. Mr. Chandra Jayaratne served on the committee and as its Chairman until 31st May 2012. The undersigned served on the committee and as its Chairman from 1st June 2012. The Group Systems Auditor of the Company functions as the Committee’s Secretary.

The Audit Committee is supported in its role by the Company’s Audit Supervisory Committees.

Audit supervisory Committees (AsCs)The company has four ASCs, covering the major business sectors of the Group. These are chaired by the Finance Director, and each committee meets at least three times a year.

The ASCs advise the Audit Committee and the Chairman of the Company on internal audit findings, internal control failures, and identification of business risks in the company’s risk management process. Management is responsible for maintaining effective internal control and managing business risk; the ASCs and the Audit Committee strive to ensure that this focus is maintained and this responsibility is not lost sight of.

internal AuditThe conduct of internal audits is coordinated by the Group Systems Auditor. Internal audit is presently outsourced to M/s B. R. De Silva & Co., Chartered Accountants. The Group Systems Auditor carries out separate systems reviews from time to time.

The internal auditors have confirmed that all significant matters arising in the course of their audits have been brought to the notice of the Finance Director and the Chairman of the Audit Committee.

Financial statements and ReportingThe Financial Statements for the year, and the Interim Financial Statements, were reviewed by the Audit Committee and recommended to the Board for acceptance prior to the publication of these statements.

External AuditThe Committee reviewed the Management Letter issued by the external auditors in respect of their audit for 2011 and the actions taken by management in response to the issues raised.

The audit strategy for 2012 was presented to the Committee by the external auditors.


The Audit Committee, having evaluated the performance of the external auditors, and being satisfied that their independence as auditors of the Company has not been compromised, has recommended to the Board the reappointment of M/s KPMG, Chartered Accountants, as auditors for the financial year ending on 31st December 2013.

MeetingsThe Audit Committee held 3 meetings in the year under review. Other members of the Board, the external auditors and the internal auditors were invited to attend Audit Committee meetings as appropriate.

R. A. Ebell FCA FCMAChairmanAudit Committee

Colombo26th February 2013

REPORt OF tHEAUdIt COMMIttEE CONtd...


INdEPENdENtAUdItORS' REPORt

tO thE shAREhOLDERs OF FiNLAYs COLOMBO PLC

Report on the Financial statementsWe have audited the accompanying financial statements of Finlays Colombo PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries (“the Group”), which comprise the statements of financial position as at December 31, 2012, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information set out on pages 36 to 72 of the annual report.

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

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

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

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

Opinion- CompanyIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended December 31, 2012 and the financial statements give a true and fair view of the financial position of the Company as at December 31, 2012, and of its financial performance and its cash flow for the year then ended in accordance with Sri Lanka Accounting Standards.

Opinion- groupIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and its subsidiaries dealt with thereby as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

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

ChARtERED ACCOUNtANtsColombo.

26th February 2013


StAtEMENt OF FINANCIAL POSItION group CompanyAs at 31st December Note 2012 2011 1st Jan 2011 2012 2011 1st Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Assets Property, plant & equipment 5 4,457,253 4,327,597 4,338,678 2,464,345 2,461,986 2,454,514Investment property 6 15,856 16,162 16,647 37,402 38,123 38,844Investments in subsidiaries 7 - - - 1,441,822 739,039 739,039Investment in joint venture 8 - - - 1,325 1,325 1,325Other investments 9.1 738 738 738 86,284 86,284 86,284Defined benefits plan assets 20.1 105,907 97,778 91,765 105,907 97,778 91,765Amounts due from related companies 10.1 - - - - 722,060 708,152Employees' share trust loan 11 - - - 5,368 5,595 6,103Non-current assets 4,579,754 4,442,275 4,447,827 4,142,453 4,152,190 4,126,026 Inventories 12 559,033 438,907 588,443 510,574 395,457 535,699Other investments, including derivatives 9.2 8,258 - - 8,258 - -Trade and other receivables 13 639,216 620,426 589,995 305,333 294,144 300,121Amounts due from related companies 10.2 600 612 599 96,535 47,920 76,935Current tax assets 45,818 54,128 52,959 44,294 54,128 52,959Cash and cash equivalents 14.1 629,820 853,056 1,011,043 568,013 549,295 572,472Current assets 1,882,745 1,967,129 2,243,039 1,533,007 1,340,944 1,538,186total assets 6,462,499 6,409,404 6,690,866 5,675,460 5,493,134 5,664,212 Equity Stated capital 15 636,194 636,194 636,194 636,194 636,194 636,194Reserves 16 253,209 252,983 252,474 258,273 258,273 258,273Retained earnings 4,555,819 4,350,693 4,251,556 3,379,866 3,189,816 3,066,153Equity attributable to owners of the company 5,445,222 5,239,870 5,140,224 4,274,333 4,084,283 3,960,620Non - controlling interests 1,033 - - - - -total equity 5,446,255 5,239,870 5,140,224 4,274,333 4,084,283 3,960,620 Amounts due to related companies 17.1 - - - - 676,538 676,609Loans & borrowings 18 1,103 5,510 9,917 - - -Deferred tax liabilities 19 72,467 59,281 64,083 30,584 26,318 37,614Defined benefits obligation 20.2 114,749 98,056 98,931 114,749 98,056 98,931Non-current liabilities 188,319 162,847 172,931 145,333 800,912 813,154 Trade and other payables 21 554,089 684,713 856,234 383,321 319,929 397,563Current tax liabilities 44,237 41,068 43,074 - 5,204 5,161Loans & borrowings 18 4,407 4,407 4,407 - - -Amounts due to related companies 17.2 26 10,028 - 647,307 20,008 14,128Bank overdrafts 14.2 225,166 266,471 473,996 225,166 262,798 473,586Current liabilities 827,925 1,006,687 1,377,711 1,255,794 607,939 890,438total liabilities 1,016,244 1,169,534 1,550,642 1,401,127 1,408,851 1,703,592total equity and liabilities 6,462,499 6,409,404 6,690,866 5,675,460 5,493,134 5,664,212 The Financial statements are in compliance with the requirements of the Companies Act No. 7 of 2007.

s. Jayaratne Group finance manager The board of directors is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the board by,

C. L. K. P. Jayasuriya C. Pietersz Chairman and managing director Director The notes on pages 40 through 72 form an integral part of the financial statements. Colombo 26th February 2013


StAtEMENt OF COMPREHENSIVE INCOME gROUP COMPANYFor the year ended 31st December Note 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Revenue 22 5,091,642 4,971,581 4,044,298 4,077,700Cost of sales (4,005,716) (4,044,391) (3,548,244) (3,693,874)gross profit 1,085,926 927,190 496,054 383,826 Other income 23 91,257 55,069 82,088 55,199Distribution expenses (123,088) (124,384) (91,707) (93,684)Administrative expenses (558,813) (477,729) (350,485) (304,899)Other expenses 24 (11,731) (36,134) - (149)Results from operating activities 483,551 344,012 135,950 40,294 Finance income 25.1 8,304 12,435 258,255 233,733Finance cost 25.2 (29,236) (39,050) (27,391) (36,803)Net finance (cost)/income (20,932) (26,615) 230,864 196,930Profit before tax 26 462,619 317,397 366,814 237,224Tax expense 27 (94,995) (103,599) (14,265) 1,100Profit for the year 367,624 213,798 352,549 238,324 Other comprehensive income Defined benefits plan actuarial gains / (losses) 20.6 (4,998) 7,839 (4,998) 7,839Income tax on other comprehensive income - - - -Other comprehensive income/(loss) for the year, net of tax (4,998) 7,839 (4,998) 7,839total comprehensive income for the year 362,626 221,637 347,551 246,163

Profit attributable to: Owners of the company 367,624 213,798 352,549 238,324 Non - controlling interests - - - -Profit for the year 367,624 213,798 352,549 238,324 total comprehensive income attributable to: Owners of the company 362,626 221,637 347,551 246,163 Non - controlling interests - - - -total comprehensive income for the year 362,626 221,637 347,551 246,163 Earnings per share Basic earnings per share ( Rs. ) 28.1 10.50 6.11 10.07 6.81Diluted earnings per share (Rs.) 28.2 10.50 6.11 10.07 6.81Dividends per share (Rs.) 29 4.50 3.50 4.50 3.50 The notes on pages 40 through 72 form an integral part of the financial statements.


For the year ended 31st December Equity attributable to owners of the company

group stated Reserve for general Retained total Non - total capital own shares reserve earnings controlling equity interests Note LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Balance as at 01 January 2011 636,194 (6,103) 258,577 4,251,556 5,140,224 - 5,140,224total comprehensive income for the yearProfit for the year 2011 - - - 213,798 213,798 - 213,798

Other comprehensive income Defined benefits plan actuarial gains 20.6 - - - 7,839 7,839 7,839total comprehensive income for the year - - - 221,637 221,637 - 221,637transactions with ownersEmployees' share trust loan repayments 16.2 - 509 - - 509 - 509Dividends - final 2010 29 - - - (52,500) (52,500) - (52,500) - interim 2011 29 - - - (70,000) (70,000) - (70,000)total transactions with owners - 509 - (122,500) (121,991) - (121,991)Balance as at 31 December 2011 636,194 (5,594) 258,577 4,350,693 5,239,870 - 5,239,870

total comprehensive income for the year Profit for the year 2012 - - - 367,624 367,624 - 367,624Other comprehensive income -Defined benefits plan actuarial losses 20.6 - - - (4,998) (4,998) - (4,998)total comprehensive income for the year - - - 362,626 362,626 - 362,626transactions with ownersEmployees' share trust loan repayments 16.2 - 226 - - 226 - 226Dividends - final 2011 29 - - - (52,500) (52,500) - (52,500) - interim 2012 29 - - - (105,000) (105,000) - (105,000)total transactions with owners - 226 - (157,500) (157,274) - (157,274)Changes in the ownershipIncorporation of subsidiary 7.2 - - - - - 1,033 1,033total changes in the ownership - - - - - 1,033 1,033Balance as at 31 December 2012 636,194 (5,368) 258,577 4,555,819 5,445,222 1,033 5,446,255

Company stated general Retained total capital reserve earnings Note LKR 000 LKR 000 LKR 000 LKR 000

Balance as at 01 January 2011 636,194 258,273 3,066,153 3,960,620 total comprehensive income for the year Profit for the year 2011 - - 238,324 238,324 Other comprehensive income Defined benefits plan actuarial gains 20.6 - - 7,839 7,839 total comprehensive income for the year - - 246,163 246,163 transactions with owners Dividends - final 2010 29 - - (52,500) (52,500) - interim 2011 29 - - (70,000) (70,000)total transactions with owners - - (122,500) (122,500)Balance as at 31 December 2011 636,194 258,273 3,189,816 4,084,283

total comprehensive income for the year Profit for the year 2012 - - 352,549 352,549 Other comprehensive income Defined benefits plan actuarial losses 20.6 - - (4,998) (4,998) total comprehensive income for the year - - 347,551 347,551transactions with owners Dividends - final 2011 29 - - (52,500) (52,500) - interim 2012 29 - - (105,000) (105,000)total transactions with owners - - (157,500) (157,500)Balance as at 31 December 2012 636,194 258,273 3,379,866 4,274,333 The notes on pages 40 through 72 form an integral part of the financial statements.

StAtEMENt OF CHANgES IN EQUItY


StAtEMENt OF CASH FLOWS group Company For the year ended 31st December 2012 2011 2012 2011 Note LKR 000 LKR 000 LKR 000 LKR 000

Cash flows from operating activities Net profit before tax expense 462,619 317,397 366,814 237,224Adjustments for Depreciation 5/6 130,206 121,865 53,337 47,001 Income from investments 25.1 (8,304) (12,435) (258,255) (233,733) (Profit)/loss on sale of property, plant & equipment 23 (1,369) 2,023 854 - Finance costs 25.2 29,236 39,050 27,391 36,803 Gratuity provision 14,048 23,363 14,048 23,363 Bad debts 24 11,731 (1,953) - 149 638,167 489,310 204,189 110,807Changes in Inventories (120,126) 149,536 (115,117) 140,242 Trade and other receivables (30,509) (28,492) (59,578) 35,351 Trade and other payables (141,375) (162,242) 690,691 (72,504)Cash generated from operations 346,157 448,112 720,185 213,896

Finance costs paid 25.2 (29,236) (39,050) (27,391) (36,803) Gratuity paid 20.3 (8,227) (12,993) (8,227) (12,993) Income tax paid (68,066) (110,827) (4,592) (10,572)Net cash flows from operating activities 240,628 285,242 679,975 153,528 Cash flows from investing activities Acquisition of property, plant & equipment 5 (264,034) (113,364) (56,320) (53,752) Proceeds from sale of property, plant & equipment 5,849 1,042 489 - Acquisition of investments (208) (149) (208) (149) Acquisition of other investments (8,258) - (8,258) - Investments in subsidiaries 7 - - (703,074) - Investment in other long term assets-gratuity (2,531) (9,270) (2,531) (9,270) (Increase)/ decrease in amounts due to/from related parties - - 45,522 (13,979) Interest received 8,096 12,286 4,665 4,118 Dividend received 208 149 253,590 229,615Net cash flows used in Investing activities (260,878) (109,306) (466,125) 156,583 Cash flows from financing activities Repayment of interest bearing loans & borrowings 18 (4,407) (4,407) - - Employees' share trust loan repayments 16.2 226 509 - - Dividends paid 29 (157,500) (122,500) (157,500) (122,500)Net cash flows used in financing activities (161,681) (126,398) (157,500) (122,500)

Net increase/(decrease) in cash and cash equivalents (181,931) 49,538 56,350 187,611 Cash and cash equivalents at the beginning of the year 14 586,585 537,047 286,497 98,886Cash and cash equivalents at the end of the year 14 404,654 586,585 342,847 286,497 The notes on pages 40 through 72 form an integral part of the financial statements.


Accounting Policies

1. Corporate information1.1 general

Finlays Colombo PLC (“Company”) is a limited liability company incorporated and domiciled in Sri Lanka. The registered office and the principal place of business is situated at Finlay House, No. 186, Vauxhall Street, Colombo 2.

In the Annual Report of the Board of Directors’ and in the financial statements, “the company” refers to Finlays Colombo PLC as the holding company and “the group” refers to the companies whose accounts have been consolidated therein.

All financial information in the financial statements are in Sri Lanka rupees thousands (LKR 000’s) unless otherwise stated.

1.2 Principal ActivitiesCompanyDuring the year, the principal activities of the Company were tea blending and packing for export, insurance brokering, representation of foreign principals in respect of products imported to Sri Lanka and as Cargo Sales Agent of an international airline.

GroupDuring the year, the principal activities of the Group were tea blending and packing for export, warehousing of tea, and the manufacture and export of speciality teas such as Green Tea. The Group was also engaged in providing cold storage facilities, insurance brokering, environmental services, representation of foreign principals in respect of products imported to Sri Lanka, representing an international airline as its General Sales Agent.

1.3 Parent Enterprise and Ultimate Parent Enterprise The Company’s parent undertaking is James Finlay Limited, London. In the opinion of the Directors, the Company’s ultimate parent undertaking and controlling party is John Swire & Sons Limited, which is incorporated in England.

1.4 Authorisation of Financial statementsThe consolidated financial statements of the Group for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Directors on 26th February 2013.

2. Basis of preparation2.1 statement of compliance

The Statement of financial position, Statements of comprehensive income, Statement of changes in equity and statement of cash flows, together with Notes to the financial statements (“Financial Statements”) of the Group as at 31st December 2012 and for the year then ended, comply with the Sri Lanka Accounting Standards (SLFRSs / LKASs) as laid down by the Institute of chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 07 of 2007.

These are the Group’s first consolidated financial statements have been prepared in accordance with SLFRSs / LKASs and SLFRS - 1 First-time Adoption of Sri Lanka Accounting Standards has been applied.

An explanation of how the transition to SLFRSs / LKASs has affected the reported financial position, financial performance and cash flows of the Group is provided in note 36.

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2.2 Basis of measurementThe financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:• Thedefinedbenefitassetisrecognisedasplanassets,plusunrecognisedpastservicecost,lessthepresent

value of the defined benefit obligation• derivativefinancialinstrumentsaremeasuredatfairvalue

2.3 Functional and presentation currencyThese consolidated financial statements are presented in Sri Lankan Rupees, which is the Company’s functional currency. All financial information presented in LKR has been rounded to the nearest thousands, except when otherwise indicated.

2.4 Use of estimates and judgmentsThe preparation of the consolidated financial statements in conformity with Sri Lanka Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:• Note6-classificationofinvestmentproperty

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:• Note20-measurementofdefinedbenefitobligations• Note31-contingencies

3. significant accounting policiesThe accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing the opening SLFRSs / LKASs statement of financial position at 1 January 2011 for the purposes of the transition to SLFRSs / LKASs, unless otherwise indicated.

The accounting policies have been applied consistently by Group entities.

3.1 Basis of consolidation3.1.1 Business combinations

Acquisitions on or after 1 January 2012For acquisitions on or after 1 January 2012, the Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.


Acquisitions prior to 1 January 2012As part of its transition to SLFRSs / LKASs, the Group elected not to restate those business combinations that occurred prior to 1st January 2012.

3.1.2 SubsidiariesSubsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

3.1.3 Loss of controlOn the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any noncontrolling interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in profit or loss. If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost.

Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

3.1.4 Investments in joint venturesJoint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.The results of the Joint Venture, Finlays Linehaul Express (Pvt) Limited, in which the Company has a 50% holding has been accounted for under the proportionate consolidation method. The Group’s share of each of the assets, liabilities, income and expenses of the joint venture are combined with the similar items, line by line, in the consolidated financial statements.

3.1.5 Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised income and expenses arising from intra - group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

3.2 Foreign currency3.2.1 Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on translation are recognised in profit or loss.

3.2.2 Foreign operationsThe assets and liabilities of foreign operations are translated to Sri Lankan Rupees at exchange rates at the reporting date. The income and expenses of foreign operations are translated to Sri Lankan Rupees at exchange rates at the dates of the transactions.

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Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity.

3.3 Financial instruments3.3.1 Non-derivative Financial assets

The Group initially recognises loans and receivables on the date that they are originated. All other financial assets are recognized initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

The Group classifies non-derivative financial assets into the following categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available for- sale financial assets.

3.3.1.1 Loans and receivablesLoans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.Loans and receivables comprise cash and cash equivalents, and trade and other receivables.

Cash and cash equivalentsCash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

3.3.1.2 Available for sale financial assetsAvailable-for-sale financial assets are non-derivative financial assets that are designated as available for sale or are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Available-for-sale financial assets comprise equity securities and debt securities.

3.3.2 Non-derivative Financial liabilitiesOther financial liabilities are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs.


Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method.

Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

3.3.3 stated capital3.3.3.1 Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

3.3.3.2 Reserve for own sharesThe Finlays Colombo PLC Employees' Share Trust (administered by Jaycey Trust Services (Private) Limited) was set up on 16th June, 1996. The Trust purchased 137,357 ordinary shares of Rs. 10/- each at the market price of Rs. 55/- per share. The payment for the shares was made by the Trustees from the proceeds of an interest free loan of Rs. 7.6 million granted by the Company to the Trust. This loan is repayable by the trustees utilising part of the net income of the Trust.

The share trust loan outstanding as at each reporting period shall be accounted directly in equity. (Equity shall be presented net of loan outstanding) in the consolidated financial statements.

3.3.4 Derivative financial instruments, including hedge accountingThe Group holds derivative financial instruments to hedge its foreign currency exposures.

On initial designation of the derivative as a hedging instrument, the Group formally documents the relationship between the hedging instrument and hedged item, including the risk management objectives and strategy in undertaking the hedge transaction and the hedged risk, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, of whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items attributable to the hedged risk.

3.4 Property, plant and equipment

3.4.1 Recognition and measurementItems of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. The cost of certain items of property, plant and equipment was determined by reference to a previous SLASs revaluation. The Group elected to apply the optional exemption to use this previous revaluation as deemed cost at 1 January 2011, the date of transition.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located, and borrowing costs on qualifying assets for which the commencement date for capitalisation is on or after 1 January 2011.

Cost also may include transfers from other comprehensive income of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.



When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss.

3.4.2 Subsequent costsThe cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

3.4.3 DepreciationDepreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.

The estimated useful lives for the current and comparative periods are as follows:Buildings - Over 67 yearsPlant & Machinery - Over 10 years to 20 yearsFactory and other Equipment - Over 5 years to 10 yearsFurniture, Fittings & Office Equipment - Over 4 years to 7 yearsMotor Vehicles - Over 4 yearsPallets - Over 2 years to 4 years

3.5 investment propertyInvestment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

Investment property is measured at cost. When the use of a property changes such that it is reclassified as property, plant and equipment, its carrying value at the date of reclassification becomes its cost for subsequent accounting.

3.6 Leased assetsLeases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.

3.7 inventoriesInventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the first-in first-out or weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition.


In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

3.8 impairment3.8.1 Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

3.8.1.1 Financial assets measured at amortised costThe Group considers evidence of impairment for financial assets measured at amortised cost at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities.

Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

3.8.1.2 Available for sale financial assetsImpairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognized previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are relected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.



3.8.1.3 Non-financial assetsThe carrying amounts of the Group’s non-financial assets, investment property and inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or cash generating unit (CGU) exceeds its recoverable amount.

3.9 Employee benefits3.9.1 Retirement Benefit Obligations3.9.1.1 Defined Benefit Plan – Gratuity

A defined benefit plan is a post employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated separately by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The retirement benefit plan adopted is as required under the Payment of Gratuity Act No.12 of 1983.

Provision for gratuity on the employees of the Company and Group are based on actuarial valuation as recommended by Sri Lanka Accounting Standard No.19 ‘Employee Benefits’ (LKAS - 19). The actuarial valuation was carried out by professionally qualified firm of actuaries, as at 31 December 2012. The valuation method used by the actuary is “Projected Unit Credit Method”. The group recognizes any actuarial gains & losses arising from defined benefit plan immediately in other comprehensive income and all expenses related to defined benefit plan in personnel expenses in the statement of comprehensive income.

3.9.1.2 Defined Contribution Plan – MSPS/EPF/ETFA defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees. Employees are eligible for Mercantile Service Provident Society Fund contributions or Employees’ Provident Fund contributions and Employees’ Trust Fund contributions in line with respective statutes and regulations.

3.9.2 Short-term employee benefit Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

3.10 ProvisionsA provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as finance cost.

3.11 Revenue3.11.1 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group 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 sales taxes after eliminating sales within the Group.


The following specific criteria are used for the purpose of recognition of revenue:

a) Sale of Goods Revenue from the sale of goods in the course of ordinary activities is measured at the fair value of the

consideration received or receivable, net of returns, trade discounts and volume rebates.

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer; with the Group retaining neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold.

b) Rendering of Servicesi. Environmental Services Revenue from Environmental services is recognised on a proportionate basis by reference to the time

period of the contract.ii. Warehousing Income Income from warehousing is calculated by reference to the time period of the contract, on an accrual basis.iii. Cold Storage Income Income from providing cold storage facilities is calculated by reference to the time period and the storage

space of the contract on an accrual basis.c) Rental Income Rental income is recognized on an accrual basis.

d) Dividend Income Dividend income is recognized on a cash basis.

e) Commissionsi. Insurance Commissions Insurance commission is recognized on the effective commencement or renewal of the related policies.ii. Other Agency Commission Other Agency Commission is recognised when parties to a contract, viz. our principals and customers,

have acted on a binding obligation.

3.12 government grantsAn unconditional Tea Board grant related to a tea exports is recognised in profit or loss as other income when the grant is received.

3.13 Leases

3.13.1 Lease paymentsPayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

3.14 Finance income and finance costsFinance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in profit or loss on cash basis.



Finance costs comprise interest expense on borrowings and export bills discounting. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method.

3.15 taxes Current Tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.

The provision for income tax is based on the elements of the income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No.10 of 2006 and its subsequent amendments thereto.

Deferred TaxDeferred tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.Deferred tax relating to items recognized directly in equity is recognized in equity and not in the income statement. Deferred tax liabilities have not been recognised for taxable temporary differences associated with investments in subsidiaries to the extent that the timing of reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Turnover based TaxesTurnover based taxes include Value Added Tax (VAT), Economic Service Charge (ESC), Nation Building Tax (NBT), in respect of trading activities. Companies in the Group pay such taxes in accordance with the respective statutes.

3.16 segment ReportingThe Group has three reportable segments, as described below, which are the Group’s strategic divisions. The strategic divisions offer different products and services, and are managed separately because they require different technology and marketing strategies. For each of the strategic divisions, the Group’s Chairman (the chief operating decision maker) reviews internal management reports on at least a quarterly basis. The following summary describes the operations in each of the Group’s reportable segments.

• Teaexports-Teablendingandpackingforexport,manufactureandexportofspecialityteassuchasgreentea.• Logistics-Providingcoldstoragefacilitiesandwarehousingoftea.• Services-Insurancebrokering,environmentalservices,representationofforeignprincipalsinrespectofproducts

imported to Sri Lanka, representing an international airline as its General Sales Agent.

4. standards issued but not yet effectiveStandards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective.•SLFRS10-ConsolidatedFinancialStatements•SLFRS11-JointArrangements•SLFRS12-DisclosureofInterestsinotherentities•SLFRS13-FairValueMeasurement


5. Property, Plant and Equipment5.1 group Land & Plant & Furniture, Motor Pallets Capital totalAs at 31st December buildings machinery fittings & vehicles work - in office progress equipment Cost or deemed cost LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 Balance at 1 January 2011 3,685,393 1,242,730 184,000 58,629 55,197 20,558 5,246,507Additions 33 52,048 12,215 12,570 983 35,515 113,364Disposals - (26,440) (890) (143) - - (27,473)Transfers from W.I.P - 3,312 16,490 - - (19,802) -Balance at 31 December 2011 3,685,426 1,271,650 211,815 71,056 56,180 36,271 5,332,398 Balance at 1 January 2012 3,685,426 1,271,650 211,815 71,056 56,180 36,271 5,332,398Additions - 16,099 7,805 18,775 342 221,013 264,034Disposals - (3,931) (2,386) (8,629) - (1,212) (16,158)Transfers from W.I.P - 18,729 21,571 171 - (40,471) -Balance at 31 December 2012 3,685,426 1,302,547 238,805 81,373 56,522 215,601 5,580,274 Depreciation Balance at 1 January 2011 56 674,728 159,410 37,260 36,375 - 907,829Charge for the year 18,582 73,919 15,453 7,883 5,543 - 121,380Disposals - (23,375) (890) (143) - - (24,408)Balance at 31 December 2011 18,638 725,272 173,973 45,000 41,918 - 1,004,801 Balance at 1 January 2012 18,638 725,272 173,973 45,000 41,918 - 1,004,801Charge for the year 18,764 73,976 17,843 12,241 7,076 - 129,900Disposals - (965) (2,386) (8,329) - - (11,680)Balance at 31 December 2012 37,402 798,283 189,430 48,912 48,994 - 1,123,021 Carrying amounts At 1 January 2011 3,685,337 568,002 24,590 21,369 18,822 20,558 4,338,678At 31 December 2011 3,666,788 546,378 37,842 26,056 14,262 36,271 4,327,597 At 1 January 2012 3,666,788 546,378 37,842 26,056 14,262 36,271 4,327,597At 31 December 2012 3,648,024 504,264 49,375 32,461 7,528 215,601 4,457,253

Property, plant and equipment includes cost of fully depreciated assets having a gross carrying amounts of Rs. 562 million(2011 Rs. 545 million).



5. Property, plant and equipment 5.2 Company Land & Plant & Furniture, Motor Capital totalAs at 31st December buildings machinery fittings & vehicles work - in office progress equipment Cost or deemed cost LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Balance at 1 January 2011 2,111,650 606,825 141,661 10,427 21,608 2,892,171Additions - 36,648 4,869 1,334 10,901 53,752Disposals - - (890) (143) - (1,033)Transfers from W.I.P - - 16,490 - (16,490) -Balance at 31 December 2011 2,111,650 643,473 162,130 11,618 16,019 2,944,890 Balance at 1 January 2012 2,111,650 643,473 162,130 11,618 16,019 2,944,890Additions - 12,086 3,337 515 40,382 56,320Disposals - - - (1,127) (1,212) (2,339)Transfers from W.I.P - - 21,571 - (21,571) -Balance at 31 December 2012 2,111,650 655,559 187,038 11,006 33,618 2,998,871 Depreciation Balance at 1 January 2011 - 306,634 122,006 9,017 - 437,657Charge for the year 1,977 33,932 9,846 525 - 46,280Disposals - - (890) (143) - (1,033)Balance at 31 December 2011 1,977 340,566 130,962 9,399 - 482,904 Balance at 1 January 2012 1,977 340,566 130,962 9,399 - 482,904Charge for the year 1,978 37,540 12,354 744 - 52,616Disposals - - - (994) - (994)Balance at 31 December 2012 3,955 378,106 143,316 9,149 - 534,526 Carrying amounts At 1 January 2011 2,111,650 300,191 19,655 1,410 21,608 2,454,514At 31 December 2011 2,109,673 302,907 31,168 2,219 16,019 2,461,986 At 1 January 2012 2,109,673 302,907 31,168 2,219 16,019 2,461,986At 31 December 2012 2,107,695 277,453 43,722 1,857 33,618 2,464,345 Property, plant and equipment includes cost of fully depreciated assets having a gross carrying amounts of Rs. 320 million (2011 Rs. 308 million).



5. Property, plant and equipment 5.3 group real estate portfolio Net carrying Net carrying Net carrying amount amount amount Buildings in Land in 2012 2011 1 Jan 2011Owning company and location sq.ft acres LKR 000 LKR 000 LKR 000

Finlays Colombo PLC 140,947 3A: 1R : 36.0P 2,086,283 2,088,981 2,091,679186, Vauxhall Street, Colombo 02

Finlays Colombo PLC - 1A: 3R: 13.53P 58,815 58,815 58,815No. 105/4, Etampolawatta, Handala, Wattala

Finlay Properties (Pvt) Ltd., 204,422 7A: 3R: 8.63P 737,802 744,923 752,045No. 74, Ragama Rd, Mahawatte, Welisara Finlay Properties (Pvt) Ltd., - 4A: 0R: 9.82P 194,946 194,946 194,946No. 74/1, Ragama Rd, Mahawatte, Welisara (Occupied by Finlay Cold Storage (Pvt) Ltd.,) Finlay Cold Storage (Pvt) Ltd., 82,632 - 479,728 487,760 495,792No. 74/1, Ragama Rd, Mahawatte, Welisara

Finlay Rentokil Ceylon (Pvt) Ltd., 15,032 1A: 1R: 14.60P 52,420 52,620 52,821No. 105/4, Etampolawatta, Handala, Wattala

Finlay Teas (Pvt) Ltd., 27,186 18A: 0R: 24.0P 53,886 54,905 55,858Haldamulla

Consolidated value of Land & Buildings 470,219 36A: 2R: 26.58P 3,663,880 3,682,950 3,701,956 6. investment property group Company 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Cost or deemed cost Balance at 1 January 16,647 16,647 38,844 38,844Balance at 31 December 16,647 16,647 38,844 38,844

Depreciation Balance at 1 January 485 - 721 -Charge for the year 306 485 721 721Balance at 31 December 791 485 1,442 721

Net carrying amount 15,856 16,162 37,402 38,123

6.1 Group has earned Rs. 13.1 million for the year ended 31st December 2012 (2011: Rs. 13.7 million) as rental income from above investment properties.

6.2 Company has earned Rs. 19.7 million for the year ended 31st December 2012 (2011: Rs. 19.1 million) as rental income

from above investment properties.

6.3 Group land & buildings including those classified as investment properties were revalued as at 31st December 2010 by Mr.P.W. De S. Senaratne, an independent valuer. Such values have been taken as deemed cost of both property, plant & equipment and investment properties as at 01st January 2011. There were no significant differences between market value and net carrying value of investment properties as at 31st December 2012.


7. investments in subsidiaries Company Non - quoted holding 2012 2011 1 Jan 2011 % LKR 000 LKR 000 LKR 000

Finlay Rentokil Ceylon (Pvt) Ltd., 100 11,000 11,000 11,000Finlay Airline Agencies (Pvt) Ltd., 100 50 50 50Finlay Tea Solutions Colombo (Pvt) Ltd., 100 200 200 200Finlay Teas (Pvt) Ltd., 100 28,000 28,000 28,000Finlay Properties (Pvt) Ltd., (Note 7.1) 100 200,830 50,855 50,855Finlay Plantation Management (Pvt) Ltd., 100 500 500 500 James Finlay Plantation Holdings (Pvt) Ltd., 100 1,605,900 1,605,900 1,605,900Finlay Insurance Brokers (Pvt) Ltd., 100 2,500 2,500 2,500Finlay Cold Storage (Pvt) Ltd., (Note 7.1) 100 585,000 35,000 35,000Finlays Maldives (Pvt) Ltd., (Note 7.2) 75 3,099 - -TotalNon-QuotedInvestmentsinSubsidiaries 2,437,079 1,734,005 1,734,005 Permanent decline in value - James Finlay Plantation Holdings (Pvt) Ltd,. (995,257) (994,966) (994,966) 1,441,822 739,039 739,039

7.1 In March 2012 Finlays Colombo PLC increased its investment in Finlay Properties (Pvt) Limited (Subsidiary company) by Rs. 150 million and in Finlay Cold Storage (Pvt) Ltd., (Subsidiary company) by Rs. 550 million.

7.2 In July 2012, a new company, Finlays Maldives (Pvt) Ltd., (Subsidiary company) , was incorporated in The Republic of Maldives. Group's stake in the new company is 75%.

7.3 Investment in share capital of new company was made through transfer of Rs. 3 million equivalent Maldivian Rufiyaa.

8. investment in joint venture Company holding 2012 2011 1 Jan 2011 % LKR 000 LKR 000 LKR 000 Finlays Linehaul Express (Pvt) Ltd., 50 1,325 1,325 1,325

The summarised financial information of the Group's investment in Finlays Linehaul Express (Pvt) Ltd.,

8.1 share of joint venture's balance sheet Non-current assets 646 406 648 Current assets 20,480 14,356 10,038 Non-current liabilities (67) (67) (62) Current liabilities (11,915) (8,350) (5,517) Net assets 9,144 6,345 5,107 8.2 share of Joint venture's revenue and profit Revenue 65,413 36,313 40,883 Expenses (56,757) (30,732) (34,895) Profit before tax 8,656 5,581 5,988



9. Other investments, including derivatives 9.1 Non - current

group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Fixed deposits 738 738 738 738 738 738Debt securities (Note 9.3) - - - 85,546 85,546 85,546(Finlay Properties (Pvt) Ltd.,) 738 738 738 86,284 86,284 86,284

9.2 Current Forward exchange contracts used for hedging (Note 9.4) 8,258 - - 8,258 - - 9.3 Interest-bearing available-for-sale financial assets represents the investment in cumulative redeemable preference shares

of Finlay Properties (Pvt) Ltd., (subsidiary company) with a carrying amount of Rs. 85.5 million as at 31 December 2012 (2011: 85.5 million & 2010: 85.5 million ) have stated preference dividend rate of 6.5% p.a. and these shares can redeem at the option of the holder (Finlays Colombo PLC).

9.4 The Group’s exposure to credit, currency and interest rate risks related to other investments are disclosed in note 35.

10. Amounts due from related companies 10.1 Non - current group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 Relationship LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 Finlay Properties (Pvt) Ltd., Subsidiary - - - - 161,251 156,476Finlay Cold Storage (Pvt) Ltd., Subsidiary - - - - 560,809 551,676 - - - - 722,060 708,152 10.2 Current Finlay Rentokil Ceylon (Pvt) Ltd., Subsidiary - - - - 5,755 730Finlay Insurance Brokers (Pvt) Ltd., Subsidiary - - - 16,884 41,181 74,633Finlay Cold Storage (Pvt) Ltd., Subsidiary - - - 72,607 - -Finlay Teas (Pvt) Ltd., Subsidiary - - - 4,086 - -Finlay Plantation Management (Pvt) Ltd., Subsidiary - - - 172 - -Finlays Maldives (Pvt) Ltd., Subsidiary - - - 1,907 - -Udapussellawa Plantations PLC Affiliate - 1 - - 1 -Finlay Instant Teas (Pvt) Ltd., Affiliate - 11 - - 11 -Finlay Linehaul Express (Pvt) Ltd., Joint Venture - - - 279 372 973James Finlay Plantation Holdings Lanka Ltd., Affiliate 600 600 599 600 600 599 600 612 599 96,535 47,920 76,935


11. Employees' share trust loan The Finlays Colombo PLC Employees' Share Trust (administered by Jaycey Trust Services (Private) Limited) was set

up on 16th June, 1996. The Trust purchased 137,357 ordinary shares of Rs. 10/- each at the market price of Rs. 55/- per share. The payment for the shares was made by the Trustees from the proceeds of an interest free loan of Rs. 7.6 million granted by the Company to the Trust. This loan is repayable by the trustees utilising part of the net income of the Trust.

12. inventories group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 Tea stocks 298,901 192,624 396,780 293,573 188,770 387,400Packing materials 160,449 127,065 129,422 160,449 127,065 129,422Others 111,386 130,698 75,736 68,255 91,102 32,372 570,736 450,387 601,938 522,277 406,937 549,194

Less: provision for slow moving & obsolete stocks (11,703) (11,480) (13,495) (11,703) (11,480) (13,495) 559,033 438,907 588,443 510,574 395,457 535,699 13. trade and other receivables Trade debtors (Note 13.1) 560,469 550,815 489,092 237,726 243,487 222,015Less: provision for doubtful debts (22,554) (14,927) (17,819) (348) (461) (1,212) 537,915 535,888 471,273 237,378 243,026 220,803 Other debtors 60,692 51,654 61,649 28,973 21,556 32,141Advances and prepayments 24,225 9,088 14,917 22,598 5,766 5,021VAT recoverable 16,384 23,796 42,156 16,384 23,796 42,156 639,216 620,426 589,995 305,333 294,144 300,121 13.1 The Group’s exposure to credit, currency and interest rate risks related to trade & other receivables are disclosed in

note 35

14. Components of cash and cash equivalents 14.1 Favorable cash and cash equivalent balances

group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Cash and bank balances 629,820 853,056 1,011,043 568,013 549,295 572,472

14.2 Unfavorable bank balances Bank overdrafts (unsecured) (225,166) (266,471) (473,996) (225,166) (262,798) (473,586)Net cash and cash equivalent for the purpose of cash flow statement 404,654 586,585 537,047 342,847 286,497 98,886



15. stated capital15.1 Number of ordinary shares issued and fully paid group Company 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

At the beginning of the year 35,000 35,000 35,000 35,000 At the end of the year 35,000 35,000 35,000 35,000

15.2 Value of issued and fully paid ordinary shares At the beginning of the year 636,194 636,194 636,194 636,194 At the end of the year 636,194 636,194 636,194 636,194

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at a meeting of the Company.

All shares rank equally with regard to the Company's residual assets.

16. Reserves group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Revenue reserves Note 16.1 258,577 258,577 258,577 258,273 258,273 258,273Other reserves Note 16.2 (5,368) (5,594) (6,103) - - - 253,209 252,983 252,474 258,273 258,273 258,273 16.1 Revenue reservesGeneral reserve 258,577 258,577 258,577 258,273 258,273 258,273

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

16.2 Other reservesReserve for own shares - - -At the beginning of the year (5,594) (6,103) (6,103) - - -Employees' share trust loan repayments 226 509 - - - -At the end of the year (5,368) (5,594) (6,103) - - -

The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. As at 31 December 2012 the Group held 137,357 of the Company’s shares (2011: 137,357 & 2010: 137,357) through employees' share trust. (Refer note 11)

17. Amounts due to related companies 17.1 Non - current Relationship James Finlay Plantation Holdings (Pvt) Ltd., Subsidiary 610,662 610,697Finlay Plantation Management (Pvt) Ltd., Subsidiary 65,876 65,912 - - - - 676,538 676,609

17.2 Current Finlay Tea Solutions Colombo (Pvt) Ltd., Subsidiary - - - 200 200 200James Finlay Ltd., Parent company 26 10,028 - 26 10,028 -Finlay Teas (Pvt) Ltd., Subsidiary - - - - 9,780 13,928James Finlay Plantation Holdings (Pvt) Ltd., Subsidiary - - - 610,643 - -Finlay Properties (Pvt) Ltd., Subsidiary - - - 3,930 - -Finlay Rentokil Ceylon (Pvt) Ltd., Subsidiary - - - 32,508 - - 26 10,028 - 647,307 20,008 14,128


18. Loans & borrowings group 2012 2011 LKR 000 LKR 000 Balance at the beginning of the year 9,917 14,324Loans obtained during the year - -Repayments during the year (4,407) (4,407)Balance at the end of the year 5,510 9,917 Repayable with in one year 4,407 4,407Repayable after one year 1,103 5,510 5,510 9,917 The above unsecured loan was taken by Finlay Teas (Pvt) Ltd., in 2009, from NDB Bank for investment in energy saving project. Applicable rate of interest is 6.5% p.a. and the loan is repayable within 5 years.

19. Deferred tax liabilities 19.1 Deferred tax liabilities - group 2012 2011 2010 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Asset Liability Net Asset Liability Net Asset Liability NetProperty, plant and equipment - 75,998 75,998 - 67,242 67,242 - 78,199 78,199Tax losses carried forward (3,531) - (3,531) (7,961) - (7,961) (14,116) - (14,116)Net deferred tax liability (3,531) 75,998 72,467 (7,961) 67,242 59,281 (14,116) 78,199 64,083

19.2 Deferred tax liabilities - Company 2012 2011 2010 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Asset Liability Net Asset Liability Net Asset Liability NetProperty, plant and equipment - 34,115 34,115 - 34,279 34,279 - 51,730 51,730Tax losses carried forward (3,531) - (3,531) (7,961) - (7,961) (14,116) - (14,116)Net deferred tax liability (3,531) 34,115 30,584 (7,961) 34,279 26,318 (14,116) 51,730 37,614 20. Defined benefits20.1 Defined benefits plan assets group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 Employees joined before 1992/93 - Eagle mutual fund 2,461 2,253 2,104 2,461 2,253 2,104Employees joined after 1992/93 plan assets 103,446 95,525 89,661 103,446 95,525 89,661 105,907 97,778 91,765 105,907 97,778 91,765 20.2 Defined benefit obligationsEmployees joined before 1992/93 Present value of funded obligations 1,102 1,102 1,123 1,102 1,102 1,123Employees joined after 1992/93 Present value of funded obligations 113,647 96,954 97,808 113,647 96,954 97,808 114,749 98,056 98,931 114,749 98,056 98,931 Retiring gratuity is a defined benefit plan - covering employees of the Group. The Group’s liability arising on retirement benefits of employees joined prior to 1992/93 is externally funded & this has been invested in Eagle Mutual Funds. Subsequent to 1992, the externally funded policy purchased from Eagle Insurance PLC, covers 765 (2011 -755, 2010 - 730) employees attached to the Group.



An actuarial valuation has been carried out as at 31st December 2012 by Mr. M. Poopalanathan attached to the Actuarial and Management Consultants (Pvt) Limited.

The valuation method used by the actuary is the “Project Unit Credit Method”, the method recommended by LKAS 19 ‘Employee Benefits’.

The premium for the current year is Rs. 11.3 million/- (2011- Rs. 2 million/-, 2010 - Rs. 9 million/-).

Results of the actuarial valuation indicate the following, which have been accounted for, group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Fair value of the plan assets 103,446 95,525 89,661 103,446 95,525 89,661Present value of funded obligations (113,647) (96,954) (97,808) (113,647) (96,954) (97,808)Present value of net obligation (10,201) (1,429) (8,147) (10,201) (1,429) (8,147) The above net obligation has been provided for in the financial statements

20.3 Movement in fair value of plan assets

group CompanyAs at 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000 Fair value of plan assets at the beginning of the year 95,525 89,661 95,525 89,661Contribution paid into the plan 2,531 9,270 2,531 9,270Expected return on plan assets 11,463 6,949 11,463 6,949Benefits paid by the plan (8,227) (12,993) (8,227) (12,993)Actuarial gains / (losses) on plan assets 2,154 2,638 2,154 2,638Fair value of plan assets at the end of the year 103,446 95,525 103,446 95,525 The above amount is invested with Eagle insurance company PLC. 20.4 Movement in the present value of the defined benefit obligations Defined benefit obligations at the beginning of the year 96,954 97,808 96,954 97,808Current service cost 7,962 6,952 7,962 6,952Interest costs 9,806 10,388 9,806 10,388Benefits paid during the year (8,227) (12,993) (8,227) (12,993)Actuarial (gains) / losses 7,152 (5,201) 7,152 (5,201)Defined benefit obligations at the end of the year 113,647 96,954 113,647 96,954

20.5 Expense recognised in profit or lossExpected return on plan assets (11,463) (6,949) (11,463) (6,949)Current service cost 7,962 6,952 7,962 6,952Interest costs on obligation 9,806 10,388 9,806 10,388 6,305 10,391 6,305 10,391 The expense is recognised in the administrative expenses in the statement of comprehensive income

20.6 Actuarial gains and losses recognised in other comprehensive income Amount accumulated in retained earnings at 1 January 6,047 (1,792) 6,047 (1,792)Recognised during the year (4,998) 7,839 (4,998) 7,839Amount accumulated in retained earnings at 31 December 1,049 6,047 1,049 6,047


20.7 Actuarial assumptions group Company As at 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Principle actuarial assumptions used are as follows Rate of discount 12.0% 10.0% 12.0% 10.0%Future salary increases 7.5% 5.0% 7.5% 5.0% Assumptions regarding mortality are based on A 1967 / 70 Mortality Table, issued by The Institute of Actuaries, London.

20.8 sensitivity analysis - salary escalation Rate as at 31 December 2012

If rate is If rate is 5% 10% Estimated percent value of defined benefit obligations 101,906 130,828 20.9 historical information - group & company 2012 2011 2010 2009 2008Present value of the defined benefit obligation 113,647 96,954 97,808 85,080 67,878Fair value of plan assets (103,446) (95,525) (89,661) (63,282) (48,928)(Surplus) deficit in the plan 10,201 1,429 8,147 21,798 18,950

21. trade and other payables group Company As at 31st December 2012 2011 1 Jan 2011 2012 2011 1 Jan 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Trade and other payables 302,072 194,470 301,910 209,031 115,773 199,262Trade payable to related companies (Note 21.1) 252,017 490,243 554,324 174,290 204,156 198,301 554,089 684,713 856,234 383,321 319,929 397,563

21.1 trade payable to related company

RelationshipCathay Pacific Airways Ltd., Affiliate 252,017 490,243 554,324 174,290 204,156 198,301

22. Revenue22.1 goods and services analysis group CompanyFor the year ended 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Sales of goods 4,076,831 4,102,247 3,956,747 4,001,404Rendering of services 1,014,811 869,334 87,551 76,296 5,091,642 4,971,581 4,044,298 4,077,700



22.2 segment information22.2.1 Revenue and results segment revenue segment result 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Tea exports 3,990,666 4,019,469 247,990 165,568Logistics 438,743 366,521 137,076 80,054Services 611,565 561,479 224,985 207,631Others/unallocated 111,213 76,783 (126,292) (109,093) 5,152,187 5,024,252 483,759 344,160Inter segment revenue (60,545) (52,671)External revenue 5,091,642 4,971,581

Investment income 8,096 12,287Finance cost (29,236) (39,050)Profit before tax 462,619 317,397

22.2.2 Assets, liabilities, etc. total total Purchase of Depreciation assets liabilities property plant & equipment 2012 2011 2012 2011 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Tea exports 1,519,877 1,417,676 372,376 320,678 25,932 32,598 47,675 42,396Logistics 1,874,074 1,733,469 30,399 26,710 176,835 19,413 49,608 54,354Services 585,559 799,259 300,898 542,351 22,741 40,505 21,074 15,390 3,979,510 3,950,404 703,673 889,739 225,508 92,516 118,357 112,140

Investments 114,903 98,516 - - - - - -Related company balances 600 612 26 10,028 - - - -Unallocated 2,321,668 2,305,744 81,092 71,361 38,526 20,848 11,849 9,725Income tax recoverable/ liabilities 45,818 54,128 44,237 41,069 - - - -Deferred tax liabilities - - 72,467 59,281 - - - -Other deferred liabilities - - 114,749 98,056 - - - - 6,462,499 6,409,404 1,016,244 1,169,534 264,034 113,364 130,206 121,865

22.2.3 geographical segment group CompanyFor the year ended 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Revenue Europe 156,739 133,881 156,739 133,881 America 77,125 59,797 77,125 59,797 Middle east 3,211,858 3,330,848 3,211,858 3,330,848 Far east 410,041 329,217 410,041 329,217 Sri Lanka 1,162,363 978,475 115,019 84,594 Rest of the world 73,516 139,363 73,516 139,363 5,091,642 4,971,581 4,044,298 4,077,700


23. Other income group CompanyFor the year ended 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Profit/ (loss) on sale of property, plant & equipment 1,369 (2,023) (854) -Exchange gain 86,473 43,791 81,828 42,939Sundry income 3,415 7,622 1,114 6,581Export incentives - 5,679 - 5,679 91,257 55,069 82,088 55,199 24. Other expenses Bad Debts 11,731 (1,953) - 149Storage charges credit given (Note 24.2) - 38,087 - - 11,731 36,134 - 149 24.2 Following a complaint, that some products stored by Finlays Cold Storage (Private) Limited, a wholly owned subsidiary

of Finlays Colombo PLC, had been subject to an odour taint a full investigation was carried out and it was decided, for commercial reasons and in the interest of the long term business relationship, to give a credit of LKR 38 million, shown under other expenses, against storage charges payable by the customer during 2011.

24.3 The Group’s exposure to credit, currency and interest rate risks related to other investments are disclosed in note 35

25. Finance income & finance cost25.1 Finance income group CompanyFor the year ended 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Interest income on fixed & call deposits 6,718 11,111 3,998 3,628Interest income on loans and receivables 1,378 1,175 667 490Income from investments with related parties - dividend -Non Quoted - - 253,382 229,466Income from other investments - dividend 208 149 208 149 8,304 12,435 258,255 233,733

25.2 Finance costInterest expense on overdrafts with banks 9,646 21,138 8,379 19,753Export bills discounting charges 19,012 17,050 19,012 17,050Interest expense on long term borrowings 578 862 - - 29,236 39,050 27,391 36,803Net Finance costs/(income) recognised in profit or loss 20,932 26,615 (230,864) (196,930)

26. Profit before tax Stated after charging /(crediting) Directors' emoluments 39,477 27,524 39,477 27,524Auditors' remuneration - statutory audit services 1,598 1,106 512 405

Non audit related services 1,531 737 375 230Depreciation 130,206 121,865 53,337 47,001Personnel costs include - Salaries & wages 368,978 342,908 199,387 187,021 - Defined contribution plan costs - MSPS/EPF & ETF 38,855 36,543 24,338 21,664 - Defined benefit plan costs -insurance premium 11,300 2,531 7,096 1,873Legal fees 1,459 2,065 1,016 1,757Donations 960 947 960 947Exchange gains (86,473) (43,791) (81,828) (42,939)Profit/ (loss) on sale of property, plant & equipment 1,369 (2,023) (854) -Bad debts 11,731 (1,953) - 149Advertising 24,421 29,549 22,605 27,742



27. income tax expense27.1 Current income tax group CompanyFor the year ended 31st December 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Current tax expense on ordinary activities for the year (Note 27.2.1) 80,496 82,979 9,999 10,152Under/(over) provision in respect of prior years (26,841) (74) - 44Dividend tax 28,154 25,496 - - 81,809 108,401 9,999 10,196

27.2 Deferred income taxCharge/(release) made during the year from;Property, plant & equipment 8,573 (6,039) (347) (12,533)Tax loses carried forward 4,613 1,237 4,613 1,237Income tax expense reported in the income statement 94,995 103,599 14,265 (1,100) 27.2.1 Reconciliation between accounting profit and taxable profitAccounting profit before tax 462,619 317,397 366,814 237,224Adjustments relating to disallowances 118,985 90,160 85,324 72,343Adjustments relating to capital allowances (99,879) (92,262) (53,685) (44,819)Adjustments relating to allowable income - - (253,382) (229,466)Utilization of tax losses (46,135) (10,530) (46,135) (10,530)Profit from tax exempted undertakings (BOI & other exemptions) - (38,976) - -Taxable profit 435,590 265,789 98,936 24,752

Statutory tax rate % 10%-28% 10%-28% 10%-28% 10%-28%

Income tax payable on profit 75,633 71,657 8,568 3,270Economic service charge written-off 1,431 6,882 1,431 6,882Income tax payable on turnover 3,432 4,440 - -Current income tax expense 80,496 82,979 9,999 10,152

27.3 Finlays Colombo PLC is liable for income tax at a concessionary rate of 10% (2011-10%) on its export profits in terms of Section 51 of the Inland Revenue Act. The Company is liable to tax at the normal rate of 28% (2011-28%) on other profits.

27.4 Finlay Teas (Pvt) Limited and Finlay Properties (Pvt) Ltd., which are Board of Investments (BOI) approved Companies, are

liable to pay income tax at 2% of the turnover for a period of 15 years commencing from 1 January 2003 and 1 January 2004 respectively under section 17 of the Board of Investment Law.

27.5 Finlay Cold Storage (Pvt) Ltd., is exempt from income tax under the agreement entered into with the BOI for a period of five

years from the first year of assessment in which the enterprise commences to make profits or any year of assessment not later than two years reckoned from the date of commencement of commercial operations whichever comes first.

27.6 All other Companies of the Group which are operational are subject to income tax at the rate of 28% (2011 - 28%) of

taxable profits 27.7 Deferred tax has been computed using the future effective tax rate. i.e. 10% - 28%


28. Earnings per share 28.1 Basic earnings per share Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

group CompanyAmount used as the numerator: 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000

Net profit attributable to ordinary shareholders for basic earnings per share 367,624 213,798 352,549 238,324

Number of ordinary shares used as denominator:Number of ordinary shares in issue ('000) 35,000 35,000 35,000 35,000Basic earnings per share (in Rs.) 10.50 6.11 10.07 6.81 Diluted earnings per share (in Rs.) Note 28.2 10.50 6.11 10.07 6.81

28.2 Diluted earnings per shareDiluted earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year after adjustment for the effects of all dilutive potential ordinary shares.

As at 31st December 2012 & as at 31st December 2011 there were no dilutive potential ordinary shares. Hence diluted earnings per share is same as basic earnings per share.

29. Dividend per share The dividends per share is based on the dividends paid during the period covered by the financial statements.

group Company 2012 2011 2012 2011 LKR 000 LKR 000 LKR 000 LKR 000 Dividends paid Final dividend 2011 -Rs. 1.50/- per share (2010-Rs. 1.50/- per share) 52,500 52,500 52,500 52,500Interim dividend 2012 -Rs. 3/- per share (2011- Rs. 2/- per share) 105,000 70,000 105,000 70,000 157,500 122,500 157,500 122,500Dividends per ordinary share (in Rs.) 4.50 3.50 4.50 3.50

30. Capital expenditure commitmentsCapital commitments contracted but not provided for in the financial statements of the Group as at 31 December 2012 was Rs. 192 million.

There were no capital commitments contracted but not provided for in the financial statements of the Company as at 31 December 2012.

31. Contingencies Group/Company doesn't have any significant contingent liabilities outstanding as at the period end other than those disclosed below: (a) Bills discounted at Balance Sheet date awaiting realisation amounted to Rs. 576 Million (2011 - Rs. 233 Million )

(b) The Company has issued counter guarantees to Standard Chartered Bank for Rs. 13.0 million (2011 - 15.3 million) on behalf of Cathay Pacific Airways Limited.

(c) Bank guarantees pertaining to imports at the Balance Sheet date amounted to Rs. 58.7 Million (2011- Rs. 78.5 Million)



32. Events occurring after the balance sheet date There were no other material events occurring after the balance sheet date as at 31 December 2012 that require adjustment or disclosure in the financial statements, other than;

The Board of Directors has recommended a final dividend of Rs. 2/- per share amounting to Rs. 70.0 million for the year ended 31st December 2012. This is to be approved at the Annual General Meeting to be held on 28th March 2013.

33. Assets pledged There were no assets pledged as at the balance sheet date.

34. Related party transactions The Company carried out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24 -Related Party Disclosures , the details of which are reported below. The consideration for the goods and services provided has been paid or accrued at market prices prevailing at that time. 34.1 With non - group companies Name of the company Relationship Nature of transaction 2012 2011 LKR 000 LKR 000 Finlays Linehaul Express (Pvt) Ltd., Joint venture Rent received 367 367 Secretarial fees received 306 306 Air freight received 35,739 23,177James Finlay Ltd., Parent company Reimbursement of expenses 14,080 8,000Finlay Tea Solutions UK Ltd., Affiliate company Sale of tea 37,446 38,421Swire Properties (Pvt) Ltd., Affiliate company Consultancy fees paid 3,626 -Cathay Pacific Airways Ltd., Affiliate company Commission received 53,249 60,416Finlay Tea Solutions US Inc Affiliate company Sale of tea 23,530 386James Finlay (Kenya) Ltd., Affiliate company Sale of tea - 81,064Hapugastenne Plantations PLC Affiliate company Warehouse rent received 11,760 11,859Udapussellawa Plantations PLC Affiliate company Warehouse rent received 2,708 1,772Mercantile Service Common chairman Provident fund contribution paid 20,708 18,662Provident Society 34.2 With group companies Finlay Rentokil Ceylon (Pvt) Ltd., Subsidiary company Payments for services and 299 1,098 Rent received 2,665 1,671 Utility service income received 8,582 7,720Finlay Teas (Pvt) Ltd., Subsidiary company Purchase of green tea 85,099 136,628 Utility service income received 288 311 Guarantees given 20,900 20,900Finlay Properties (Pvt) Ltd., Subsidiary company Rent paid 29,431 26,551 Utility service income received 732 311 Investments in share capital (Note 34.3) 149,975 -Finlay Cold Storage (Pvt) Ltd., Subsidiary company Utility service income received 1,668 1,245 Investments in share capital (Note 34.3) 550,000 -Finlay Insurance Brokers (Pvt) Ltd., Subsidiary company Rent received 1,808 1,272 Utility service income received 6,228 4,178Finlay Airline Agencies (Pvt) Ltd., Subsidiary company Rent received 2,101 2,101 Utility service income received 4,482 3,852Finlays Maldives (Pvt) Ltd., Subsidiary company Investments in share capital (Note 34.4) 3,099 -


34.3 In March 2012 Finlays Colombo PLC increased its investment in Finlay Properties (Pvt) Limited (Subidiary company) by Rs. 150 million and in Finlay Cold Storage (Pvt) Ltd., (Subidiary company) by Rs. 550 million.

34.4 In July 2012, a new company, Finlays Maldives (Pvt) Ltd., (Subsidiary company) , was incorporated in The Republic of

Maldives. Group's stake in the new company is 75%.

34.5 Subsidiary companies have periodically transferred surplus cash to the Holding Company, whereas the Holding Company has also met the cash requirements of those subsidiary companies as necessary. The resultant net balances have been shown in Notes 10 and 17 to these financial statements.

34.6 Related party transactions with key management personnel The Group has paid Rs. 39.5 million (2011 - Rs. 27.5 million) to the directors as emoluments, of which Rs. 33.5 million

(2011 - Rs. 22.8 million) paid as short term employment benefits and Rs. 6 million (2011 - Rs. 4.7 million) paid as post employment benefits during the year. Other than that there are no transactions, arrangements and agreements involving key management personnel and other related parties.

35. Financial instrumentsFinancial risk management

OverviewThe Group has exposure to the following risks arising from financial instruments• Creditrisk• Liquidityrisk• Marketrisk

This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital.

Risk management frameworkThe Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.

The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee monitors the process through which business risks are identified for action by management and for the Board’s attention and monitors the effectiveness of the Company’s internal controls. The Group Audit Committee is assisted in its role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of controls and procedures, the results of which are reported to the Audit Committee.

Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.

Exposure to credit riskThe carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows.



LKR'000 2012 2011Trade and other receivables 639,216 620,426 Cash and cash equivalents 629,820 853,056 Forward exchange contracts used for hedging:

8,258 -

total 1,277,294 1,473,482

Trade and other receivablesThe Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk. During 2012, approximately 42% (2011: 38%) of the Group’s revenue was attributable to sales transactions with two multinational customers.

Each new customer is analysed individually for creditworthiness before the Group’s standard payment and delivery terms and conditions are offered. Customers that fail to meet the Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets.

The maximum exposure to credit risk for trade and other receivables at the reporting date by geographic region was as follows.

LKR '000 2012 2011Europe 30,846 6,285 America 1,029 - Middle east 56,786 123,188 Far east 10,210 13,309 Sri Lanka 540,345 477,644 total 639,216 620,426

Impairment lossesTrade and other receivables at the reporting date was not impaired.

As at 31 December 2012 impairment losses of group amounted to LKR 22.5 million of this LKR 16.0 million relates to Allied Insurance Co Ltd., in The Republic of Maldives, who has declined to pay on the grounds that Finlay Insurance Brokers (Pvt) Ltd., was not registered in Maldives as Insurance broker.

The Group believes that the unimpaired amounts that are past due by more than 30 days and less than 120 days amounted to LKR 1.7 million are still collectible, based on historic payment behavior and extensive analysis of customer credit risk.

Cash and cash equivalentsThe Group held cash and cash equivalents of LKR 630 million at 31 December 2012 (2011- LKR 853 million), which represents its maximum credit exposure on these assets. The cash and cash equivalents are held with banks.


Respective credit ratings of banks which group cash balances held are as follows;

• StandardCharteredBank–AAA(lka)• HongkongandShanghaiBankingCorporationLtd.,–AAA(lka)• CommercialBankofCeylonPLC–AA(lka)• SampathBankPLC–AA-(lka)

Liquidity riskLiquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.

The Group maintains the level of its cash and cash equivalents at an amount in excess of expected cash outflows on financial liabilities (other than trade payables) over the succeeding 60 days. The Group also monitors the level of expected cash inflows on trade and other receivables together with expected cash outflows on trade and other payables. In addition, the Group maintains LKR 445 million overdraft facility that is unsecured. Interest would be payable at the market rate.

The Group has contractual commitments to purchase property, plant and equipment and to incur capital expenditure with regard to its investment in a subsidiary company (see note 30).

The following are the contractual maturities of financial liabilities

As at 31 December 2012 LKR'000Carryingamount

Contractualcash flows

2 Months or Less

2 to 12 Months

1 to 2 Years

Non-derivative financial liabilitiesSecured bank loans 5,510 (5,510) - 4,407 1,103 Trade payables 554,089 (554,089) 350,478 203,611 - Bank overdraft 225,166 (225,166) 225,166 - -

784,765 (784,765) 575,644 208,018 1,103

As at 31 December 2011 LKR'000Carrying amount

Contractual cash flows

2 Months or Less

2 to 12 Months

1 to 2 Years

Non-derivative financial liabilitiesSecured bank loans 9,917 (9,917) - 4,407 5,510 Trade payables 684,713 (684,713) 448,997 235,716 - Bank overdraft 266,471 (266,471) 266,471 - -

961,101 (961,101) 715,468 240,123 5,510

The gross inflows/(outflows) disclosed in the previous table represent the contractual undiscounted cash flows relating to derivative financial liabilities held for risk management purposes and which are usually not closed out prior to contractual maturity. The disclosure shows net cash flow amounts for derivatives that are net cash settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement, e.g. forward exchange contracts.

It is not expected that the cash flows included in the maturity analysis would occur significantly earlier or at significantly different amount.

Market riskMarket risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.



Currency riskThe Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than Sri Lankan Rupees.

At any point in time the Group hedges 50% of its net estimated foreign currency exposure in respect of forecast sales and purchases over the following six months.

The Group uses forward exchange contracts to hedge its currency risk, most with a maturity of less than one year from the reporting date. Such contracts generally are designated as cash flow hedges.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group’s policy is to ensure that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

Interest rate riskThe Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Group does not designate derivatives as hedging instruments under a fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

Capital managementThe Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of ordinary shares, retained earnings and non-controlling interests of the Group. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders.

The Group’s net debt to adjusted equity ratio at the reporting date was as follows

LKR 000 2012 2011Total liabilities 1,016,244 1,169,534 Less: cash and cash equivalents 629,820 853,056 Net debt 386,424 316,478 Total equity 5,446,255 5,239,870 Less: amounts accumulated in equity related to cash low

hedges 8,258 -

Adjusted equity 5,437,997 5,239,870 Net debt to adjusted equity ratio at 31 December 0.07 0.06

36. Explanation of transition to sLFRss/LKAss As stated in note 2.1, these are the Group’s first consolidated (Company separate) financial statements prepared in accordance with SLFRSs/LKASs. The accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended 31 December 2012, the comparative information presented in these financial statements for the year ended 31 December 2011 and in the preparation of an opening SLFRSs/LKASs statement of financial position at 1 January 2011 (the date of transition). In preparing its opening SLFRSs/LKASs statement of financial position, the Group / Company have adjusted amounts reported previously in financial statements prepared in accordance with SLASs. An explanation of how the transition from previous SLASs to SLFRSs/LKASs has affected the Group’s / Company’s financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.


Reconciliation - statement of financial position - group

As per Effect of As per As per Effect of As per sLAss transition to sLFRss sLAss transition to sLFRss 2011 sLFRss LKAss 2011 2010 sLFRss LKAss 2010 /LKAss /LKAss Note LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Assets Property, plant & equipment 36.2 4,343,759 (16,162) 4,327,597 4,355,325 (16,647) 4,338,678Investment property 36.2 - 16,162 16,162 - 16,647 16,647Other investments 738 - 738 738 - 738Defined benefits obligation - plan assets 97,778 - 97,778 91,765 - 91,765Employees' share trust loan 36.3 5,595 (5,595) - 6,103 (6,103) - Non-current assets 4,447,870 (5,595) 4,442,275 4,453,931 (6,103) 4,447,827

Inventories 438,907 - 438,907 588,443 - 588,443Trade and other receivables 620,426 - 620,426 589,995 - 589,995Amounts due from related companies 612 - 612 599 - 599Current tax assets 54,128 - 54,128 52,959 - 52,959Cash and cash equivalents 853,056 - 853,056 1,011,043 - 1,011,043Current assets 1,967,129 - 1,967,129 2,243,039 - 2,243,039total assets 6,414,999 (5,595) 6,409,404 6,696,969 (6,103) 6,690,866

Equity Stated capital 636,194 - 636,194 636,194 - 636,194Reserves 36.3/36.4 3,085,204 (2,832,221) 252,983 3,085,204 (2,832,730) 252,474Retained earnings 36.4 1,524,066 2,826,627 4,350,693 1,424,929 2,826,627 4,251,556Equity attributable to owners of the company 5,245,464 (5,595) 5,239,870 5,146,327 (6,103) 5,140,224Non - controlling interests - - - - - -total equity 5,245,464 (5,595) 5,239,870 5,146,327 (6,103) 5,140,224

Loans & borrowings 5,510 - 5,510 9,917 - 9,917Deferred tax liabilities 59,281 - 59,281 64,083 - 64,083Defined benefits obligation 98,056 - 98,056 98,931 - 98,931Non-current liabilities 162,847 - 162,847 172,931 - 172,931

Trade and other payables 684,713 - 684,713 856,234 - 856,234Current tax liabilities 41,068 - 41,068 43,074 - 43,074Loans & borrowings 4,407 - 4,407 4,407 - 4,407Amounts due to related companies 10,028 - 10,028 - - -Bank overdrafts 266,471 - 266,471 473,996 - 473,996Current liabilities 1,006,687 - 1,006,687 1,377,711 - 1,377,711total liabilities 1,169,534 - 1,169,534 1,550,642 - 1,550,642total equity and liabilities 6,414,999 (5,595) 6,409,404 6,696,969 (6,103) 6,690,866



Explanation of transition to sLFRss/LKAss Reconciliation - statement of financial position - Company

As per Effect of As per As per Effect of As per sLAss transition to sLFRss sLAss transition to sLFRss 2011 sLFRss LKAss 2011 2010 sLFRss LKAss 2010 /LKAss /LKAss Note LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Assets Property, plant & equipment 36.2 2,500,109 (38,123) 2,461,986 2,493,358 (38,844) 2,454,514Investment property 36.2 - 38,123 38,123 - 38,844 38,844Investments in subsidiaries 36.5 824,585 (85,546) 739,039 824,585 (85,546) 739,039Investment in joint venture 1,325 - 1,325 1,325 - 1,325Other investments 36.5 738 85,546 86,284 738 85,546 86,284Defined benefits obligation - plan assets 97,778 - 97,778 91,765 - 91,765Amounts due from related companies 722,060 - 722,060 708,152 - 708,152Employees' share trust loan 5,595 - 5,595 6,103 - 6,103Non-current assets 4,152,190 - 4,152,190 4,126,026 - 4,126,026

Inventories 395,457 - 395,457 535,699 - 535,699Trade and other receivables 294,144 - 294,144 300,121 - 300,121Amounts due from related companies 47,920 - 47,920 76,935 - 76,935Current tax assets 54,128 - 54,128 52,959 - 52,959Cash and cash equivalents 549,295 - 549,295 572,472 - 572,472Current assets 1,340,944 - 1,340,944 1,538,186 - 1,538,186total assets 5,493,134 - 5,493,134 5,664,212 - 5,664,212

Equity Stated capital 636,194 - 636,194 636,194 - 636,194Reserves 36.4 2,297,535 (2,039,262) 258,273 2,297,535 (2,039,262) 258,273Retained earnings 36.4 1,150,554 2,039,262 3,189,816 1,026,891 2,039,262 3,066,153Equity attributable to owners of the company 4,084,283 - 4,084,283 3,960,620 - 3,960,620Non - controlling interests - - - -total equity 4,084,283 - 4,084,283 3,960,620 - 3,960,620

Amounts due to related companies 676,538 - 676,538 676,609 - 676,609Deferred tax liabilities 26,318 - 26,318 37,614 - 37,614Defined benefits obligation 98,056 - 98,056 98,931 - 98,931Non-current liabilities 800,912 - 800,912 813,154 - 813,154 Trade and other payables 319,929 - 319,929 397,563 - 397,563Current tax liabilities 5,204 - 5,204 5,161 - 5,161Amounts due to related companies 20,008 - 20,008 14,128 - 14,128Bank overdrafts 262,798 - 262,798 473,586 - 473,586Current liabilities 607,939 - 607,939 890,438 - 890,438total liabilities 1,408,851 - 1,408,851 1,703,592 - 1,703,592total equity and liabilities 5,493,134 - 5,493,134 5,664,212 - 5,664,212

Explanation of transition to sLFRss/LKAss


Reconciliation - statement of comprehensive income group Company For the year For the year As per Effect of As per As per Effect of As per sLAss transition to sLFRss sLAss transition to sLFRss 2011 sLFRss /LKAss 2011 2010 sLFRss /LKAss 2010 /LKAss /LKAss Note LKR 000 LKR 000 LKR 000 LKR 000 LKR 000 LKR 000

Revenue 4,971,581 - 4,971,581 4,077,700 - 4,077,700Cost of sales (4,044,391) - (4,044,391) (3,693,874) - (3,693,874)

gross profit 927,190 - 927,190 383,826 - 383,826Other income 36.6 67,504 (12,435) 55,069 288,932 (233,733) 55,199Distribution expenses 36.7 (122,431) (1,953) (124,384) (93,833) 149 (93,684)Administrative expenses 36.8 (469,890) (7,839) (477,729) (297,060) (7,839) (304,899)Other expenses 36.7 (38,087) 1,953 (36,134) - (149) (149)Results from operating activities 364,286 (20,274) 344,012 281,866 (241,572) 40,294 Finance income 36.6 - 12,435 12,435 - 233,733 233,733Finance cost (39,050) (39,050) (36,803) (36,803)Net finance cost (39,050) 12,435 (26,615) (36,803) 233,733 196,930 Profit before tax 325,237 (7,839) 317,397 245,063 (7,839) 237,224Tax expense (103,599) (103,599) 1,100 1,100Profit for the year 221,637 (7,839) 213,798 246,163 (7,839) 238,324 Other comprehensive income Defined benefits plan actuarial gains 36.8 - 7,839 7,839 - 7,839 7,839Income tax on other comprehensive income - - - - - -Other comprehensive income for the year, net of tax - 7,839 7,839 - 7,839 7,839

total comprehensive income for the year 221,637 - 221,637 246,163 - 246,163

Profit attributable to: Owners of the company 221,637 (7,839) 213,798 246,163 (7,839) 238,324 Non - controlling interests - - - - - -Profit for the year 221,637 (7,839) 213,798 246,163 (7,839) 238,324 total comprehensive income attributable to: Owners of the company 221,637 - 221,637 246,163 - 246,163 Non - controlling interests - - - - - -total comprehensive income for the year 221,637 - 221,637 246,163 - 246,163

36.1 Notes to the explanation of transition to sLFRss/LKAss 36.2 Property,plant & equipment / investment propertyProperties which are held to earn rental income have classified as investment property, from Property, plant & equipment in the statement of financial position. As at 31 December 2011 As at 01 January 2011 group Company group Company LKR 000 LKR 000 LKR 000 LKR 000Reclassification from Reclassification to Property,plant & equipment Investment property 16,162 38,123 16,647 38,844

36.3 Employees' share trust loan / Reserve for own sharesAs per previous SLASs, cost of the Company’s shares held by the Group through Employees' share trust was classified as Long tem receivable. Under SLFRSs/LKASs that amount was classified as Reserve for own shares and categorised under other reserves in the statement of financial position.


group 31 Dec 2011 01 Jan 2011 LKR 000 LKR 000Reclassification from Reclassification to Employees' share trust loan Reserve for own shares 5,594 6,103

36.4 Revaluation reserve / Retained earningsAt 31 December 2010 Group revalued its land & buildings as per previous SLASs. On transition to SLFRSs/LKASs, Group elected to apply the optional exemption to use that previous revaluation as deemed cost for both property, plant & equipment and investment properties. The revaluation reserves relating to such land & buildings were reclassified to retained earnings in the statement of financial position. Except for the reclassification this had no impact on the financial statements.

As at 31 Dec 2011 As at 01 Jan 2011 group Company group Company LKR 000 LKR 000 LKR 000 LKR 000Reclassification from Reclassification to Revaluation Reserve Retained earnings 2,826,627 2,826,627 2,039,262 2,039,262

36.5 investments in subsidiaries / Other investmentsAs per previous SLASs, Company accounted for its investment in cumulative preference shares of Finlay Properties (Pvt) Ltd., as investment in subsidiary. Under SLFRSs/LKASs that amount was classified as Interest-bearing available-for-sale financial asset and categorised under non current other investments in the statement of financial position. Company 31 Dec 2011 01 Jan 2011 LKR 000 LKR 000Reclassification from Reclassification to Investments in subsidiaries Other investments 85,546 85,546 36.6 Other income / Finance incomeAs per previous SLASs, interest income & dividend income were classified as other income. At the date of transition, Group/ Company elected to classify them as finance income in the statement of comprehensive income. For the year ended 31 Dec 2011 group Company LKR 000 LKR 000Reclassification from Reclassification to Other income Finance income 12,435 233,733

36.7 Distribution expenses / Other expensesAs per previous SLASs, bad debts were categorised under distribution expenses. At the date of transition, Group/ Company elected to classify them under other expenses in the statement of comprehensive income. For the year ended 31 Dec 2011 group Company LKR 000 LKR 000Reclassification from Reclassification to Distribution expenses Other expenses (1,953) 149

36.8 Defined benefits plan actuarial gains / (losses)Under SLFRSs/LKASs the Group’s accounting policy is to recognise all actuarial gains and losses in other comprehensive income. Under previous SLASs the Group recognised actuarial gains and losses in the profit or loss account under administrative expenses. On transition to SLFRSs/LKASs, The actuarial gains and losses relating to defined benefit plans were reclassified under other comprehensive income. For the year ended 31 Dec 2011 group Company LKR 000 LKR 000Reclassification from Reclassification to Administrative expenses Other comprehensive income 7,839 7,839



tEN YEARSUMMARY

Year ended 31 st December 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003

Results ( Rs. 000)

Group turnover 5,091,642 4,971,581 4,557,880 4,548,314 4,216,792 3,567,212 3,487,844 3,403,351 2,583,096 3,499,817

Profit / (loss) before taxation 462,619 317,397 467,096 427,949 305,039 163,159 553,797 311,276 306,267 (617,818)

Taxation (94,995) (103,599) (102,480) (118,190) (88,716) (67,412) (91,826) (74,812) (54,799) (57,182)

Profit / (loss) after taxation 367,624 213,798 364,616 309,759 216,323 95,747 461,971 236,464 251,468 (675,000)

Non controlling interests - - - - - - - - 45,520 -

Profit attributable to shareholders 367,624 213,798 364,616 309,759 216,323 95,747 461,971 236,464 251,468 (629,480)

statement of financial position

Stated capital 636,194 636,194 636,194 636,194 636,194 636,194 636,194 636,194 636,194 636,194

Reserves 253,209 252,983 2,826,627 1,752,930 1,752,930 1,752,930 1,752,930 1,752,930 570,617 570,617

Retained earnings 4,555,819 4,350,693 1,683,506 1,476,391 1,330,638 1,219,315 1,228,568 1,127,097 995,633 814,361

Non controlling interests 1,033 - - - - - - - - -

5,446,255 5,239,870 5,146,327 3,865,515 3,719,762 3,608,439 3,617,692 3,516,221 2,202,444 2,021,172

Non-current assets 4,579,754 4,442,275 4,453,930 3,433,343 3,337,395 3,336,032 3,369,600 2,878,450 1,551,347 1,212,945

Current assets 1,882,745 1,967,129 2,243,039 1,732,261 1,382,773 951,167 957,740 1,620,106 1,523,957 1,319,910

Current liabilities (827,925) (1,006,687) (1,377,711) (1,150,542) (953,533) (624,603) (657,100) (941,016) (849,258) (485,502)

Long term/ Deferred liabilities (188,319) (162,847) (172,932) (149,548) (46,873) (54,157) (52,548) (41,319) (23,602) (26,181)

5,446,255 5,239,870 5,146,327 3,865,515 3,719,762 3,608,439 3,617,692 3,516,221 2,202,444 2,021,172

Cash flow (Rs. 000)

Net Cash inflow/ (outflow ) from

operating activities 240,628 285,242 267,662 429,564 407,104 20,543 1,283 356,670 331,812 229,752


investing activities (260,878) (109,306) 50,285 (150,248) (92,105) (65,534) (280,963) (150,851) (331,771) 473,866


financing activities (161,681) (126,398) (161,907) (138,769) (105,000) (105,000) (360,500) (105,000) (70,000) (47,500)

Increase / (decrease) in cash and

cash equivalents (181,931) 49,538 156,040 140,548 209,999 (149,991) (640,180) 100,819 (69,959) 656,118

Key indicators

Annual growth in turnover % 2.41 9.08 0.21 7.86 18.21 2.28 2.48 31.75 -26.19 -11.75

Net profit / (loss) before tax to turnover 9.09 6.54 10.25 9.41 7.23 4.57 15.88 9.15 11.86 (17.65)

Property, plant & equipment to

Shareholders Funds % 82.13 63.27 64.49 85.86 88.33 91.34 92.01 80.44 68.32 57.12

Gearing % N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A

Earnings/ (loss) per share (Rs.) 10.50 6.33 10.42 8.85 6.18 2.74 13.20 6.76 7.18 (17.99)

Dividends per share (Rs. paid) 3.50 3.50 4.50 4.50 3.00 3.00 10.30 3.00 2.00 0.50

Net assets per Share at year end (Rs. ) 155.58 149.87 147.04 110.44 106.28 103.10 103.36 100.46 62.93 57.75

Current ratio 2.27 1.95 1.63 1.51 1.45 1.52 1.46 1.72 1.79 2.72

Quick asset ratio 1.60 1.51 1.20 1.17 1.12 1.17 1.14 1.53 1.57 2.43

As per previous sLAss


SHAREINFORMAtION1. stock Exchange The issued share capital of Finlays Colombo PLC is listed on the Main Board of the Colombo Stock Exchange of Sri

Lanka. The audited Company and Consolidated Income Statements for the year ended 31st December 2012 and the audited Balance Sheets of the Company and of the Group as at that date have been submitted to the Colombo Stock Exchange within three months of the Balance Sheet date.

2. Distribution of shareholding Ordinary Shareholders as at 31st December 2012 - 645 (as at 31.12.2011 - 642).

2012 2011 Number No. Percentage Number No. Percentageshareholding of of (%) of of (%) shareholders shares shareholders shares

1 to 1000 605 98,304 0.28 602 105,256 0.301001 to 10,000 30 83,677 0.24 30 83,677 0.2410,001 to 100,000 6 157,097 0.45 6 158,300 0.46100,001 to 1,000,000 3 821,512 2.35 3 813,357 2.32Over 1,000,000 1 33,839,410 96.68 1 33,839,410 96.68Total 645 35,000,000 100.00 682 35,000,000 100.00

2012 2011 No. of No. of No. of No. of shareholders shares shareholders sharesIndividual 616 559,973 611 566,295Institutional 29 34,440,027 31 34,433,705

Residents 639 887,072 635 886,705Non-Residents 6 34,112,928 7 34,113,295

3. Market Value The market value of Ordinary Shares of Finlays Colombo PLC.

2012 2011 LKR LKRHighest 340.00 400.00Lowest 205.70 180.50year End 233.80 260.00


SHAREINFORMAtION CONtd...

4. Public holding The public shareholding percentage as at 31st December 2012 was 3.45% (2011 - 3.45%) of the issued share capital of

the Company.

5. top 20 shareholders as at 31st December 2012.

Name of shareholder shareholding Percentage (%)

James Finlay Limited 33,839,410 96.68Bank of Ceylon A/C Ceybank Unit Trust 411,455 1.18Mrs. A. T. T. T. Alnakib 272,700 0.78Jacey Trust Services (Pvt) Ltd. 137,357 0.39Mr. C. P. De Silva 48,701 0.14Mr. R. L. Juriansz 38,796 0.11Anverally and Sons (Pvt) Ltd. A/C No. 01 31,600 0.09Mr. M. N. Zavahir 15,000 0.04Mr. S. Mylventhen 12,500 0.04Mr. A. M. S. Fernando 10,500 0.03Mrs. S. N. Senanayake 10,000 0.03Premium Brands (Pvt) Ltd. 7,100 0.02Mrs. M. T. Nagendra 6,100 0.02Mr. C. L. K. P. Jayasuriya 6,000 0.02Mrs. J. Aloysius 5,000 0.01Crescent Launderers and Dry Cleaners (Pvt) Ltd. 4,700 0.01Mr. E. R. Croos Moraes 4,335 0.01Mr. L. E. Bernard 3,218 0.01Mr. G. J. Thomas 3,021 0.01Mr. S. A. Felsinger 2,888 0.01total 34,870,381 99.63


NOtICE OFMEEtINgNOtiCE is hEREBY giVEN that the Thirty-Eighth (38th) Annual General Meeting of Finlays Colombo PLC, will be held at the Registered Office of the Company, Finlay house, 186, Vauxhall street, Colombo 2 on thursday, 28th March 2013 at 11.30 a.m. for the following purposes, viz:

1. To receive and adopt the Annual Report of the Board of Directors on the affairs of the Company and the Financial Statements for the year ended 31st December 2012 together with the Report of the Auditors thereon.

2. To declare a final dividend of LKR 2/- per share as recommended by the Directors.

3. To re-elect Mr. N. G. Wickremeratne who, in terms of Articles 145 & 146 of the Articles of Association of the Company, retires by rotation at the Annual General Meeting, a Director.

4. To re-elect Mr. J. L. Caspersz who, in terms of Articles 145 & 146 of the Articles of Association of the Company, retires by rotation at the Annual General Meeting, a Director.

5. To re-elect Mr. R. J. Mathison who, in terms of Articles 145 & 146 of the Articles of Association of the Company retires by rotation at the Annual General Meeting, a Director.

6. To elect Mr. R. A. Ebell who has been appointed to the Board since the last Annual General Meeting of the Company, a Director, in terms of Article 142 of the Articles of Association of the Company.

7. To elect Mr. S. C. Swire who has been appointed to the Board since the last Annual General Meeting of the Company, a Director, in terms of Article 142 of the Articles of Association of the Company.

8. To elect Mr. J. M. Rutherford who has been appointed to the Board since the last Annual General Meeting of the Company, a Director, in terms of Article 142 of the Articles of Association of the Company.

9. To authorise the Directors to determine contributions to charities up to a limit of LKR 1,000,000/- for the financial year ending 31st December 2013.

10. To re-appoint Messrs KPMG as Auditors and to authorise the Directors to determine their remuneration.

By Order of the Board,

Mrs. D. M. E. thirukumarCompany Secretary

Colombo, 26th February 2013.

Notes1. A member is entitled to appoint a proxy to attend and vote instead of himself/herself. A Form of Proxy accompanies this

notice.

2. The completed Form of Proxy must be deposited at the Registered Office, Finlay House,186, Vauxhall Street, Colombo 2, not less than forty-eight hours before the time fixed for the Meeting.

3. It is proposed to post ordinary dividend warrants on 9th April 2013 and in accordance with the rules of the Colombo Stock Exchange, the shares of the Company will be quoted ex-dividend from 1st April 2013.

security CheckWe shall be obliged if the shareholders/proxies attending the Annual General Meeting produce their National Identity Card to the security personnel stationed at the entrance.

ManageMent reports

FInanCIaL reports

Contents

Name of Company & NumberFinlays Colombo PLC - PQ 61

Legal FormPublic quoted company with limited liability

DirectorsC. L. K. P. Jayasuriya (Chairman & Managing Director)S. C. Swire (appointed w.e.f. 1st October 2012)E. R. Croos MoraesJ. L. CasperszMs. M. C. PieterszN. K. H. RatwatteC. Jayaratne (retired w.e.f. 31st May 2012)J. D. BandaranayakeN. G. WickremeratneR. A. Ebell (appointed w.e.f. 1st June 2012)R. J. MathisonP. R. Henson (resigned w.e.f. 31st January 2013)J. M. Rutherford (appointed w.e.f. 1st February 2013)

Company SecretaryMrs. D. M. E. Thirukumar ACIS

Registered OfficeFinlay House186, Vauxhall Street, Colombo 2Telephone : 011 2421931-7, 011 4725200Facsimile : 011 2448216

AuditorsKPMG,Chartered Accountants,P.O. Box 186, Colombo, Sri Lanka

BankersStandard Chartered BankCommercial Bank of Ceylon PLCNDB Bank PLCSampath Bank PLCThe Hongkong & Shanghai Banking CorporationHatton National Bank PLCCitibank NADeutsche Bank AG

Legal AdvisersM/s. Julius & CreasyAttorneys-at-LawP.O. Box 154, Colombo 1.

M/s. Nithi Murugesu & AssociatesAttorneys-at-Law28, (Level 2), W.A.D Ramanayake Mawatha, Colombo 2.

M/s. F. J. & G. De SaramAttorneys-at-Law216, De Saram Place, Colombo 10.

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About Us 1 Our Mission & Core Values 2 Financial Highlights 3 Chairman’s Review 4 Business Portfolio 7 Review of Operations 10 Financial Review 14 Risk Management 16 Corporate Governance 18 Report of the Remuneration Committee 24 Annual Report of the Board of Directors on the Affairs of the Company 25 Directors Profiles 29

Statement of Directors Responsibility 32 Report of the Audit Committee 33 Independent Auditors' Report 35 Statement of Financial Position 36 Statement of Comprehensive Income 37 Statement of Changes in Equity 38 Statement of Cash Flows 39 Notes to the Financial Statements 40 Ten Year Summary 73 Share Information 74 Notice of Meeting 76 Form of Proxy - Enclosed Corporate Information Inner Back Cover

Finlays Colombo PLCAnnual Report 2012

www.finlays.lk

annual report 2012 - finlays.lk report 2012.pdf · commercial bank of ceylon plc ndb bank plc ......

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