COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 1. Annual Report of the Board of Directors. Report of the Independent Auditors

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2 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 1 CONTENTS Corporate Information Notice of Meeting Chairman s Review Board of Directors Annual Report of the Board of Directors Corporate Governance Audit Committee Report Report of the Independent Auditors Balance Sheet Income Statement Statement of Changes in Equity Cash Flow Statement Notes to the Financial Statements Share Information Proxy Form

3 2 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES CORPORATE INFORMATION BOARD OF DIRECTORS Chairman A.Rajaratnam FCA Managing Director R.M.M.J. Ratnayake MBA, FCMA (UK), CGMA, FSCMA Directors S.D.R. Arudpragasam FCMA (UK) J.M. Swaminathan LLB., LLM, M. Phil., Attorney-at-Law A.M.de S. Jayaratne B.Sc.(Econ.), FCA S. Rajaratnam B.Sc. CA SECRETARIES Corporate Managers & Secretaries (Private) Limited REGISTERED OFFICE 297, Union Place, Colombo 02. LEGAL FORM Public Quoted with Limited Liability Domiciled in Sri Lanka DATE OF INCORPORATION 09 July 1909 COMPANY NUMBER PQ 169 STOCK EXCHANGE LISTING BANKERS LAWYERS AUDITORS The Ordinary Shares of the are Listed with the Colombo Stock Exchange of Sri Lanka. People s Bank Hatton National Bank PLC Bank of Ceylon Messrs Julius & Creasy PricewaterhouseCoopers

4 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 3 NOTICE OF MEETING Notice is hereby given that the One Hundredth Annual General Meeting of Colonial Motors PLC will be held at the Grand Oriental Hotel, No. 2, York Street, Colombo 1, on Friday 27 July 2012 at a.m. for the following purposes: To receive and consider the Annual Report of the Board of Directors and the Statement of Accounts for the year ended 31 March, 2012 with the Report of the Auditors thereon. To declare a First and Final Dividend of Rs.4/- per share for the year ended 31 March 2012 as recommended by the Directors. To re-elect as a Director, Mr. S.D.R. Arudpragasam who retires in accordance with Articles 88 and 89 of the Articles of Association. To reappoint Mr. A.M. de S. Jayaratne who is over seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a Resolution which is set out in the Notes in relation to his reappointment (see Note No.4 on page 4). To reappoint Mr. J.M. Swaminathan who is over seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a Resolution which is set out in the Notes in relation to his reappointment (see Note No.5 on page 4). To reappoint Mr. A. Rajaratnam who is over seventy years of age as a Director. Special Notice has been received from a shareholder of the intention to pass a Resolution which is set out in the Notes in relation to his reappointment ( see Note No.6 on page 4). To authorize the Directors to determine contributions to charities. To reappoint as Independent Auditors, Messrs PricewaterhouseCoopers and to authorize the Directors to determine their remuneration. By Order of the Board Corporate Managers & Secretaries (Private) Limited Secretaries Colombo 19 June 2012 Note: 1. A member of the who is entitled to attend and vote at this meeting may appoint a proxy to attend and vote instead of him or her. A proxy need not be a member of the. 2. A Form of Proxy is enclosed in this Report. 3. The instrument appointing a proxy must reach the Registered Office of the s Secretaries, Corporate Managers & Secretaries (Private) Limited, No. 8-5/2, Leyden Bastian Road, York Arcade Building, Colombo 01, not less than forty eight (48) hours before the time fixed for the meeting.

5 4 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 4. Special Notice has been received by the from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting : Resolved- That Mr. A.M. de S. Jayaratne who is seventy two years of age be and is hereby reappointed a Director of the and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. A.M. de S. Jayaratne. 6. Special Notice has been received by the from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting : Resolved That Mr. A. Rajaratnam who is seventy one years of age be and is hereby reappointed a Director of the and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. A. Rajaratnam. 5. Special Notice has been received by the from a shareholder giving notice of the intention to move the following Resolution as an Ordinary Resolution at the Annual General Meeting: Resolved That Mr. J.M. Swaminathan who is seventy one years of age be and is hereby reappointed a Director of the and it is further specially declared that the age limit of seventy years referred to in Section 210 of the Companies Act No.7 of 2007 shall not apply to the said Director, Mr. J.M. Swaminathan.

6 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 5 CHAIRMAN S REVIEW On behalf of the Board of Directors I extend you a warm welcome to the 100 th Annual General Meeting of Colonial Motors PLC, and present the Annual Report together with the Audited Financial Statements for the year ended 31 March The achieved a turnover of Rs. 402 Million, a 45% increase from the turnover recorded for the previous year. Main contribution to the increase in turnover came from the sale of TATA, Leyland and Land Rover spare parts. These sales were effected through new dealers appointed during the last financial year. Your continues to be one of the leading ex-stock suppliers of TATA, Leyland and Land Rover spares in Sri Lanka. The recorded a net profit of Rs. 337 Million which includes a capital gain of Rs. 267 Million made on the sale of shares. The reduction in statutory dues and other Government levies for motor vehicles during the financial year contributed to the increase in sales of our subsidiary KIA Motors (Lanka) Limited. The Agency Agreement for KIA Motors (Lanka) Limited vehicles which was a Tripartite Agreement ended in November The has been successful in renegotiating a new Agreement between KIA Motors Corporation Korea and KIA Motors (Lanka) Limited., which is a subsidiary of Colonial Motors PLC. KIA Motors (Lanka) Limited recorded a turnover of Rs. 3.5 Billion and a net profit before tax of Rs. 1.1 Billion. The Directors, based on the performance of the, have recommended a First and Final dividend of Rs. 4/= per share for the financial year under review. Share portfolio of the and its wholly owned subsidiary Union Investments (Pvt) Limited has been affected due to the continued bear market. As at 31 March the aggregate market values of the listed shares of both portfolios have decreased to Rs. 1,321 Million from Rs. 2,106 Million in the previous year. The increase in statutory dues and other Government levies imposed by the Government on motor vehicle imports and sales during the current financial year together with high interest rates that are now prevailing will have a significant impact on the s performance in the coming years. The is negotiating the purchase of a land and building in Battaramulla which will help us to move the garage from the Union Place premises. Our subsidiary, KIA Motors (Lanka) Limited has also purchased a land to build a modern workshop. Once both garages move out of the s existing premises, the Board of Directors of the will consider developing the existing premises. I am pleased to inform you that the fully owned subsidiary of your namely Colonial Motors (Ceylon) Ltd., has been appointed authorized importers and distributors of Mazda vehicles in Sri Lanka. The new Agency should enhance the profitability of the. Finally, on behalf of the Board of Directors, I wish to thank our stakeholders for their continued support and all employees of the for their continued unstinted support. A. Rajaratnam Chairman

7 6 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES BOARD OF DIRECTORS A. Rajaratnam - Chairman FCA Mr. A. Rajaratnam joined the Board in 1998 and was appointed Chairman in the year He serves as Chairman of The Colombo Fort Land & Building PLC (CFLB) and several listed and unlisted companies within the CFLB in addition to holding other Directorships within the. R.M.M.J. Ratnayake Managing Director MBA, FCMA (UK), CGMA, FSCMA Mr. R.M.M.J. Ratnayake holds an MBA in Finance and is a Fellow Member of the Institute of Chartered Management Accountants U.K. and is also a Fellow Member of the Society of Certified Management Accountants. He has expertise in the fields of Tea Exports, Tea Plantations, Telecommunications and Motor Industry. Mr. Ratnayake joined Colonial Motors PLC as Chief Executive Officer on 1 July 2008, was appointed to the Board as Director/ Chief Executive Officer on 1 April 2010, and as Managing Director on 1 May S.D.R. Arudpragasam - Director FCMA (UK) Mr. S.D.R. Arudpragasam is a Chartered Management Accountant. He was appointed to the Board in He holds the position of Deputy Chairman on the Boards of The Colombo Fort Land & Building PLC (CFLB) and Lankem Ceylon PLC. Mr. Arudpragasam also functions as Managing Director of E.B. Creasy & PLC in addition to serving on the Boards of other Companies within the CFLB. J.M. Swaminathan Director Attorney-at Law, LLB (Ceylon), LLM M.Phil. (Colombo) Mr. J.M. Swaminathan was appointed to the Board in the year He holds LLB (Ceylon), LLM, M.Phil (Colombo) degrees and is an Attorney-at-Law. He has been in the legal profession for over 40 years. He is the precedent partner of Messrs Julius & Creasy and a Member of the Council for Legal

8 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 7 Education and the Law Commission of Sri Lanka. He is also a Member of the Law Advisory Commission and Intellectual Property Law Advisory Commission. He is a Member of the Board of the Faculty of Law of the University of Colombo. He is also a Visiting Lecturer and an Examiner at the Faculty of Law, University of Colombo and a Lecturer at the Advanced Legal studies Unit at the Sri Lanka Law College. He is also a Director of several public and private companies. Mr. A.M. de S. Jayaratne Director B.Sc. (Econ), FCA Mr. S. Rajaratnam - Director B.Sc., CA Mr. Sanjeev Rajaratnam was appointed to the Board in the year He holds a Bachelor of Science Degree in Business Administration from Boston College, U.S.A. and is a member of the Institute of Chartered Accountants in Australia. He has been associated with overseas companies in the field of Finance. He also holds the position of Deputy Managing Director of E.B. Creasy & PLC in addition to serving on several Boards of The Colombo Fort Land & Building. Mr. A.M.de S. Jayaratne having joined the Board of Colonial Motors PLC in 1981 was appointed Chairman in He resigned in the year 2003 and rejoined the Board in He is a former Chairman of Forbes & Walker Ltd., Colombo Stock Exchange, Ceylon Chamber of Commerce and The Finance Commission. He also served as Sri Lanka s High Commissioner in Singapore. Mr. Jayaratne is a Director of several listed and unlisted companies.

9 8 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES ANNUAL REPORT OF THE BOARD OF DIRECTORS The Board of Directors of Colonial Motors PLC present their Report on the affairs of the together with the Audited Financial Statements for the year ended 31 March, 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. General The was re-registered on 1 July, 2008 as required under the Companies Act No. 7 of Principal Activities /Business Review The principal activities of the together with those of its subsidiary companies are given in Note 1 to the financial statements on page 26. A review of the s business and its performance during the year with comments on financial results is contained in the Chairman s Review which together with the financial statements reflect the state of affairs of the. The Directors to the best of their knowledge and belief confirm that the has not engaged in any activities that contravene laws and regulations. Independent Auditors Report The Independent Auditors Report on the Financial Statements is given on pages 19 and 20. Accounting Policies The Accounting Policies adopted in the preparation of the Financial Statements are given on pages 26 to 31. There were no changes in the Accounting Policies adopted. Interest Register Directors Interest in transactions The Directors have made general disclosures as provided for in Section 192(2) of the Companies Act No. 7 of Arising from this, details of contracts in which they have an interest are disclosed in Note 31 to the Financial Statements on pages 57 to 59. Directors Interest in Shares The Directors of the who have an interest in the shares of the have disclosed their shareholdings and any acquisitions / disposals to the Board in compliance with Section 200 of the Companies Act. Financial Statements The Financial Statements of the and the are given on pages 21 to 61.

10 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 9 Details pertaining to Directors direct and indirect shareholdings are set out below: Name of Director No. of No. of Shares Shares As at As at Mr. A. Rajaratnam Mr. S.D.R. Arudpragasam Mr. J.M. Swaminathan Mr. A.M. de S. Jayaratne Mr. S. Rajaratnam Mr. R.M.M.J. Ratnayake Directors Remuneration Directors remuneration in respect of the and the for the financial year 2011/2012 is given in Note 21 to the financial statements on page 53. Corporate Donations Donations made by the amounted to Rs. 328,500 (2010/ Rs. 30,500). Directorate The names of the Directors who held office during the financial year are given below and their brief profiles appear on pages 6 and 7. Mr. A. Rajaratnam - Chairman Mr. R.M.M.J. Ratnayake - Managing Director Mr. S.D.R. Arudpragasam - Director Mr. J.M. Swaminathan - Director Mr. A.M. de S. Jayaratne - Director Mr. S. Rajaratnam - Director In terms of Article Nos. 88 and 89 of the Articles of Association, Mr. S.D.R. Arudpragasam retires by rotation and being eligible offers himself for re-election. Mr. A.M.de.S. Jayaratne, Director, being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the which is referred to in the Notice of Meeting. Mr. J.M. Swaminathan, Director, being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the which is referred to in the Notice of Meeting. Mr. A. Rajaratnam, Director, being over seventy years of age retires and offers himself for reappointment under and by virtue of the Special Notice received from a shareholder of the which is referred to in the Notice of Meeting. Independent Auditors The Financial Statements of the for the year have been audited by Messrs PricewaterhouseCoopers who were reappointed as Independent Auditors at the Annual General Meeting held on 23 September 2011.

11 10 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES The remuneration payable by the and the to the Independent Auditors is given in Note 21 to the Consolidated Financial Statements on page 53. The Directors are satisfied that based on written representations made by the Independent Auditors to the Board, the Auditors do not have any relationship or any interest with the and its subsidiaries that would impair their independence. Revenue The Revenue of the for the year was Rs.3,968 Mn. (2010/2011- Rs.1,507 Mn.) Results The made a profit before tax of Rs.1,506 Mn against a profit of Rs. 323 Mn in the previous year. The detailed results are given in the Income Statement on page 22. Investments Investments made by the and the are given in Note 7,8 and 9 on pages 37 to 46. Property, Plant & Equipment During 2011/2012 the invested Rs. 29 M in Property, Plant & Equipment (2010/2011- Rs. 89 M). Further, your Directors are of the opinion that the net amounts at which Land and other Property, Plant & Equipment appear in the Balance Sheets are not greater than their market value as at 31 March, Stated Capital The Stated Capital of the as at 31 March, 2012 was Rs. 91,348,225/- and is represented by 9,124,318 issued and fully paid Ordinary Shares. There was no change in the stated capital during the year. Reserves The total reserves and their composition are set out in Note 15 on page 49 to the consolidated financial statements. The movements are shown in the Statement of Changes in Equity in the Financial Statements. Taxation The s liability to taxation has been computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto. Income Tax and other taxes paid and liable by the are disclosed in Note 10 and 24 on pages 47,54 and 55.

12 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 11 Share Information Information relating to earnings, dividend, net assets, market value per share and share trading is given on pages 21, 22 and 63. Events Occurring after the Balance Sheet Date Events occurring after the Balance Sheet date that would require adjustments to or disclosures are disclosed in Note 34 on page 61. Capital Commitments and Contingent Liabilities Capital commitments and contingent liabilities as at the Balance Sheet date are disclosed in Notes 28 and 29 on page 56. Employment Policy The s recruitment and employment policy is non-discriminatory. The occupational, health and safety standards receive substantial attention. Appraisal of individual employees are carried out in order to evaluate their performance and realize their potential. This process benefits the and the employees. Shareholders It is the s policy to endeavour to ensure equitable treatment to its shareholders. Statutory Payments The Directors to the best of their knowledge and belief are satisfied that all statutory payments of the due in relation to employees and the Government have been made. Environmental Protection The s business activities can have direct and indirect effects on the environment. It is the s policy to minimize any adverse effect its activities have on the environment and to promote co-operation and compliance with the relevant authorities and regulations. The Directors confirm that the has not undertaken any activities which have caused or are likely to cause detriment to the environment. Internal Control The Board of Directors takes overall responsibility for the s internal control system. A separate Internal Audit section is to be set-up to review the effectiveness of the s internal controls in order to ensure reasonable assurance that assets are safeguarded and all transactions are properly authorized and recorded. The Board reviews the recommendations of External Independent Auditors and takes appropriate action to maintain an adequate internal control system.

13 12 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Going Concern The Board of Directors after making necessary inquiries and reviews including reviews of the s budget for the subsequent year, capital expenditure requirements future prospects and risks, cash flows and borrowing facilities have a reasonable expectation that the has adequate resources to continue its operations in the foreseeable future. Therefore, the Going Concern basis has been adopted in the preparation of the financial statements. For and on behalf of the Board (Sgd) R.M.M.J. Ratnayake Director (Sgd) S.D.R. Arudpragasam Director By Order of the Board (Sgd) Corporate Managers & Secretaries (Private) Limited Secretaries 22 May 2012.

14 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 13 CORPORATE GOVERNANCE The business and affairs of the and its subsidiaries are managed and directed with the objective of balancing the attainment of corporate objectives with the alignment of corporate behaviour within the legal and good governance framework of the industry and the country and also the accountability to shareholders and responsibility to other stakeholders. Board Composition of the Board The Directors are from varied business and professional backgrounds. Their expertise enables them to exercise independent judgement and their views carry substantial weight in decision making. The Board comprises of one Executive Director and five Non-Executive Directors of whom two are Independent. These Directors are listed below: Mr. A. Rajaratnam - Chairman Non-Executive Mr. R.M.M.J. Ratnayake - Managing Director-Executive Mr. S.D.R. Arudpragasam - Non- Executive Mr. J.M. Swaminathan - Independent Non-Executive Mr. A.M. de S. Jayaratne - Independent Non-Executive Mr. S. Rajaratnam - Non- Executive The Non-Executive Directors have submitted their declarations of their Independence or Non Independence to the Board of Directors. Although Mr. J.M. Swaminathan has served on the Board for a period of 9 years, is a Director on the Boards of the subsidiaries of Colonial Motors PLC and though a majority of the Directors of the are on the Boards of the subsidiary companies and other listed entities, the Board after taking into consideration all other circumstances listed in the Rules pertaining to the Criteria for Defining Independence, is of the opinion that Mr. J.M. Swaminathan is nevertheless Independent. Although Mr. A.M. de S. Jayaratne is a Director on the Boards of the subsidiaries of Colonial Motors PLC, is also a member of the Board of its parent company, and a majority of the Directors of the being on the Boards of the subsidiary companies and other listed entities, the Board after taking into consideration all other circumstances listed in the Rules pertaining to the Criteria for Defining Independence, is of the opinion that Mr. A.M. de S. Jayaratne is nevertheless Independent.

15 14 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Decision Making of the Board The Board has met three times during the year under review. In addition to Board Meetings, matters are referred to the Board and decided by Resolutions in writing. The Board is responsible for: Determining the strategic direction of the and also setting the corporate values. Implementation and monitoring of business strategy of the. Ensuring of an effective internal control system and a proactive risk management system. Ensuring compliance with ethical, legal, health, environment and safety standards. Approval of Interim and Annual Financial Statements. Approval of budgets, corporate plans, major capital investments, divestments and acquisitions. Secretaries and Independent Professional Advice The and all the Directors may seek advice from Corporate Managers & Secretaries (Private) Limited who are qualified to act as Secretaries as per the provisions of the Companies Act No. 07 of Advice is also sought from independent external professionals whenever the Board deems it necessary. Independent Judgement The Board is committed to exhibit high standards of integrity and independence of judgement. Each Director dedicates the time and effort necessary to carry out his responsibilities. Financial Acumen The Board includes five Finance Professionals who possess the knowledge and competence to offer the Board necessary guidance on matters of Finance. Supply of Information Directors are furnished with monthly reports on Performance comprising of Financial Statements and other product related information. Appointments to the Board The Board as a whole decides on the appointments of Directors in accordance with the Articles of Association of the and in compliance with the rules on Governance. All appointments are approved by the Board of the parent company The Colombo Fort Land & Building Co. PLC. The details of new appointments to the Board are made available to the shareholders by making announcements to the Colombo Stock Exchange.

16 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 15 Re-election of Directors In terms of the Articles of Association any Director appointed by the Board holds office until the next Annual General Meeting at which he seeks re-election by the Shareholders. The Articles of Association require one third or a number nearest to one third of the Directors in office to retire at each Annual General Meeting. The Directors to retire in each year are those who have been longest in office since their last election or appointment. Retiring Directors are eligible for re-election by the Shareholders. A Director appointed to the office of Chairman, Managing or Joint Managing Director shall not whilst holding that office be subject to retirement by rotation. Directors Remuneration Remuneration Committee The Remuneration Committee of the Parent, The Colombo Fort Land & Building PLC functions as the s Remuneration Committee. Disclosures Aggregate remuneration paid to Directors is disclosed in Note 21 in the Financial Statements on page 53. Relations with Shareholders Constructive use of AGM / General Meetings The Board considers the Annual General Meeting/ General Meetings an opportunity to communicate with shareholders and encourages their participation. Questions raised by the Shareholders are answered and an appropriate dialogue is maintained with them. Others The s principal communicator with all its stakeholders are its Annual Report and Quarterly Financial Statements. Accountability and Audit Financial Reporting The Board places emphasis on complete disclosure of financial and non-financial information within the bounds of commercial reality. This enables both existing and prospective shareholders to make fair assessment on the s performance and future prospects. The Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards. Disclosures The Annual Report of the Board of Directors is given on pages 8 to 12 in this Report. The Auditor s Report on the Financial Statements is given on pages 19 and 20. Going Concern The Directors are of the belief that the is capable of operating in the foreseeable future after adequate assessment of the s financial position and resources. Therefore the Going Concern principle has been adopted in the preparation of these Financial Statements.

17 16 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Internal Control The Board of Directors is responsible for the s system of internal controls and for reviewing its effectiveness. The system is designed to safeguard assets against unauthorized use or disposal and to ensure that proper records are maintained. It includes all controls including financial, operational and compliance controls and risk management. However any system can ensure only reasonable and not absolute assurance that errors and irregularities are prevented or detected within a reasonable timeframe. Audit Committee The Audit Committee of the Parent, The Colombo Fort Land & Building PLC functioned as the s Audit Committee until such time the formed its own Audit Committee in October The Audit Committee Report is set out on pages 17 and 18 of this Report.

18 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 17 AUDIT COMMITTEE REPORT The Audit Committee Report focuses on the activities of the for the year under review, which the Audit Committee has reviewed and monitored so as to provide an additional assurance on the reliability of the Financial Statements. Composition The Audit Committee of the parent company, The Colombo Fort Land & Building PLC (CFLB) functioned as the s audit committee until October 2011 and comprised of the following members: Mr. R. Seevaratnam - Chairman Independent Non-Executive Director CFLB Mr. A. M. de S. Jayaratne - Member Independent Non-Executive Director CFLB Mr. R. Senathirajah (Resigned on ) - Member Non-Executive Director CFLB The s own Audit Committee was constituted on 25 October 2011 and comprise of the following members : Mr. A. M. de S. Jayaratne - Chairman Independent Non-Executive Director The Committee has a blend of experience in the commercial sector, audit exposure, corporate law and business acumen to carry out their role efficiently and effectively. Role of the Audit Committee The Audit Committee acts as the advisory to the Board and its main objective is to assist the Board of Directors by giving recommendations to ensure that the follows best practices in line with best Corporate Governance practices. The Committee is responsible to ensure a sound financial reporting system adhering to relevant accounting standards and principles, adequacy of internal controls and risk control measures, efficient management reporting systems and adherence to other statutory requirements. In fulfilling this role, the Audit Committee is empowered to examine the financial records of the and other communications as necessary in order to ensure that the adheres to accepted norms of ethical guidelines, rules and regulations. The Audit Committee recommends the appointment of external auditors ensuring independence and maintains a close professional relationship with them. The Committee also recommends the fees payable to them in the execution of these services. Mr. J.M. Swaminathan - Member Independent Non-Executive Director Mr. S.D.R. Arudpragasam - Member Non-Executive Director

19 18 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Meetings and Attendance The Audit Committee of the parent company mentioned above met in respect of Colonial Motors PLC on two occasions during the period April to October 2011 and the attendance was as follows: Mr. R. Seevaratnam - Chairman - 2/2 Mr. A.M. de S. Jayaratne - 2/2 Mr. R. Senathirajah (Resigned on ) - 1/2 The present Audit Committee has met on two occasions since being constituted in October 2011 upto the year ended 31 March 2012 and the attendance was as follows: the Companies Act No. 7 of 2007 that they do not have any relationship or interest in any of the companies in the, which may have a bearing on the independence of their role as auditors. (Sgd.) A.M. de S. Jayaratne Chairman Audit Committee 22 May Mr. A.M. de S. Jayaratne - Chairman - 2/2 Mr. J.M. Swaminathan - 2/2 Mr. S.D.R. Arudpragasam - 2/2 The s Secretaries, Corporate Managers and Secretaries (Private) Limited functions as the Secretaries to the Audit Committee. Senior Management personnel of the are invited to the meetings as and when required. The proceedings of the Audit Committee are regularly reported to the Board. External Audit The has appointed PricewaterhouseCoopers as its external auditor and the services provided by them are segregated between audit / assurance services and other advisory services such as tax consultancy. PricewaterhouseCoopers has also issued a declaration as required by

20 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 19 INDEPENDENT AUDITORS REPORT To the shareholders of Colonial Motors PLC Report on the Financial Statements 1. We have audited the accompanying financial statements of Colonial Motors PLC ( the ), the consolidated financial statements of the and its subsidiaries, which comprise the balance sheet as at 31 March 2012, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes as set out on pages 21 to 61. Management s Responsibility for the Financial Statements 2. Management 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 Opinion 3. Our 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. 4. 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 principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 5. 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 6. In our opinion, so far as appears from our examination, the maintained proper accounting records for the year ended 31 March 2012 and the financial statements give a true and fair view of the s state of affairs as at 31 March 2012 and of its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. PricewaterhouseCoopers, P. O. Box 918, 100 Braybrooke Place, Colombo 2, Sri Lanka T: +94 (11) , , F: +94 (11) , Partners Y. Kanagasabai FCA, D.T.S.H. Mudalige FCA, C.S. Manoharan ACA, N.R. Gunasekera FCA, S. Gajendran FCA, Ms. S. Hadgie FCA, Ms. S. Perera ACA PricewaterhouseCoopers is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

21 20 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Independent Auditors Report to the shareholders of Colonial Motors PLC (Contd) 7. In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2012 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the and its subsidiaries dealt with thereby, so far as concerns the shareholders of the. Report on Other Legal and Regulatory Requirements 8. These financial statements also comply with the requirements of sections 151 (2) and 153 (2) to 153 (7) of the Companies Act No. 07 of (Sgd) PricewaterhouseCoopers CHARTERED ACCOUNTANTS 19 June COLOMBO

22 BALANCE SHEET COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 21 (all amounts in Sri Lanka Rupees) ASSETS Non-current assets Note 31 March Restated 31 March Property, plant and equipment 5 924,531, ,104, ,964, ,226,578 Intangible assets 6 4,883,636 5,212,113 Nil Nil Investment in subsidiaries 7 Nil Nil 34,175,370 34,175,370 Investment in related Companies 8 475,388,700 88,550, ,388,700 88,550,000 Deferred income tax assets 10 Nil 2,708,824 Nil 2,708,824 Trade and other receivables 12 Nil Nil 59,157,833 41,000,000 1,404,804,230 1,010,575,299 1,283,686, ,660,772 Current assets Inventories ,655, ,675, ,273, ,978,658 Trade and other receivables ,077, ,497,987 83,170,961 61,309,634 Investments 9 224,436, ,923,985 56,638,650 73,067,809 Income tax receivables 3,024,897 Nil Nil Nil Cash and cash equivalents ,056, ,019,807 2,848,650 7,348,602 1,819,251,405 1,007,116, ,931, ,704,703 Total assets 3,224,055,635 2,017,692,282 1,578,618,120 1,260,365,475 EQUITY Stated capital 14 91,348,225 91,348,225 91,348,225 91,348,225 Reserves 15 2,414,349,782 1,272,110,576 1,228,851, ,065,249 2,505,698,007 1,363,458,801 1,320,199,549 1,010,413,474 Non-controlling interest 1,674, ,317 Nil Nil Total equity 2,507,372,244 1,364,415,118 1,320,199,549 1,010,413,474 LIABILITIES Non-current liabilities Borrowings 17 55,520,870 63,537,871 25,520,870 32,116,450 Deferred income tax liabilities 10 2,478,416 Nil 2,478,416 Nil Retirement benefit obligations 18 21,174,481 21,939,509 13,498,176 14,527,449 79,173,767 85,477,380 41,497,462 46,643,899 Current liabilities Trade and other payables ,038, ,433,412 43,925,118 63,218,452 Current income tax liabilities 251,222,851 95,578,732 1,949, ,527 Borrowings ,248, ,787, ,046, ,436, ,509, ,799, ,921, ,308,102 Total liabilities 716,683, ,277, ,418, ,952,001 Total equity and liabilities 3,224,055,635 2,017,692,282 1,578,618,120 1,260,365,475 Net assets per share I certify that these financial statements have been prepared in compliance with the requirements of the Companies Act, No. 07 of (Sgd) H Nitkunananthan Finance Manager Date : 22 May 2012 The Board of Directors is responsible for the preparation and presentation of these financial statements. Approved and signed for and on behalf of the Board of Directors: (Sgd) R M M J Ratnayake (Sgd) S D R Arudpragasam Director Director Date : 22 May 2012 Date : 22 May 2012 The notes on pages 26 to 61 form an integral part of these financial statements.

23 22 INCOME STATEMENT COLONIAL MOTORS PLC AND ITS SUBSIDIARIES (all amounts in Sri Lanka Rupees) Note Year ended 31 March Year ended 31 March Revenue 4 & 19 3,968,049,331 1,507,826, ,219, ,274,450 Cost of sales (2,952,892,405) (1,076,362,509) (297,026,835) (182,367,100) Gross profit 1,015,156, ,464, ,192,825 95,907,350 Other income ,705, ,236, ,268,837 31,017,062 Administrative expenses (211,621,041) (97,750,276) (63,969,324) (65,490,045) Distribution costs (96,993,094) (111,776,346) (14,706,829) (13,069,441) Operating profit 21 1,508,248, ,174, ,785,509 48,364,926 Finance costs -net 23 (1,898,931) (20,682,919) (15,749,650) (19,376,128) Profit before tax 1,506,349, ,491, ,035,859 28,988,798 Tax (charge) / release 24 (343,784,353) (91,515,210) (7,816,968) 5,497,691 Net profit 1,162,564, ,975, ,218,891 34,486,489 Attributable to : Equity holders of the 1,161,847, ,694, ,218,891 34,486,489 Minority interest 717, ,039 Nil Nil 1,162,564, ,975, ,218,891 34,486,489 Earnings per share for profit attributable to equity holders of the basic Dividends per share The notes on pages 26 to 61 form an integral part of these financial statements.

24 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 23 STATEMENT OF CHANGES IN EQUITY (all amounts in Sri Lanka Rupees) (a) Note Stated capital Retained earnings Revaluation & other reserves Total reserves Non controlling interest restated Total equity Balance at 1 April ,657, ,064, ,456,244 1,057,521,025 Nil 1,098,178,600 Rights issue 50,690,650 Nil Nil Nil Nil 50,690,650 Deferred tax attributable to revaluation surplus Nil Nil (7,981,027) (7,981,027) Nil (7,981,027) Depreciation attributable to revaluation surplus Nil 2,192,590 (2,192,590) Nil Nil Nil Net profit Nil 231,694,896 Nil 231,694,896 1,146, ,841,256 Dividends (2009/2010) Nil (9,124,318) Nil (9,124,318) Nil (9,124,318) As previously reported 91,348, ,827, ,282,627 1,272,110,576 1,146,360 1,364,605,161 Adjustment for Dispute in rental expenses 32 (b) Nil Nil Nil Nil (190,042) (190,042) As restated at 31 March ,348, ,827, ,282,627 1,272,110, ,318 1,364,415,119 Deferred tax attributable Nil Nil (5,746,339) (5,746,339) Nil (5,746,339) to revaluation surplus Depreciation attributable to revaluation surplus Nil 2,192,590 (2,192,590) Nil Nil Nil Net profit Nil 1,161,847,022 Nil 1,161,847, ,919 1,162,564,941 Dividends (2010/2011) Nil (13,861,477) Nil (13,861,477) Nil (13,861,477) Balance at 31 March ,348,225 1,617,006, ,343,698 2,414,349,782 1,674,237 2,507,372,244 The notes on pages 26 to 61 form an integral part of these financial statements.

25 24 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY (all amounts in Sri Lanka Rupees) (b) Note Stated capital Retained earnings Revaluation & other reserves Total reserves Total equity Balance at 1 April ,657, ,227, ,456, ,684, ,341,680 Rights issue 50,690,650 Nil Nil Nil 50,690,650 Deferred tax attributable to revaluation surplus Nil Nil (7,981,027) (7,981,027) (7,981,027) Depreciation attributable to revaluation surplus Nil 2,192,590 (2,192,590) Nil Nil Net Profit Nil 34,486,489 Nil 34,486,489 34,486,489 Dividends (2009 / 2010) Nil (9,124,318) Nil (9,124,318) (9,124,318) Balance at 31 March ,348, ,782, ,282, ,065,249 1,010,413,474 Balance at 1 April ,348, ,782, ,282, ,065,249 1,010,413,474 Deferred tax attributable to revaluation surplus Nil Nil (5,746,339) (5,746,339) (5,746,339) Depreciation attributable to revaluation surplus Nil 2,192,590 (2,192,590) Nil Nil Net Profit Nil 329,218,891 Nil 329,218, ,218,891 Dividends (2010 / 2011) Nil (13,686,477) Nil (13,686,477) (13,686,477) Balance at 31 March ,348, ,507, ,343,698 1,228,851,324 1,320,199,549 The notes on pages 26 to 61 form an integral part of these financial statements.

26 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES 25 CASH FLOW STATEMENT (all amounts in Sri Lanka Rupees) Cash flows from operating activities Note Year ended 31 March Year ended 31 March Cash generated from/(used in) operations 27 1,129,239, ,673,435 (1,090,170) (18,172,921) Interest paid (25,796,611) (30,533,124) (15,750,884) (19,818,731) Interest received 23 23,897,680 10,118,745 1, ,603 Retirement benefit obligations paid 18 (2,643,008) (148,223) (2,532,060) Nil Income tax paid (190,201,209) (18,282,715) (7,080,330) (4,080,295) Net cash generated from / (used in) operating activities 934,496, ,828,118 (26,452,210) (41,629,344) Cash flows from investing activities Purchase of property, plant and equipment (26,813,001) (89,097,749) (2,686,468) (1,622,117) Proceeds from sale of property, plant and equipment 6,294, ,310 6,294, ,310 Purchase of intangible assets 6 Nil (247,200) Nil Nil Cash inflow on acquisition 32(e) Nil 2,586,882 Nil Nil Purchase of investments (103,335,663) (32,254,972) (3,291,101) (1,067,344) Proceeds from sale of investments Nil 43,496,061 Nil 8,926,477 Dividends received 19,385,599 12,132,032 1,815,877 1,702,797 Net cash (used in) / generated from investing activities (104,468,422) (63,231,636) 2,132,951 8,093,123 Cash flows from financing activities Proceeds from short / long term loans 56,407, ,778,700 42,507,530 73,723,592 Proceeds from a rights issue Nil 50,690,650 Nil 50,690,650 Repayment of loans (151,671,023) (67,871,114) (51,553,085) (1,878,888) Dividends paid (13,861,477) (9,124,318) (13,686,477) (9,124,318) Advance on investments Nil Nil Nil (41,000,000) Finance lease principal payment (3,921,713) (3,944,907) (184,730) Nil Net cash generated (used in) / from financing activities (113,046,683) 211,529,011 (22,916,762) 72,411,036 Increase / (decrease) in cash and cash equivalents 716,981, ,125,493 (47,236,021) 38,874,815 Movement in cash and cash equivalents At 1 April 168,886,613 (86,238,880) (58,103,747) (96,978,562) Increase / (decrease) 716,981, ,125,493 (47,236,021) 38,874,815 At 31 March ,867, ,886,613 (105,339,768) (58,103,747) The notes on pages 26 to 61 form an integral part of these financial statements.

27 26 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements (all amounts are shown in Sri Lanka Rupees unless otherwise stated) 1. General information Colonial Motors PLC is a limited liability company domiciled in Sri Lanka and incorporated on 9 July 1909 under the Companies Ordinance. The registered office of the is located at No. 297, Union Place, Colombo 2. The was re-registered under the Companies Act No. 7 of 2007 on 1 July The principal activity of the is the sale of motor vehicles and spare parts and providing vehicle maintenance services. Carplan Limited, a wholly owned subsidiary of Colonial Motors PLC is a limited liability company domiciled in Sri Lanka and incorporated on 16 October 1987 under the Companies Act No. 17 of The was reregistered under the Companies Act No. 7 of 2007 on 19 November The registered office of the is located at No. 297, Union Place, Colombo 2. The principal activity of the company is repairs and servicing of vehicles. Union Investments (Private) Limited, a wholly owned subsidiary of Colonial Motors PLC is a limited liability company incorporated and domiciled in Sri Lanka. The registered office of the company and the principal place of business is located at No. 51/1B, Dharmapala Mawatha, Colombo 03. The company was incorporated on 16 February 1978 and re - registered under the Companies Act No. 7 of 2007 on 29 July The principal activity of the company is carrying on the business of an investment company. KIA Motors (Lanka) Limited, a subsidiary of Colonial Motors PLC is a limited liability company domiciled in Sri Lanka and was incorporated on 14 August 2007 under the Companies Act No. 7 of 2007.The registered office of the company is located at No. 297, Union Place, Colombo 02. The principal activity of the company is import and sale of motor vehicles. Guardian Asset Management Limited, a subsidiary of Colonial Motors PLC is a limited liability company in Sri Lanka and was incorporated on 8 March 1995 under the Companies Act No. 17 of The company was re-registered on 1 August The registered office of the company is located at No. 51/1B, Dharmapala Mawatha, Colombo 3. The principal activities of the company are asset management, funds and portfolio management and the management of all types of trusts. Guardian Trustee Limited is a wholly owned subsidiary of Guardian Asset Management Limited. It is a limited liability company domiciled in Sri Lanka and incorporated on 26 May 1995 under the Companies Act No. 17 of The registered office of the company is located at No. 51/1B Dharmapala Mawatha, Colombo 3. The principal activities of the company are asset management, fund and portfolio management and the management of all types of trusts. 2. Summary of significant accounting policies The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements are prepared in accordance with and comply with the Sri Lanka Accounting Standards [ SLAS or Standard(s) ]. The consolidated financial statements are prepared under the historical cost convention. The preparation of financial statements in conformity with SLASs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the s accounting policies. The areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 3. The convergence of Sri Lanka Accounting Standards with International Financial Reporting Standards with effective from 01 January 2012 have not been adopted by the in preparing the consolidated financial statements as they are not effective for the year ended 31 March 2012.

28 COLONIAL MOTORS PLC AND ITS SUBSIDIARIES Consolidation Subsidiary undertakings, which are those companies in which the, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has power to exercise control over the operations, have been consolidated. Subsidiaries are consolidated from the date on which effective control is transferred to the and are no longer consolidated from the date of disposal. All inter company transactions, balances and unrealised surpluses and deficits on transactions between group companies have been eliminated. Where necessary accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the. Separate disclosure is made of non controlling interests. 2.3 Non controlling Interest Non controlling interest is that the portion of the profit or loss and net asset of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent. The applies a policy of treating transactions with non controlling interests as transactions with parties external to the. Disposals to non controlling interests result in gains and losses for the that are recorded in the income statement. Purchases from non controlling interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary. 2.4 Segment reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. 2.5 Foreign currencies Foreign currency transactions in companies are accounted for at the exchange rates prevailing at the date of transaction: gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement. Monetary assets and liabilities are translated at the year-end exchange rates. 2.6 Investments Marketable securities are carried at lower of cost and market value, on an aggregate portfolio basis. Market value is calculated by reference to Stock Exchange quoted selling prices at the close of the business on the balance sheet date. Fixed asset investments excluding marketable securities are shown at cost and provision is only made where, in the opinion of the Directors, there is a permanent diminution in value. Where there has been a permanent diminution in the value of an investment, it is recognised as an expense in the period in which the diminution is identified. Where the s interest in equity capital is less than 20% and / or in companies where the does not exercise significant influence and / or control over the financial and operating policies, investments are valued at cost, with provisions being made for any permanent impairment in their value. Income from these investments is recognised only to the extent of dividend received. On disposal of an investment, the difference between the net proceeds on disposal and carrying amount is charged or credited to the consolidated income statement.