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| annual Report of the board of Directors | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GENERALThe Directors of Diesel & Motor Engineering PLC, a public limited liability company incorporated in Sri Lanka in 1945 under the Companies Ordinance No. 51 of 1938 and re-registered as per the Companies Act No. 7 of 2007, present their Annual Report of the Board of Directors and the Consolidated Financial Statements for the year ended 31st March 2008, which were approved at a meeting held on 9th May 2008. The Financial Statements have been prepared in accordance with the Sri Lanka Accounting Standards as required by Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995 & Companies Act No. 7 of 2007.GROUP ACTIVITIESThe principal activities of the Group include import, sale and repair of passenger cars, commercial vehicles, material handling machinery, storage systems, construction machinery, tractors, medical equipment, telecommunication equipment, building technologies, power engineering equipment, power engines, power tools and import and sale of vehicle spares, components, accessories and lighting products.There was no significant change in a. the nature of the business of the Company or its subsidiaries b. the classes of business in the Associate Companies during the year, that may have a significant impact on the state of the Company’s affairs. FINANCIAL STATEMENTSSection 168(b) of the Companies Act require that the Annual Report of the Directors include Financial Statements of the Company and the Group in accordance with Section 151 and 152 of the Companies Act.The requisite Financial Statements of the Company and the Group are given on financial report section of the Annual Report. AUDITORS’ REPORTThe Auditors’ Report on the Financial Statements.SIGNIFICANT ACCOUNTING POLICIESThe Significant Accounting Policies adopted in the preparation of Financial Statements are given on Significant Accounting Policies section of the Annual Report. There were no changes in Accounting Policies during the year.DIRECTORATEList of DirectorsFollowings were the Directors of the Company as at the end of the financial year and their qualifications and experience are given in the Board of Directors section on the Annual Report.
Resignations, New Appointments and Re-elections to the BoardThere were no resignations or new appointments made to the Board, during the current financial year.Mr. A.G. Pandithage, Mr. A.N. Algama, Mr. T.G.H. Peries & Mr. R.C. Weerawardane retire by rotation in accordance with the Articles and being eligible offer themselves for re-election at the Annual General Meeting.
The Statement of Directors’ Responsibilities for the Financial Statements.
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| The shareholdings of Directors and their spouses as at 31st March 2008
are as follows: |
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| 2007/08 | 2006/07 | |
| A.R. Pandithage | 1,882,095 | 1,874,661 |
| A.N. Algama | 170,755 | 187,455 |
| A.M. Pandithage | 219,778 | 219,778 |
| A.G. Pandithage | 383,545 | 383,545 |
| S.C. Algama | 399,134 | 399,134 |
| T.G.H. Peries | 328,170 | 334,924 |
INTEREST REGISTER
The Interest Register is maintained by the Company as required by the Companies Act No. 7 of 2007. The related entries were made in the interest register during the financial year under review.The entries made in the interest register during the year are as follows:
| ● | Directors’ Interest in Contracts |
| All Directors’ have made declarations on their interest in transactions or proposed transactions with the Company in accordance with Section 192 (2) of the Companies Act. The Directors’ interest in contracts are disclosed in the annexure. |
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| ● | Acquisition/Disposal of Shares by Directors |
| Mr. A.N. Algama and Mr.T.G.H. Peries disposed of 16,700 and 6,754 shares of the Company respectively during the year. There were no other acquisition or disposal of shares by any other Director during the period. |
DIRECTORS’ REMUNERATION
Directors’ remuneration in respect of the Group and the Company for the financial year ended 31st March 2008 are given on Note 28.ENTERPRISE GOVERNANCE
The report on Enterprise Governance is given on Governance section of the Annual Report. With a view to obtaining an independent opinion on Corporate Governance initiatives, Messrs DET NORSKE VERITAS AS (DNV) was engaged to review the Company’s Corporate Governance framework and issue a Corporate Governance rating along with a review report containing shortcomings and suggestions. A summary of the rating report is available on Governance sectionof the Annual Report.INTERNAL CONTROL SYSTEM
The Group Management Committee including the Executive Directors have taken necessary steps to overlook the implementation of an affective system of internal controls covering financial as well as operational activities of the Company. The Directors have outsourced a part of the internal audit function to review and report on the effectiveness of the internal controls.BOARD COMMITTEES
The Board of Directors of the Company has formed the following Sub-Committees and the Reports of such Sub Committees are given on Board of Directors section of the Annual Report.| ● | Audit Committee |
| ● | Remuneration Committee |
| ● | Nomination Committee |
AUDITORS
The Auditors - Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants were paid Rs. 1.325 mn for the year ended 31st March 2008 (Rs. 0.95 mn in 2007) as audit fees by the Company. In addition to that, they were paid Rs. 0.766 mn. (Rs. 0.146 mn. in 2007) for non-audit related services including tax consultancy services.Based on the declaration made by Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants and as far as the Directors are aware, the auditors do not have any relationship or interest in the Company or its subsidiary other than disclosed in this paragraph.
The retiring Auditors, Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants are willing to continue in their office. A resolution on reappointing them as Auditors and granting authority to the Directors to decide their remuneration will be proposed at the Annual General Meeting.
BUSINESS REVIEW
A review of operations, developments and outlook is available in the Chairman’s & CEO’s Review, Financial Review and Business Performance Review.Segment turnover and other segment information are available on Business Performance section.
RISK MANAGEMENT
A systematic ongoing process is adopted to identify and manage different types of risks which the Company faces. This Company’s strategy on Risk Management is detailed in the Risk Management section of the Annual Report.HUMAN RESOURCES
The Group promotes to its employees the need for the highest standards of integrity and ethics in business dealings, including compliance with all relevant legislation and codes of practice. Employees are regarded as the key to being able to translate policies and strategies into commercial success.The Group is committed to providing a working environment in which this process can succeed.
Adequate measures are taken to ensure that all employees have the opportunity to understand and appreciate the Group’s objectives and policies. The employment policy of the Group embodies the principal of equal opportunity. The Group aims to create an opportunity for participation and involvement, encourage the identification and development of skills, promote the use of initiative and stimulate personal advancement. Reward systems recognise success at both the corporate and individual level. The number of persons employed by the Company and its subsidiaries at the year end was 867 (2006/07 - 862).
HEALTH & SAFETY
The Group safeguards occupational health and hygiene of its employees by providing a safe working environment and complying with all relevant statutory obligations. The Group also has an employees’ medical scheme and expenditure in relation to this for the year was Rs. 10,806,907/-.ENVIRONMENT
The Group is sensitive to the needs of the environment, not only in terms of compliance with relevant statutory obligations, but more generally in terms of the need to be efficient in the use of energy and water and in reducing and handling of waste material. It is the Group’s policy to minimise adverse effects on the environment and to promote corporation and compliance with relevant authorities and regulations. The business activities of the Group can have an indirect impact on the environment if necessary preventive measures are not taken. The steps taken to prevent possible indirect impact are outlined in the Sustainability Report.QUALITY
The Group is committed to maintain its long established reputation of being a symbol of quality. All employees are encouraged to regard the continuous improvement of quality standards as a key to competitive advantage.OPERATIONAL RESULTS AND DIVIDENDS OF THE GROUP
| 2007/08 Rs. ’000 |
2006/07 Rs. ’000 |
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| Turnover | ||
| Gross Turnover | 12,687,289 | 12,989,916 |
| Profit | ||
| After making provision for bad and doubtful debts and all known liabilities and after charging a sum of Rs. 84,244,159/- (2006/07 - Rs. 63,037,571/-) for Depreciation of property, plant & equipment the profit made by the Group before tax was | 344,444 | 512,818 |
| Income tax expense | (139,351) | (211,041) |
| Group profit after taxation | 205,093 | 301,777 |
| Appropriations | ||
| Interim dividend paid | (18,150) | (36,300) |
| Retained profit brought forward | 333,278 | 104,101 |
| Available for appropriation | 520,221 | 369,578 |
Dividends on Ordinary Shares
The Directors recommend a final dividend of Rs. 2.50 per share
(2006/07 - Rs. 3/- per share) payable on 27th June 2008 to the shareholders of the issued ordinary shares of the Company as at close of the business on 21st June 2008. This dividend together with the interim dividend of Rs. 1.50 per share (2006/07 - Rs. 3/- per share) results in a total dividend of Rs. 4/- per share (2006/07 - Rs. 6/- per share). In accordance with Section 56 of the Companies Act No. 7 of 2007, a solvency test was carried out by the Company’s Auditors, prior to recommending the final dividend.
Income Tax Expense & Deferred Taxation
It is the Group’s policy to provide for deferred taxation on all known temporary differences. The income tax rate applicable to all companies in the Group is 35%. Tax on export profit is 15%.STATUTORY PAYMENTS
Directors confirm that all payments in respect of statutory liabilities including EPF, ETF and Taxes have been made on time during the financial year.DONATIONS
The Donations made during the year amounted to Rs. 628,265/- (2006/07 - Rs. 674,129/-). A sum of Rs. 35,000/- (2006/07 - Rs. 145,000/-) made to government approved charities.PROPERTY, PLANT & EQUIPMENT
Group expenditure on property, plant & equipment during the year amounted to Rs. 554,483,332/-(2006/07 - Rs. 305,542,358/-). Information relating to movement in property, plant & equipment is given in Note 9 to the Financial Statements.MARKET VALUE OF FREEHOLD LAND
A qualified independent valuer last revalued the freehold land of the Company on 20th August 2004.GROUP INVESTMENT
Information relating to investments other than in subsidiaries is available in Notes 12, 13 & 14 to the Financial Statements.STATED CAPITAL
The Stated Capital of the Company as at March 31, 2008 was Rs. 182.5 mn (2007 - Rs. 182.5 mn) consisting of 12,100,000 Ordinary Shares and Share Premium amounting to Rs. 61.5 mn.RESERVES
The total reserves as at 31st March 2008 stand at Rs. 1,474,649,854/- (2006/07 - Rs. 1,324,007,149/-) comprising capital reserves of Rs. 311,521,385/- (2006/07 - Rs. 311,521,385/-) and revenue reserves of Rs. 1,163,128,469/-(2006/07 - Rs. 1,012,485,765/-). The Statement of Changes in Equity gives the movement in equity during the year.SHARE INFORMATION
Information relating to shareholding, earnings, and net assets per share, market value of shares, dividends and share trading.SHAREHOLDINGS
There were 1,224 registered shareholders as at 31st March 2008. The percentage of shares held by thePublic as at 31st March 2008 was 44% of the issued shares. The twenty major shareholders as at31st March 2008 and the number of shares held and their percentage shareholding.SHAREHOLDER
The Company has made all endeavours to ensure equitable treatment to all shareholders.COMPLIANCE WITH LAWS & REGULATIONS
To the best of the knowledge and belief of the Directors, the Company has not engaged in any activities contravening the laws & regulations of the country.OUTSTANDING LITIGATION
In the opinion of the Directors and in consultation with the Company Lawyers, litigation currently pending against the Company will not have a material impact on the reported financial results or future operations of the Company.EVENTS OCCURRING AFTER BALANCE SHEET DATE
There have not been any material events that occurred subsequent to the date of the Balance Sheet which require adjustments to or disclosure in the Financial Statements.CONTINGENCIES & COMMITMENTS
Contingent Liabilities and Capital Commitments made as at 31st March 2008 is given in Note 27 to theFinancial Statements.GOING CONCERN
The Directors are of the opinion that the Company has adequate resources to continue in operational existence for the foreseeable future. The Financial Statements have been prepared adopting the going concern basis as stated in the Statement of Directors’ Responsibilities.ANNUAL GENERAL MEETING
The Annual General Meeting will be held at the Registered Office of the Company, No. 65, Jetawana Road, Colombo 14 on 20th June 2008. The Notice of Annual General Meeting.By order of the Board of Directors
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| A.R. Pandithage Chairman |
R.C. Weerawardane Director |
B.C.S.A.P. Gooneratne Secretary |
Colombo
09th May 2008