a positive outlook

annual report

2009/2010

Richard Pieris and Company PLC

Contents
4 5 7 12 14 34 36 40 45 47 53 54 58 61 62 64 65 66 67 68 70 71 110 112 114 115 117 118 119 Financial Highlights Corporate Information Chairman’s Review The Board of Directors Sector Reviews Corporate Social Responsibility Financial Review Risk Management Our People Group Structure Financial Information Annual Report of the Board of Directors Corporate Governance Report of the Remuneration Committee Report of the Audit Committee Statement of Directors’ Responsibility Auditor’s Report Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements Ten Year Summary Shareholder Information Group Real Estate Portfolio Glossary of Financial Terms Notes Notice of Meeting Form of Proxy

Richard Pieris and Company PLC Annual Report 2009/2010

1

a positive outlook

For us at Richard Pieris and Company, it’s about where and most importantly how you look at the world around you. In 2009, we took a step back and looked within ourselves; at the values, ideals and goals that are at the root of who we are. We worked diligently at developing and strengthening these core components into a fortified, immovable basis. The internal changes we made for the betterment of our company are now paying off, as you can see. We let our figures speak for themselves. We now look out in 2010, towards the future with renewed hope and optimism. Strategically positioned at the threshold of a new era of growth and expansion, we have a positive outlook.

a positive
To be a market driven, technologically oriented diverse group. We will organise and operate to continually focus on exceeding the expectations of our customers, whilst excelling in profitability and we will attract, develop and retain talented people to ensure the continued growth and viability of all our business ventures.

Vision

outlook
Mission
To continually exceed the expectations of our customers. To optimise the contribution from our employees by providing career and personal development opportunities, thereby creating an atmosphere that would motivate and internalise employee aspirations with corporate objectives. To provide a satisfactory return to shareholders whilst retaining sufficient funds for reinvestment, thereby enhancing corporate wealth. To ensure continuous growth by the planned expansion and diversification of business activities. To continually strive for the upliftment of our community whilst adhering to high ethical standards in business.

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Richard Pieris and Company PLC Annual Report 2009/2010

Financial Highlights
2009/2010 Rs.’000 Net turnover Profit from operations Profit/(loss) before tax from continuing operations Income tax expense Profit /(loss) for the year from continuing operations Loss after tax from discontinued operations Profit/(loss) for the year Profit/(loss) attributable to equity holders of the parent Total assets Shareholder funds Market capitalization Total value addition Per Ordinary Share Earnings (Rs.) Net assets (Rs.) Market value (Rs.) Dividend (Rs.) Ratios Return on equity (%) Interest cover (No of times) Gearing ratio (%) 22,339,288 1,969,697 1,060,159 (330,592) 729,567 (17,873) 711,694 580,204 17,364,817 3,792,892 7,053,806 7,557,369 2008/2009 Rs.’000 21,103,176 1,378,556 (16,654) (180,411) (197,065) (107,963) (305,028) (329,083) 16,924,097 3,213,907 3,206,276 6,170,023

4.52 29.57 55.00 1.00

(2.57) 25.06 25.00 -

16.56 2.03 49.69

(9.76) 0.96 59.80

Net Turnover vs Profit from Operation
Rs. mn 25,000 Rs. mn 1,200 1,000 20,000 800
Profit from operation Net turnover

Market Capitalization vs Shareholder Fund
Rs. mn 10,000 Rs. mn 10,000

Total Debt vs Gearing Ratio
% 70 60

8,000

8,000 50
Total Debt

600 400 200

40 30 20

10,000

4,000

4,000

5,000 0 0 (200)

2,000

2,000 10

05/06

06/07

07/08

08/09

05/06

06/07

07/08

08/09

09/10

09/10

0

0

0

05/06

06/07

07/08

08/09

Net turnover Profit from operation

Market capitalization Shareholders Fund

Total Debt Gearing Ratio

09/10

Gearing Ratio

15,000

6,000

6,000

Richard Pieris and Company PLC Annual Report 2009/2010

5

Corporate Information
Name of the Company
Richard Pieris and Company PLC

Auditors
Ernst & Young Chartered Accountants No. 201, De Saram Place, Colombo 10, Sri Lanka.

Executive Management Committee
Mr. Pravir D. Samarasinghe (Chairman) Mr. Abeyananda Dias Mr. Pushpika Janadeera Mr. Sunil Jayakoddy Mr. Lalith Jayasuriya Mr. V. K. Jayawardena Mr. Justin Kumar Mr. Ravi Kumararatne Mr. Sunil Liyanage Ms. Coralie Pietersz Mr. Sunil Poholiyadda Mr. Niranjan Vithanage Mr. Muditha Welihinda

Legal Form
A quoted public Company with limited liability, incorporated in Sri Lanka under the Companies Ordinance No. 51 of 1938 on 11th May 1940. The Company registration number is PQ 138.

Bankers
Bank of Ceylon Commercial Bank of Ceylon PLC Deutsche Bank A G DFCC Bank PLC Hatton National Bank PLC Hongkong & Shanghai Banking Corporation PLC Indian Bank Nations Trust Bank PLC NDB Bank PLC National Servings Bank PABC Bank PLC People’s Bank Sampath Bank PLC Seylan Bank PLC Standard Chartered Bank State Bank of India

Stock Exchange Listing
The Ordinary shares of the Company are listed in the Colombo Stock Exchange of Sri Lanka.

Board of Directors
Dr. Sena Yaddehige - Chairman/ Managing Director/CEO Mr. Pravir D. Samarasinghe - Director/Chief Operating Officer Mr. J. H. Paul Ratnayeke - Director Prof. Lakshman R. Watawala - Director Prof. Susantha D. Pathirana - Director Mr. M. M. Udeshi - Director Mr. W. J. V. P. Perera - Director Appointed w.e.f. 01.08.2009

Legal Advisors Head/Registered Office
No. 310, High Level Road, Nawinna, Maharagama, Sri Lanka. Telephone : + (94) 114310500 Fax : + (94) 114310777 Website : www.arpico.com E-mail : cpu@arpico.com Paul Ratnayeke Associates International Legal Consultants, Solicitors and Attorneys-at-Law, No. 59, Gregory’s Road, Colombo 7, Sri Lanka.

Secretaries
Richard Pieris Group Services (Private) Limited No. 310, High Level Road, Nawinna, Maharagama, Sri Lanka.

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Richard Pieris and Company PLC Annual Report 2009/2010

In the year of great achievement of peace, the Group’s achievement was commendable. Despite the many challenges faced both in the world and local environment, the Group made a net profit before tax of Rs. 1,060 mn which was the highest profit achieved in the last 5 years. The Group borrowings reduced by Rs. 1,603 mn to Rs. 5,231 mn thereby further strengthening its Balance Sheet.

Richard Pieris and Company PLC Annual Report 2009/2010

7

Chairman’s Review
I am happy to present the Annual Report and Audited Accounts of the Company and its subsidiaries for the year ended 31st March 2010. In the year of great achievement of peace, the Group’s achievement was commendable. Despite the many challenges faced both in the world and local environment, the Group made a net profit before tax of Rs. 1,060 mn which was the highest profit achieved in the last 5 years. The Group borrowings reduced by Rs. 1,603 mn to Rs. 5,231 mn thereby further strengthening its Balance Sheet. The Group achieved a turnover of Rs. 22,339 mn, being a 6% increase over last year. Operating profit before interest and tax amounted to Rs. 1,969 mn an increase of 43% from last year. Decrease in borrowings and interest rates resulted in a reduction in finance cost by 33% to Rs. 969 mn. Profit from operations after interest amounted to Rs. 1,001 mn compared to a loss of Rs. 58 mn last year. Profit after tax, from continuing operations amounted to Rs. 730 mn. The Group incurred a loss of Rs. 18 mn from discontinued operations resulting in a net profit of Rs. 712 mn compared to a loss of Rs. 305 mn last year. Margin enhancement, cost and working capital management initiatives helped improve profitability. The Group continued its strategy of exiting from businesses with low profitability and concentrated on its core businesses.
Profit Movement
Rs. 5,000 4,000 3,000 2,000 1,000 0 (1000)

05/06

06/07

07/08

08/09

Gross Profit EBIT Profit attributable to parent

Economy
Amidst challenging domestic and external conditions, the Sri Lankan economy grew by 3.5% in 2009, largely due to the steady recovery of the economy from the second quarter of the year, including the recording of a healthy 6.2% growth in the final quarter. The Agriculture sector recorded a low growth of 3.2% compared to 7.5% in 2008. This was due mainly to the contraction in the output of Tea which was affected adversely by unfavorable weather. However healthier performance from other crops helped maintain a moderate growth. The Industry sector slowed down registering a growth rate of 4.2% compared to 5.9% in 2008.The Services sector grew by 3.3% in 2009 contributing 55% to the overall economic growth. As measured by the Colombo Consumers’ Price Index (CCPI), inflation declined sharply from 28% in June 2008 to 4.8% by end 2009, recording an average rate of 3.4% in 2009. This enabled the Central Bank to relax its monetary policy to support the domestic economy. In response to the significant reduction in policy rates , there was a downward adjustment in market interest rates across the term structure. However, demand for credit from the private sector remained low due to the slowing down of the economy. The external reserves’ position started improving in the second quarter of 2009 due to curtailed imports, disbursements from the IMF and increased inward remittances. The Country recorded a surplus in the balance of payments of US dollars 2.7 bn raising foreign exchange reserves to US dollars 5.1 bn by end 2009.

Nominal GDP vs Real Growth Rates
Rs. bn 6,000 5,000 4,000
Nominal GDP

09/10
% 9 8 7 6 5
Real GDP Growth Rate

3,000 4 2,000 1,000 0 3 2 1 0

05/06

06/07

07/08

08/09

Nominal GDP Real GDP Growth Rate

09/10

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Richard Pieris and Company PLC Annual Report 2009/2010

Chairman’s Review contd.
Balance of Payment vs Exchange Rates
USD $ million

LKR/USD 120 115 110
Annual Exchange Rate

The exchange rate of the Sri Lanka Rupee depreciated by 1.1% against the US dollar in 2009. The end of the civil war will no doubt usher in a new era of growth and prosperity to the Country with long term sustainable development. The opportunities dawning through the restoration of peace will be complemented with the global economic recovery.

3,000

2,000
Overall Balance of Payment

1,000 105 0 100 (1,000) 95 90

Sector Review
The Retail Sector has been one of the most growth oriented arms of the Group during the past few years. Turnover increased from Rs. 8,681 mn to Rs. 9,043 mn and operating profits increased by 9% to Rs. 515 mn. While the turnover increase was marginal, continued emphasis on the management of working capital, stocks in particular, and overheads resulted in improved profitability. There was a marked improvement in performance during the latter part of the financial year, especially in the seasonal month of December 2009 and the fourth quarter thereafter. This is evidence of a positive trend in market sentiment in post-war Sri Lanka and also demonstrates the potential of the retail industry, for future growth. Providing customer conveniences has enabled the Arpico Supercentres and Stores to gain a distinct competitive edge over its rivals. All Supercentres have ample parking space, an unmatched range of product and customer choice, wide aisle space for easy shopping, and state-of-the-art refrigeration facilities to provide fresh produce. We continue to focus on improving levels of convenience and service. An aggressive and accelerated expansion of its chain of outlets in targeted areas of the Country is planned in order to capitalize on the post war economic boom that is expected in the ensuring years.

(2,000)

05/06

06/07

07/08

08/09

Overall Balance of Payment Annual Exchange Rate

09/10

Interest Rates vs Inflation Rates
% 25

20

15

The Plantation Sector reported an increase in turnover from Rs. 5,220 mn to Rs. 6,519 mn this year with the improvement in commodity prices while the operating profit showed an increase of 48 % from Rs. 555 mn to Rs. 823 mn. Profit recorded during the year was commendable considering the steep wage increase granted in September with retrospective effect from April 2009, which represented an increase of 42%. A Rs. 497 mn provision was also made for gratuity on account of the wage hike. The crop mix and continued emphasis on quality helped maintain prices which contributed to this satisfactory performance. Commodity prices continued to escalate during the year due to global shortfalls in production in most producer countries. This shortfall in production was attributed mainly to adverse weather conditions. Additionally, Tea prices were buoyant throughout the year due to improved purchasing power of our major markets – the Middle East and the Russian Federation, on account of escalating petroleum prices. Rubber prices increased further as a result of the recovery of China and India from the global recession. With increasing petroleum prices it is expected that both Tea and Rubber prices will remain high.

10

5

0

05/06

06/07

07/08

08/09

Average Annual Inflation Rates Average Prime Lending Rates

09/10

Richard Pieris and Company PLC Annual Report 2009/2010

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The plantations continue to invest in replanting and upgrading its manufacturing facilities, whilst developing sustainable agricultural practices, in order to meet the anticipated demands of local and international markets. The Tyre Sector had yet another successful year with a significant growth in profitability. Turnover remained almost static at Rs. 2,101 mn while operating profits increased by 27% to Rs. 300 mn. Low rubber prices that prevailed during the first half of the year resulted in healthy profit margins. These benefits were transferred to the market by reduction in tyre prices. This was done as a strategic move to increase market share. The second half of the year saw a significant increase in raw material prices and consequently a reduction in profit margins. Pricing levels and profitability were maintained by increasing productivity, energy efficiency, minimizing overhead costs and eliminating unproductive practices. The Tyre sector has the largest dealer network in the country. This has been a significant advantage in both the retreading and trading business. The expansion of regional factory capacities to meet increased demand of the post-war market has strengthened its position further. The Sector expects further growth in volumes, market share and profitability with improved market conditions. The dealer network will be further strengthened by the appointment of new dealers in the East and North. The year under review was both challenging and rewarding for the Plastic sector. With the recovery of the economy demand for most of its product categories improved. The Plastic sector benefited from low prices during most of the year. This and reduction in finance costs lead to a significant increase in profitability. The Sector turnover reduced by 3% to Rs. 2,858 mn while operating profits improved by 133% to Rs. 321 mn. Volumes in Polyurethane foam, Rigifoam and water pump divisions grew significantly while sales of water tanks remained stagnant with a depressed construction industry. Focused marketing initiatives and relaunching of the complete mattress range helped boost volume growth. Manufacture was well planned and streamlined resulting in increased productivity, while keeping a tight control over inventory levels. The introduction of innovative processes and continued focus on all stages of production further strengthened the quality of products. The manufacture of PVC pipes and fittings, which was closed down in the second quarter, recommenced substantially in response to the improved economy. However, the performance was poor recording a loss, and the operation is being closely monitored. The Rubber Sector experienced a year of contrasting fortunes. The first half of the year witnessed a downturn in volumes with the worldwide recession. However

Sectorwise Turnover Growth
Rs. mn 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

Plantation Sector

Retail Sector

Plastic Sector

2007/08 Net Turnover 2008/09 Net Turnover 2009/10 Net Turnover

Rubber Sector

Tyre Sector

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Richard Pieris and Company PLC Annual Report 2009/2010

Chairman’s Review contd.
the lower raw material prices especially that of rubber, helped reduce costs and improve profitability. The second half of the year witnessed the gradual increase in export volumes. However, profitability was affected by the steep escalation of rubber prices. Sector turnover reduced by 12% to Rs. 1,768 mn while profit from operations recorded a satisfactory growth to Rs. 65 mn compared to a profit of Rs. 26 mn last year. Arpitalian Compact Soles was severely affected by the decrease in demand in European markets. The decreased sales and low margins lead to continued losses. Overall sales of rings, mats and foam rubber were satisfactory with the recovery of North American and European markets from the recession and the aggressive marketing strategies adopted particularly in the new markets in Europe and Asia. The operations and business processes were streamlined with the aim of improving yields, reducing costs and enhancing quality. This should enable the companies in this Sector to become stronger and more competitive in the near future. Maskeliya Tea Gardens markets internationally high quality pure Ceylon tea under the brand name ‘St. Clair’s’ which is renowned, both locally and globally, for its freshness, taste and aroma. The brand successfully overcame challenges posed by depressed global markets and recorded an impressive growth in sales during the period under review. It reported a profit for the first time this year in its brief four year history. February 2010 was yet another landmark in the brand’s history when it was conferred the Grand Prix Award at the Prodexpo trade exhibition in Moscow. The prize was given to the best overall product, taking quality and packaging into consideration. Timberline, the hardwood furniture manufacturing joint venture and the Construction company continued to incur losses. Steps have been taken to reduce exposure and exit from such loss making businesses.

The Outlook for next year
The Group will continue to focus on its core businesses consolidating and strengthening its operations with selective expansion whilst closely evaluating opportunities that arise from the peace in the Country and the recovery of global currencies. The Plantation Sector will continue to invest in replanting and upgrading the manufacturing processes, particularly on dual manufacture that enables production to adapt to market conditions. It will focus on responsible, sustainable and eco-friendly agricultural and manufacturing processes. Plans have been formulated for the extensive replanting of Oil palm and Rubber, which the Company views as remunerative crops in the future.

Richard Pieris and Company PLC Annual Report 2009/2010

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The Retail Sector is considered the main engine of growth. The Company is very positive and will more aggressively follow its expansion plan of developing the retail chain capitalizing on market opportunities that arise with the end of the civil war. Its focus will continue to be on providing more value to customers and enhancing shopper convenience. The Plastic Sector is expected to show steady growth and improved performance in the coming year. The improved economy and increased demand from the North and East of this Country will provide opportunities for this sector. The recovering of the construction industry should also lead to an increase in demand for its products. The Tyre Sector will further strengthen its capacities and operations in the regions and leveraging on its established network of dealers This Sector is expected to grow both in terms of turnover and profitability. The profitability of the export oriented Rubber Sector is expected to improve with the recovery of global markets from recession. The focus on international marketing and improving production process efficiencies augur well for the long term growth of the export sector. The Group’s borrowing position has improved considerably with a reduction of debt by Rs. 1.6 bn during the year under review and options to further reduce gearing are being looked at. With stronger internal cash generation and a healthy balance sheet, the Group is well positioned to take advantage of the post-war emerging market opportunities and aggressively expand and grow its operations and profitability.

Total Debt vs Finance Cost
Rs. mn 9,000 7,500 6,000 4,500 3,000 1,500 0

05/06

06/07

07/08

08/09

Total Debt Finance Cost

Dividend
Directors recommend a first and final dividend of Rs. 1/- per share.

Conclusion
I take this opportunity to welcome Mr Viville Perera to the Board. I thank all our stakeholders including the management team and employees, our suppliers, our customers, our business partners and my co- directors of Richard Pieris and Company PLC for their support and guidance given in this challenging year. I also thank all the shareholders for the confidence placed in the Company, and ask for their continued understanding and support.

Dr. Sena Yaddehige Chairman/CEO/MD 24th May 2010

09/10

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Richard Pieris and Company PLC Annual Report 2009/2010

The Board of Directors

Dr. Sena Yaddehige Dr. Sena Yaddehige is a scientist/ engineer and a Swiss-based entrepreneur. He developed the largest automotive sensor business in the UK, based on technology developed by himself with a large number of worldwide patents, with manufacturing units in China and Brazil. He is also a high energy radiation specialist with various patents on radiation processing. He is Founder, Chairman and Director of numerous companies; his current positions in Sri Lanka include Chairman of Richard Pieris Exports PLC, Maskeliya Plantations PLC, Kegalle Plantations PLC, Namunukula Plantations PLC and Director of National Development Bank PLC. Dr. Yaddehige is the Chairman, Managing Director and Chief Executive Officer of the Company.

Mr. P. D. Samarasinghe Mr. Pravir Samarasinghe is a Fellow of the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants in UK and holds an MBA. He joined the Board of Richard Pieris & Company PLC in 2000 and is the Chief Operating Officer of the Group. He is a Director of several quoted and unquoted companies. Past President of the Chartered Institute of Management Accountants (Sri Lanka) and former Council Member CIMA UK. He is the Vice Chairman of the Industrial Association of Sri Lanka, and Committee Member of The Sri Lanka Institute of Directors, The Ceylon Chamber of Commerce, The Employers’ Federation of Ceylon and the National Labour Advisory Council.

Mr. J. H. P. Ratnayeke Mr. Paul Ratnayeke is a Senior Corporate Lawyer who is also the precedent partner of Paul Ratnayeke Associates, a leading law firm in Sri Lanka which he founded in 1987 handling all areas of law and international legal consultancy work. Mr. Ratnayeke is a Solicitor of England and Wales and an Attorney - at - Law of the Supreme Court of Sri Lanka. He has been awarded a Masters Degree in Law by the University of London. Currently Mr. Ratnayeke holds directorships in several companies of which 8 are public quoted companies. He has also been elected/appointed as Chairman/ Deputy Chairman to several of these companies. At Paul Ratnayeke Associates, he specializes in corporate and commercial areas of law including mergers and acquisitions, aviation, insurance and maritime law.

Prof. Lakshman R. Watawala Prof. Lakshman R. Watawala is a Fellow of the Institute of Chartered Accountants of Sri Lanka, Fellow of the Institute of Certified Management Accountants of Sri Lanka and Fellow of the Chartered Institute of Management Accountants in UK. He is the Former Chairman and Director General of the Board of Investment of Sri Lanka, former Chairman of People’s Bank, People’s Merchant Bank, State Mining and Mineral Development Corporation and the Ceylon Leather Products Corporation and a Committee Member of the Ceylon Chamber of Commerce. He is also President of the Institute of Certified Management Accountants-Sri Lanka. Past President of the Institute of Chartered Accountants of Sri Lanka and South Asian Federation of Accountants, Founder President AAT Sri Lanka and Past President- Organisation of Professional Associations of Sri Lanka. He also serves on the Board of Directors of several public listed companies.

Richard Pieris and Company PLC Annual Report 2009/2010

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Prof. Susantha Pathirana Prof. Susantha Pathirana is a graduate in Production Engineering from the University of Peradeniya with a MSc in Automatic Control and a PhD in Mechanical Engineering. He is a Member of the Institute of Engineering & Technology - U.K, Fellow of the Institution of Engineers - Sri Lanka and a Member of the Institution of Electrical & Electronic Engineers – U.S.A. He is the former Head of the Department of Production Engineering and former Dean of the Faculty of Engineering at the University of Peradeniya, Sri Lanka. He is currently a Professor in the Department of Production Engineering at the University of Peradeniya, Sri Lanka.

Mr. M. M. Udeshi Mr. Morarji Udeshi Joined C V Bhatt Group of Companies in 1947. He was appointed Chairman and Managing Director of the C V Bhatt Group in 1991, Asha Phillip Securities Ltd, and C T Land Development Ltd.

W. J. Viville P. Perera Mr. Viville Perera is a Science graduate from Kelaniya University with Second Class Honours and a Fellow Member of the Chartered Institute of Management Accountants and Associate Member of the Chartered Institute of Marketing in United Kingdom. Mr. Perera has over 30 years experience in senior managerial capacity in leading business organisations such as Associated Newspapers of Ceylon Limited, Middeleway Ltd (Ceylinco Group) and Amico Group of Companies. He has served as a Treasurer and Vice President of Sri Lanka Institute of Packaging and a member of the lecture panel for SLIM and ABE Sri Lanka Branch for examinations leading to CIM and ABE (UK). He is a Director of Richard Pieris Exports PLC.

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Retail

Retail
Retail Sector Performances
Rs. mn 10,000 9,000
NTO & Interest bearing borrowings

Rs. mn 600 500 400 300 200 100 0

During the past few years this sector has been one of the most growth oriented arms of the Group.
The Product Portfolio: Fast Moving Consumer Goods, Food, General Merchandise, Apparel, Furniture & Electronics
Operational Profits

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000

05/06

06/07

07/08

08/09

09/10

0

Net Turnover Interest Bearing Borrowings Operating Profit

The Retail Sector operates the Arpico Supercentres and Stores and a network of showrooms and also provides interior decorating solutions for institutions. During the past few years this sector has been one of the most growth oriented arms of the Group, and even during a depressed year turnover increased

from Rs. 8,681 mn to Rs. 9,043 mn and profitability increased by 9% compared to the previous year. This demonstrates the potential of the retail industry, in Sri Lanka, for future growth. The Sector is represented by Richard Pieris Distributors Limited, Arpimalls Development Company (Pvt.) Limited,

Richard Pieris and Company PLC Annual Report 2009/2010

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RPC Retail Development (Pvt.) Limited, RPC Real Estate Development (Pvt.) Limited and Arpico Interiors (Pvt.) Limited. The slow recovery from the global financial crisis resulted in poor consumer confidence in the Country. The year under review was therefore a challenging one. Despite the impact of the recession there was an improvement in performance during the latter part of the financial year, especially in the seasonal month of December 2009 and the fourth quarter of the year. This is evidence of a positive trend in market sentiment in post-war Sri Lanka.

demonstrating signs of increased consumer confidence. The initiative taken last year to upgrade the company’s showroom concept by re-launching the showrooms in Kurunegala and Wattala has paid rich dividends in the year under review. The expansion project at the Battaramulla Supercentre was completed increasing retail space and parking. This has enhanced shopper convenience by enabling the shoppers to shop in a unique and comfortable environment. Carefully targeted marketing and sales strategies over the years has lead to better awareness of the Arpico Brand. The company continued to provide value added products and services leading to the retention of existing and attraction of new customers. The Arpico Privilege Card customer base continued to grow with its membership increasing to over 140,000 from 100,000 in the previous year. Tempting rewards to members contributed to the increasing popularity of the Privilege Card. Sri Lanka’s first ever loyalty points redemption drive to gain eligibility to a grand draw with a substantial cash reward was also successful. Customer convenience has enabled the Arpico Supercentres and stores to gain a competitive edge over its rivals. All super centres and stores have ample parking space, wide aisle space for easy shopping and state-of-the-art cool rooms to provide fresh products. We continue to focus on improving levels of convenience and service.

Special events were organised throughout the year, including activities for children in order to create an added level of excitement and provide customers with a comfortable environment to shop in. The Company’s Super Saver concept continued to be well received. The Arpico Family range of branded products was expanded and new products adapted to suit today’s market. The careful implementation of cost reduction programmes and focus on inventory control has enabled the retail operation to run efficiently keeping expenses well within budgeted and acceptable proportions while continuing to improve the quality of its products and services. The supply chain operation was constantly monitored and evaluated and this enhanced the capability of selling a wide range of high quality products at competitive prices. The Company believes in the continuous training and development for its employees. The training academy at Nawinna which was opened last year continued to provide training to all employees. The results are visible in improved efficiency and better customer service. The selective expansion of its chain of Supercentres/stores in targeted areas of the country will continue, capitalising on the post war economic boom that is expected in the ensuing years. Opportunities in the country’s North and East will be closely monitored.

Richard Pieris Distributors Ltd.
Richard Pieris Distributors operates the well-known Arpico chain of Supercentres, Super Stores and Showrooms island-wide. The network retails a wide array of fast moving consumer goods (FMCG), household goods, including furniture & electronics, and offers a host of value added services through its ten super centres/ stores and twenty five showrooms. While increase in turnover was marginal, compared to the previous year, continued emphasis on the management of working capital, stock in particular, and overheads resulted in improved profitability. While FMCG sales recorded a growth compared to the previous year, other categories, such as household goods, including furniture, saw a decline. However, positive trends in these categories have been seen since last December

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Retail contd.
Arpimalls Development Company (Pvt.) Ltd.
Arpimalls Development Company owns the two large Arpico Supercentres in Battaramulla and Dehiwela operated by Richard Pieris Distributors Ltd. The company continued its profitable record during the year under review. are on display at the Interior Decor Showroom at Hyde Park Corner. The Company remained profitable despite the slow recovery from the economic slowdown which had a significant impact on the construction industry and the institutional sector in particular. The impact on profitability was further compounded by the increasing cost of imports due mainly to high import duties and taxes. Consequently, plans to introduce high end items to its product portfolio, were deferred until market conditions become more favourable. Arpico Interiors, while continuing to adopt a cautious approach during the coming year, is confident of improving its profitability, with the recovery of economic activities. The company has drawn up plans to meet the opportunities of the coming year with increased offerings.

RPC Retail Development (Pvt.) Ltd.
RPC Retail Development owns the 45,000 square foot Arpico Supercentre in Negombo which is now in its third year of operation and has recorded profitable results in the year under review.

RPC Real Estate Development (Pvt.) Ltd.
RPC Real Estate Development owns the Arpico Supercentre in Kandy. The Company continued its profit making record in the year under review.

Arpico Interiors (Pvt.) Ltd.
Arpico Interiors provides institutional and corporate customers in both the public and private sectors with comprehensive services in interior decorating and solutions including the provision of furniture. Over the years, it has built a strong reputation as a provider of turnkey solutions and supplier of furniture. It focuses on projects for hotels, apartments, hospitals, factories and offices from concept planning to complete turnkey solutions. The products are of high quality sourced from reputed local manufacturers as well as those of personally handpicked suppliers, from the U.S.A., Europe, Dubai, China and Malaysia. Its wide range of products,

Richard Pieris and Company PLC Annual Report 2009/2010

17

Sector Review - Plantations

Plantations
Plantation Sector Performances
Rs. mn 7,000 6,000
NTO & Interest bearing borrowings

Rs. mn 1,400 1200 1,000 800 600 400 200 0
Operational Profits

It has a diversified range of crops, which have contributed to its continued robust performance.
The Product Portfolio: Leasehold Ownership & Management of Tea, Rubber, Oil Palm & Coconut Plantations

5,000 4,000 3,000 2,000 1,000 0

Net Turnover Interest Bearing Borrowings Operating Profit

The Plantation Sector consists of three plantation companies namely Kegalle Plantations PLC, Maskeliya Plantations PLC and Namunukula Plantations PLC and their respective management companies. It has a diversified range of crops, which have contributed to its continued robust performance. Tea, Rubber and Oil palm contribute 68%

26% and 5 % respectively to turnover. Coconut and other subsidiary crops, which include Cinnamon, Cardamom and Rambuttan, make up the balance. In addition there are 2,167 hectares in mature and immature timber reserves. Profits recorded during the period were commendable considering the steep wage increase granted in September

05/06

06/07

07/08

08/09

09/10

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Plantation contd.
with retrospective effect from April 2009, which represented an increase of 42%. A Rs. 497 mn provision was made for gratuity on account of the wage hike. The crop mix and continued emphasis on quality helped maintain prices which contributed to satisfactory performance. Commodity prices continued to escalate during the year due to global shortfalls in production by most producer countries. This shortfall in production was attributed mainly to adverse weather conditions. Additionally, Tea prices were buoyant throughout the year due to improved purchasing power of our major markets, the Middle East and the Russian Federation, on account of escalating petroleum prices. This also had a direct impact on Rubber prices due to the high cost of synthetic Rubber which is a by-product of petroleum. Rubber prices increased further as a result of the recovery of China and India from the global recession. With increasing petroleum prices it is expected that both Tea and Rubber prices will continue to be high. This sector has substantial investments in Oil palm and is rapidly expanding the area under cultivation. It is expected that this will result in doubling the extent now under cultivation in the next four years. Palm oil, which has the highest yield and lowest cost of production of all edible oils, has very good demand both locally and overseas. Should petroleum prices continue to increase, its marketability as a bio - fuel will further enhance its value in the global market. The sector continues to invest in replanting and upgrading its manufacturing facilities, whilst developing sustainable agricultural practices, in order to meet the anticipated demands of local and international markets. The emphasis continues to be on responsible, sustainable and environmental friendly agricultural and manufacturing practices and processes. latex whilst sole crepe is also produced for direct export. In keeping with its planned replanting programme over 120 hectares were re-planted during the financial year. This accelerated programme will pay dividends in the coming years as prices increase. Kegalle Plantations continues to maintain its ISO 9001-2000 standards in all its Rubber manufacturing facilities. Effluent treatment facilities, that meet the Environmental Authority standards, have been installed. The company continues to possess the Forestry Stewardship Certification for timber processed from its Rubber plantations. Tea amounting to 3 mn kg is cultivated in six estates located in three different agro-climatic areas namely upcountry in Udapussellawa, mid-country in Dolosbage and low country in Kegalle. Tea prices have increased significantly when compared to the previous season. In many instances Kegalle marks obtained top prices at the Auctions. Rotovane and leafy tea manufacturing facilities, available in the Udapussellawa Region, has enabled the company to produce teas to match market demands. Tea production of the company dropped slightly 15 % to 2.5 mn kg compared to the previous year. The drop is due mainly to adverse weather conditions. The decrease in the Udapussellawa and Uva region was significant.

KEGALLE PLANTATIONS PLC
Kegalle Plantations is the largest producer of natural Rubber in the country, contributing to almost 5 % of the national production. 59% of the company’s revenue is attributable to Rubber, 40% to Tea and 1% to Coconut. It also has small extents of Cardamoms and Pineapple. There was a considerable increase in the price of natural Rubber especially during the second half of the year. Overall the company’s Rubber prices have increased by 18% compared to the previous season and on many occasions factories have achieved top prices for individual grades at the Colombo Rubber Auction. The wage hike had a significant negative impact on cost of production, which was mitigated by the increase in Rubber prices, enabling the company to record healthy profitability. The company’s Rubber production was 4.6 mn kg, a decrease of 10% compared to last year. The decrease in production was due mainly to adverse weather conditions. Over 57% of the Rubber is produced as centrifuged

Richard Pieris and Company PLC Annual Report 2009/2010

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The company continues to replant 2 % of the area under cultivation. Human Resources Development programmes continued with the training of tappers, pluckers and factory workers in particular in order to improve awareness of both quality and productivity. Training is also being given on information technology. Health Camps have been conducted in most of the estates along with estate village integration programmes. The company continues to provide scholarships for University education for the children of employees. With the policy of replanting and the improvement in processing facilities, an increase in production and prices are expected for both Tea and Rubber. The buoyant trend in prices are expected to increase the profitability in the ensuing years. The Company also has a strong balance sheet with a net surplus of funds amounting to Rs. 741 mn at the end of the year.

available. Maskeliya plans to have dual manufacturing in all estates except for those located in the Maskeliya Upcot region. This will enable production to adjust to changes in market preference. Four estates already have dual manufacturing capability and it is planned to increase this further. The company’s production was 8.35 mn kgs of made tea at estate level compared to 8.6 mn kgs in 2008/2009. The crop is expected to increase further as a result of re plantation and improved weather. The re plantation programme continues and 121 hectares were replanted during the year. The wage increase effected in September 2009 with effect from April had a severe impact on the wage cost including a Rs. 217 mn provision for the increase in Gratuity liabilities. The company focused on improving productivity and the effective management of costs. It continued its programme of increasing the application of organic fertilizer, which helps to increase the effectiveness of inorganic fertilizer and consequently reduces costs. Energy costs have also shown a significant reduction as all factories have now converted to solid fuel. The Forestry Management Programme which was initiated in 2008 continued throughout this year. The harvesting of trees was less than envisaged in the plan due to delays in obtaining approval from Government Institutions. However, it is planned to make up for this in the coming year.

In keeping with global trends and the company’s focus on quality, twelve of the fourteen factories have obtained ISO 22000:2005 certification. Five factories have obtained Fairtrade Labeling Organization (FLO) certification. This is becoming a requirement in many countries and by leading retailers in the UK and Europe. Nine Factories are certified with Ethical Tea Partnership UK whose members are several leading UK buyers. The company continued to pursue its social responsibility goals. Several projects were undertaken during the year in order to foster goodwill and harmony within the plantation community, which consists of almost 15,000 workers and their dependents, as well as improve integration with the surrounding villages. Assistance was also obtained from the Ministry of Estate Infrastructure, Plantation Human Development Trust and PMMD to finance social welfare activities during the year. The company continued the financial assistance programme to the children of workers and staff to pursue higher studies in the National universities. Plantations were encouraged to continue to develop the cooperative movement which give the workers an opportunity to commence their own fund raising projects. Some of the estate cooperatives have received commendations from the Sri Lanka National Cooperative Society. Many sites where hydro and dendro power projects could be developed have been identified and feasibility studies are now being carried out by independent persons. Locations which

MASKELIYA PLANTATIONS PLC
The year witnessed an increase in demand for Maskeliya teas which saw steeply increasing prices along with global tea prices. Eleven of its estates achieved top prices in the Western high grown category. In 2009/10 nine estates achieved prices above the elevational average. Laxapana Estate won the Ralston Tissera Memorial Trophy for the Year 2008, awarded for Best Net Sales Average in the High Grown Category. Prices should improve further with more dual manufacturing facilities being

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Plantation contd.

could be developed into attractive sites for local and foreign tourists have also been identified. The Plantations in the Upcot Maskeliya District include the water shed region of the main rivers and we are now working towards Rainforest Alliance Certification.

Cinnamon crops. During the last 5 years the contribution of Oil palm increased by 17%, from Rs. 38 mn to Rs. 301 mn. The entire production of Tea falls into the low grown category. Low grown Tea prices, which dropped sharply in 2008, saw a dramatic increase in the current year, resulting in increased profitability despite lower crops and the impact of the wage hike. The company focused on improving the quality of its Tea and this has resulted in an improvement in sale prices when compared to national prices. Over 75% of green leaf is purchased from small holders. The company’s

NAMUNUKULA PLANTATIONS PLC
Namunukula Plantations PLC is a highly diversified plantation company. Approximately 47 % of its turnover is attributable to Tea. Rubber contributes 32% and Oil palm 20% with a small contribution from Coconut and

production for the current year was 1.805 mn kg of made Tea compared to 2.064 mn kg last year. The company curtailed purchases in the third quarter of last year due to the fall in Tea prices. Collections remained low during the first six months of the year, but almost doubled during the second half of the year as the company increased purchases in response to price increases. This was possible due to the attractive sales average that was maintained throughout the season, coupled with aggressive canvassing for small - holder leaf. The Baddegama Factory has received ISO 22000 certification. The Pellawatte

Richard Pieris and Company PLC Annual Report 2009/2010

21

Tea Factory is in the process of obtaining HACCP certification. The company intends to obtain certification for other factories as well, in the coming season. The Company continued to manage the six estates in the Uva range that the Company had subleased in 2006, consequent on the sublessee having abandoned the properties and being in liquidation. These estates incurred losses. The Company’s Rubber production for the year was 1.8 mn kg, which is slightly below that of the previous year. The decrease in production was due mainly to unfavorable weather conditions that affected crops across the country. Although the wages were revised upwards by almost 42% with effect from April 2009, the cost of production saw only a marginal increase due to improved productivity. The increase in Rubber prices, during the year, enabled the company to maintain reasonable margins. The sales average of Crepe and Smoke Sheet continue to remain attractive at Rs. 335/- and Rs. 342/per Kg respectively, as against the National average of Rs. 323/- and Rs. 338/-. The Company continued its policy of replanting 3% of its rubber extent, with over 65 hectares being replanted during the year. Oil Palm continued to be the largest contributor to profits. The crop is processed at the AEN Processing Plant, which is a joint venture between, the Agalawatte, Elpitiya and

Namunukula Plantations. Oil Palm prices fell in the previous year with the fall in general commodity prices, but recovered by the end of 2009. The current purchase price offered by the factory is very attractive. There are 1200 Hectares under cultivation, of which 100 hectares were planted in the year under review. The company is of the view that oil palm will continue to be a rewarding crop in the future and plans to escalate planting over the next four years. The coconut crop saw a marginal decline over the last year with the handing over of 20 hectares of mature land to Government for the establishment of an industrial estate. Sale prices too saw a decline during the year. The cinnamon crop increased by over 50% during the year as a result of improved branching and the improved agricultural practices. The Management continues to be exposed to ongoing improvement programes offered by both the Tea Research Institute and the Rubber Research Institute. The company continued its programme of improving the housing of workers with the the assistance of the Plantation Human Development Trust. In addition, improvements to the internal road networks and other infrastructure facilities were also continued.

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Tyre

Tyre
Tyre Sector Performances
Rs. mn. 3,500 3,000
NTO & Interest bearing borrowings

Rs. mn 350 300 250 200 150
Operational Profits

The year has been a successful one with significant growth in both profitability and turnover and increase of market share.
The Product Portfolio: Re-Treaded Tyres for Light and Heavy Commercial Vehicles, Re-Manufactured Radial Tyres, Tubes and Flaps, trading in tubes, flaps and new tyres

2,500 2,000 1500

100 1000 500 0 0 (50) (100)

Net Turnover Interest Bearing Borrowings Operating Profit

The Richard Pieris Tyre Sector is the pioneer and market leader of tyre retreading in Sri Lanka. It is equipped with all the facilities needed for the tyre retreading value chain. The recycling of tyres not only contribute to the country’s economy by reducing transport costs and decreasing the outflow of foreign exchange on

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imported tyres but also reduces the damage done to the environment. The tyre sector comprises three companies, Richard Pieris Tyre Company Ltd, Arpidag International (Pvt) Ltd and Richard Peiris Rubber Compounds Ltd. Richard Pieris Tyre Company is the established market leader and has the

Richard Pieris and Company PLC Annual Report 2009/2010

23

largest tyre distribution network in the country. Arpidag International (Pvt.) Ltd and Richard Pieris Rubber Compounds Ltd are the supportive companies which supply pre-cured tread, bonding cushion gum, cement other related materials and customized mixing facilities to the Tyre Company. Arpidag International has extended its services by supplying treads and consumables to mini plants in the industry. The year has been a successful one, with significant growth in both profitability and turnover and increase in market share. Low commodity prices that prevailed during the first half of the year resulted in healthy profit margins. These benefits were transferred to the market by reduction in tyre prices. This was done as a strategic move to increase market share. The second half of the year saw a significant increase in raw material prices and consequently a reduction in profit margins. Pricing levels and profitability were maintained by increasing productivity and energy efficiency, minimizing overhead costs and eliminating unproductive practices The Sector expects further growth in volumes and profitability with improved economic conditions and plans to increase market share further. With the return of peace, the distribution and dealer network will be strengthened by the appointment of new dealers in the East and possible expansion in the North.

which it distributes through its network of 1,300 dealers. Its operations entail the retreading of tyres, in which it holds a 60% share of the local market, and trading, a business it entered into a few years ago. Retreading still forms over 70% of the company’s turnover. During the year under review it increased its manufacturing capacity and enhanced its product range, both in the retreading and trading products, in order to meet increased customer demand. The company’s retreading turnover increased by 2% and trading turnover increased by 7%, increasing its share of the market. The expansion of the regional factories to meet the increased demand of the post- war market and restructuring of the manufacturing facilities, to increase capacity and improve energy efficiency has strengthened its position further. The conventional line in Nawinna factory was relocated in order to have a dedicated conventional facility. The Weligama factory was also restructured to increase capacity in order to accommodate the increasing demand for tyres as a result of development in the south of the country. The restructuring of the Kandy and Kurunagela factories is planned and will be completed in the coming year. This will increase the production capacity and enable the company to meet increased demand. The conventional (Hot-cure) tyre rebuilding facilities will be expanded next year, with the introduction of new machinery and moulds to facilitate the enhancement of the range.

The sales of “Arpiradial”, which was introduced last year, has shown a significant increase. The process facilitates the retreading of radial tyre carcasses, giving strength and retreadability to the carcass and uses specially designed radial tread designs. It is the first time this process has been carried out in Sri lanka. The use of the radial tyres has been increasing in the local market and the “Arpiradial” will bring the first mover advantages to the company in the coming years. The company has consolidated its position in the trading business and has successfully completed the year under review with the turnover growth. At present the company has the sole agency for Birla tyres India, manufacturers of truck, light truck and agricultural vehicles and represents Corsa tyres, Indonesia, supplying tyres for passenger cars and vans. The agency for Casumina was obtained during the year. These tyre imports from Vietnam are for the truck and light truck category and filled a vacuum in the product portfolio of the company. Sales of tubes, flaps and three-wheeler tyres have also increased. The wide dealer network has proved to be a significant competitive advantage and has enabled the company to deliver the imported tyres to customers across the country within two days, with increased efficiency. The right product portfolio and dynamic service levels have been the key to the sector’s success. The location of plants and island wide distribution network enables quick delivery. A “One day service” was

Richard Pieris Tyre Company
Richard Peiris Tyre Company, the largest tyre retreader in Asia, rebuilds more than 600,000 tyres per annum

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Tyre contd.
introduced in designated areas with tyres in these areas being delivered within a day enabling dealers to control their working capital requirements. The sharp increase in prices of the raw materials proved to be a considerable challenge during the second half of the year under review. Rubber prices have doubled during the last twelve months and there is no indication that these prices will come down in the near future. Steps have been taken to eliminate waste and maintain production at the optimum level for each plant. The company continuously invests in the work force and believes that efficient human resources are vital to its growth. Arpidag International entered the international market by exporting tread in small quantities to Europe and also plans to further increase exports in the coming year.

Richard Pieris Rubber Compounds Ltd.
Richard Pieris Rubber Compounds provides mixing services to Richard Pieris Tyre Company, several other companies in the Group, and various external customers. The company has state-of-the-art machinery in its factory which provides a high level of quality. The company now also sells chemicals to local manufacturers. The Company is continuing its efforts to find potential customers for milling services and help the other two companies in the sector to achieve a higher market share by providing an excellent mixing service.

Arpidag International (Pvt.) Ltd.
Arpidag International is a pioneer in supplying the pre-cured treads to the tyre industry. It supplies pre-cured tread mainly to the Richard Pieris Tyre Company. A portion of its volume is supplied to external customers through the ATM brand. The Company has been awarded with the process quality certification of “ISO : 9001”. The Company’s profitability was affected by the high price of raw material during the latter part of the year. Strict management of costs however enabled the company to maintain profitability. Arpidag, which currently utilizes 95% of its capacity, is evaluating the possibility of increasing its capacity next year to meet the increased demand of both Group needs and external customers.

Richard Pieris and Company PLC Annual Report 2009/2010

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Sector Review - Plastics

Plastics
Plastic Sector Performances
Rs. mn 4,000 Rs. mn 350 300 3,000
Operational Profits

The demand for all categories of products improved, with an exceptional increase in profitability.
The Product Portfolio: Water Tanks, Polyurethene Foam Mattresses, Water Pumps, CFL Bulbs, Moulded Plastic & Expandable Rigid Polystyrene Products

NTO & Interest bearing borrowings

250 2,000 200 150 1,000 100 0

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09/10

0

The Plastics Sector manufactures and markets a wide range of products made of polyurethane foam, rotational moulded plastics, expanded rigid polystyrene, PVC rubber, and other newer categories such as water pumps and CFL bulbs. It also distributes furniture and plastic chairs.

The year under review was both challenging and rewarding. Performance improved with the recovery of the economy. The demand for most of the categories of products improved, with an exceptional increase in profitability.

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Plastics contd.
Sales revenue was maintained with an increase in volumes. Volumes in the Polyurethane, Rigifoam and water pump divisions grew while sales of the water tanks remained stagnant because of the slow recovery of the construction industry. Focused marketing initiatives and relaunching of the complete mattress range helped boost volume growth. Manufacturing was well planned resulting in increased productivity, and catered to market demand in terms of both quantity and quality, while keeping in view the need for effective controls on inventory levels. Continued focus on quality control at all stages of the production process and the introduction of innovative processes further strengthened the quality of products. The company ventured into a new sales arena by exporting packaging material overseas. Nearly two thirds of the Sri Lankan coastal line is in the Northern and Eastern Provinces. With the return of peace, the Rigifoam operation has great potential for supplying products to the fishing industry in these areas.

Rotational Mouldings
“Arpico Plastishell Water Tanks”, the pioneers in the local moulded water tanks business have been the undisputed market leader since the introduction of the product 18 years ago and retains a market share of over 45%. Products are manufactured at the factories in Horana, Pallakalle, Koggala and Dambulla. The location of these factories enables easy island wide distribution. The wide range of products include water tanks of different capacities sumps, septic tanks and utility products including garbage bins, compost bins and traffic control cones. Performance was satisfactory given the slow recovery of the construction industry. These auger well for the future. The increased demand in the Northern and Eastern Provinces was aggressively pursued and significant increase in sales of water tanks to the large civilian population under the care of the Government was recorded. The factory in Dambulla is fully geared to cater to these markets. The company plans to further enhance its dominance in the market. Value addition to the existing range will be increased and research will be carried out in order to develop new products.

The Polyurethane Operation
The Polyurethane operation manufactures a range of products which include mattresses, cushions, sheets and other specialized products. The mattresses range was re launched in June 2009. This proved to be a milestone in the achievement of the company’s objectives. Sales volumes grew by over 20% with the introduction of the new range. Market share was improved despite intense competition. Value addition to mattresses continued in response to identified customer demand including a new range targeted at the higher income market. Targeted advertising and promotions that were carried out are now paying dividends. Inventory was carefully monitored and overhead costs were managed effectively, contributing to increased profitability. Arpico Flexifoam - which is an ISO 9001:2000 standard company, also possesses the SLS 893 standard.

Expanded rigid Polystyrene
Polymers manufactures expanded rigid polystyrene products, commonly known as “Rigifoam”. The products include containers, sheets and other products primarily for the fishing industry. The company maintains its position as the market leader with a market share of more than 50%. Technology was improved and product innovations were introduced to meet the needs of customers. The factory was relocated last year to a new complex in Horana and new state- of- the- art machinery installed. This not only resulted in an increase in capacity but also enhanced the company’s capability to extend its range of products.

PVC Operation
Arpitech (Pvt) Ltd manufactures a range of pipes and fittings under the

Richard Pieris and Company PLC Annual Report 2009/2010

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brand name “Arpico PVC”, and has received the Sri Lanka Standards (SLS) certification for its range of pipes. 2009/2010 was a challenging year for the PVC operation. This operation was curtailed last year and was re-started with the improvements in the economy. The company made an operational loss during the year. The operations are being monitored closely.

With the popularity and growth of the brand, “Arpitec” will meet the diverse requirements of consumers for water transport, with over thirty models of water pumps at a reasonable price and break- through technology. Sales of the “Arpilight” CFL bulb, made steady progress during the year and it is expected that the product will soon become a household name. The Company possesses the star rating certificate with the highest star rating mark, and plans to obtain SLS certification. This and the introduction of new product lines should lead to significant growth in the business.

Re-Distribution Division
The Re-Distribution Division distributes products island-wide through a network of distributors and dealers. The group is proud of this distribution channel, which one of the largest in the country, catering to over five thousand Hardware & Furniture outlets islandwide. The year under review was a challenging one for the re-distribution sector. The company was successful in making its presence in the North and East of the country; and has appointed distributors in Jaffna and Killinochchi to cater to the demand in these areas. Performance during the year was commendable. Turnover in most categories of products grew and operational profit increased by over 50%, a noteworthy achievement. The company was able to successfully capture a large share of the domestic water pump market, going up to 40% within a short period of four years. The distribution of Agricultural water pumps commenced during the year and it is planned to capture a considerable market share in this category as well.

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Rubber

Rubber
Rubber Sector Performance
Rs. mn 2,500 2,250
NTO & Interest bearing borrowings

Rs. mn 100

Product quality has improved and yields increased, enhancing the companies’ competitive advantage.
The Product Portfolio: Natural Latex Foam Mattresses, Pillows, Rubber Mats for Industrial and Domestic Use, Jar Sealing Rings, Small Mould Products and other Specialised Industrial Rubber Products
Operational Profits

2,000 1,750 1,500 1,250 1,000 750 500 250

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(150)

The Sector comprises Richard Pieris Exports, Richard Pieris Natural Foams, Arpitalian Compact Soles, Micro Minerals and Richard Pieris Rubber Products. These companies produce a diverse range of value added rubber products for the local and export markets.

Sales were satisfactory, with the recovery of the USA and Europe from the economic recession and the aggressive marketing strategies adopted by the sector particularly, in the new markets in Europe and Asia. Product quality has improved and yields increased, enhancing the

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companies’ competitive advantage. The eco-friendly nature of the latex mattresses and pillows played a significant role in improving profitability in the current year and we believe this will continue in the future. The price of natural rubber which remained low in the first six months increased steeply during the last quarter as a result of global shortages, due to adverse weather conditions, and heavy demand from China. However, the adverse impact on the cost of production was mitigated to some extent by the increase in production yields and improved productivity. The operations and business processes were improved with the aim of achieving reductions in cost and enhancement in quality. This should enable the companies in this sector to become stronger and more competitive in the near future.

volumes in particular increased by 36% , contributing significantly to profitability. However, the increase of natural rubber prices and the seasonal fluctuations of sales volumes adversely affected profitability during the last quarter. With intense competition being experienced in the low- end product market, the Company is now focusing more on investing in the latest technology to improve its product quality and yield, in order to maintain its competitive advantage. Production operated smoothly during the year under review with increased labour productivity and improved product quality. A number of new products were introduced for the agricultural and industrial markets. The Company continues to explore possibilities of introducing new products. It is also concentrating on obtaining several international certifications in order to differentiate its products from those of its competitors.

A well-focused marketing campaign was carried out in key markets in Asia Pacific, European Regions and the U.S. The Company also participated in many mattress and bedding exhibitions. As a result, a share of the lost U.S market was recovered and sales volumes to the Asia -Pacific Region increased. The focus will continue to be on increasing sales volumes to the US market through various marketing strategies in the next financial year. The European market was particularly receptive to our products due to European customers’ preference for the eco-friendly nature and medicinal properties of 100% natural latex. Volumes were increased through sales, both to existing and new buyers, as a result of improved quality. This market is a lucrative one for eco- friendly and organic mattresses and pillows. The Company will capitalize on this in the next financial year in order to improve its sales volumes and profitability. Maximum advantage was taken of the company’s eligibility to sell 20% of its export sales volumes in the local market, under the BOI rules and regulations. Two high- end latex mattresses were launched in the local market through the Group’s retail chain in December 2009. Effective sales promotions and customer awareness campaigns, that emphasise the benefits of latex mattresses and pillows, will be carried out with a view to increasing local sales revenue. The high prices of latex adversely affected the margins and profitability during the last quarter of the year.

Richard Pieris Exports PLC
Richard Pieris Exports produces and exports rubber flooring and matting to the North American, European and Australian markets from its factory in Ekala. It also produces jar sealing rings and crutch tips for European markets. The range of mats include products for industrial and agricultural use, playground entrances, gymnasium and other specialty items such as fire retardant, electricity resistant and anti static mats. The gradual recovery from the global economic recession enabled the Company to increase its sales volumes to the US and Europe. Ring sales

Richard Pieris Natural Foams Ltd.
Richard Pieris Natural Foams produces natural latex foam cores, sheets and pillows for export markets, at its factory in Biyagama. The emphasis on research and development and effective work practices resulted in identifying and rectifying the causes of high production wastage, resulting in increased production yields. The results will be seen in the next financial year.

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Rubber contd.
Arpitalian Compact Soles (Pvt.) Ltd.
Arpitalian Compact Soles is a joint venture with Davos SPA, an Italian manufacturer of shoe soles. The Company produces resin rubber shoesoling sheets for many of the world’s best known brands of shoes. Its main markets are in Europe and the Asia- Pacific region. Arpitalian focused on enhancing the quality of its product range and eliminating production inefficiencies. Sales were severely affected by the decrease in demand in the European market and consequently volumes dropped by 30% compared to the last financial year. This led the company to increase its sales volumes of low end products to the Asian markets. Relationships were built with new clients in the Asian region which will result in higher volumes in future. The stiff competition in this region resulted in lower margins and poor results for the current financial year. The Company remains optimistic that the sales volumes to European markets will increase with the full recovery of European economies. A significant increase in sales volumes is expected from the neighboring Indian market as a result of well known branded shoe manufacturers setting up production plants in the region. With the focus on new product development, the company expects a marginal growth in the next financial year.

Micro Minerals (Pvt.) Ltd.
Micro Minerals is a small company that plays a supportive role to Arpitalian Compact Soles by manufacturing mineral products that are essential as fillers for rubber compounds. Its production plant is located in Bandaragama. The Company completed a profitable year with a marginal decrease in turnover.

Richard Pieris Rubber Products Ltd.
The main activity is the manufacture of rubber garden hoses, vehicle floor mats and specialized Industrial Products. Arpico Rubber ventured into the manufacture of re-rubberized rollers for the printing industry a few years ago and its high quality product is much valued by customers. Aggressive pricing strategies have been implemented to deal with competition. Competitive prices along with timely and appropriate promotions resulted in increased sales. Sales of the garden hose category, where the company has established itself as the market leader, contributed positively to the results together that of the Roller and industrial rubber products division.

Richard Pieris and Company PLC Annual Report 2009/2010

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Sector Reviews - Service and Other

Service and Other
Services Sector Performance
Rs. mn 3,500 3,000
NTO & Interest bearing borrowings

Rs. mn 350 300 250 200 150 100 50 0
Operational Profits

Maskeliya Tea Gardens successfully overcame the challenges posed by the global financial crisis recording an impressive growth in sales during the period under review.
The Product Portfolio: Branded tea, insurance, freight forwarding and furniture

2,500 2,000 1,500 1,000 500 0

Net Turnover Interest Bearing Borrowings Operating Profit

This sector includes the Group’s holding company, Richard Pieris and Company PLC, and subsidiary companies in various businesses outside of the Group’s main sectors of Plantations, Rubber, Tyre, Retailing and Plastics. It includes companies involved in Logistics, Insurance, Furniture manufacture and Branded Tea.

Richard Pieris and Company PLC
Richard Pieris and Company PLC is the holding company of the Group and is responsible for the overall corporate policy and direction of the Group. Richard Pieris and Company PLC generates a proportion of its income by way of dividends from its

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Richard Pieris and Company PLC Annual Report 2009/2010

Sector Review - Service and Other contd.
subsidiaries. It also owns and rents real estate, including the Hyde Park corner retailing complex and the Nawinna complex which houses the tyre factory, the head office and a supercentre. The company’s various divisions provide support services to all companies in the Group. This includes services relating to information technology, human resources and purchasing. The IT Division provides systems integration, managed services and “end-to-end” services and solutions. This has enabled the Group to generate more value through an innovative approach to business processes, wellintegrated supporting technologies and strategic investments. The technical staff have an in-depth understanding of company’s technological needs and businesses and a proven track record of delivering results in many industrial sectors. The division manages the data center, disaster recovery center and central PABX. During the year under review, systems integration was implemented in many sectors, getting the best out of legacy applications so as to prolong returns from investment. New solutions have been combined successfully with established ones and this has transformed the enterprise architecture into a seamless business system. The new ERP Solutions, Marksys has been developed and implemented by the Group. The change to open source applications has been another successful project completed during the year. The areas of preventive maintenance, hardware support and desktop support are also carried out the IT Division resulting in significant cost savings. The Group Human Resource Division is responsible for the overall HR policy of the Group. It deals with the administrative work relating to employees and coordinates training and staff development. More details on its activities are to be found in the report “Our People” on page 45. The Central Purchasing Division handles the procurement of raw material and consumables, both domestic and international. It has been successful in passing on the low costs to our SBUs by maintaining sound supplier relations and maximising economies of scale. During the year this division was restructured and realigned to meet the overall business objectives of the Group. The Group Treasury supports funding requirements of all the businesses and banking facilities and manages the Group’s foreign exchange exposure and interest rate risks. The Group Corporate Planning Unit coordinates the Group’s overall strategic planning process. It provides expertise to all SBUs to develop and monitor Key Performance Indicators. This unit also analyses all new business ventures, develops business plans and continuously monitors existing businesses in order to ensure optimal allocation of resources. The internal audit function which is centralized ensures that internal control systems are adequate; procedures are up- to- date and are adhered to by all group companies. Its activities are based on the risks faced by the group in the different industries.

R P C Logistics Ltd.
R P C Logistics is primarily engaged in international freight forwarding and customs brokering. At present, two thirds of the Company’s revenue is generated from its freight forwarding activities. The Company’s portfolio of services includes airfreight, sea freight, sea freight consolidation, customs brokerage and transshipment. The Company’s services include door-to-door services which were provided for cargo with the support of the Company’s overseas agents, and included export processing and handling at origin, sea freight from port of origin to Colombo port, import and customs clearance at the Colombo port and delivery to sites in various parts of Sri Lanka. The general economic slowdown in the country affected the Company’s operations and during the year the company downsized its operations and concentrated on serving companies within the Richard Pieris Group. It maintained profitability by the effective management of costs.

Asian Alliance Insurance PLC
Asian Alliance Insurance is a comprehensive insurer that is rapidly gaining a reputation for its superior products and excellent service. The Company offers both life and general insurance services to corporate clients as well as individuals. Its client portfolio includes many of the largest trade and

Richard Pieris and Company PLC Annual Report 2009/2010

33

industrial conglomerates in Sri Lanka. The Company completed yet another successful year with a growth in turnover of 19% over the previous year. Profitability was flat when compared with the previous year where the company recorded a Profit after tax of Rs. 145 mn for the year ended 31st December 2009 compared to Rs. 135 mn the previous year. Shareholder equity has increased by Rs. 113 mn from last year to Rs. 517 mn as at 31st December 2009.

The company successfully overcame the challenges posed by the global financial crisis recording an impressive growth in sales during the period under review. It reported profits for the first time this year in its brief four year history. Russia remains the major market with brand development initiatives now paying dividends. The company also exports to Australia and entered several new markets, including Nigeria and Chile during the year and has plans to enter the North American markets. February 2010 was yet another landmark in the company’s history when it was conferred the Grand Prix award at the Prodexpo trade exhibition in Moscow. The prize, given to the best overall product at the exposition, was awarded for product quality and packaging. The St. Clair’s Tea Centre in Talawakelle continued to be popular with both foreign and local tourists in the Nuwara Eliya region. It provides a superior service, an excellent product range, and has a reputation for its homely atmosphere. A promotion of a new tea centre for tourists in the Ella region, which is the gateway to the East and South- Eastern coast of Sri Lanka, is planned for next year. Maskeliya Tea Gardens is well on the way towards increasing its customer base and expects to double its turnover in the coming year.

RPC Timberline (Pvt.) Ltd.
Timberline, a Board of Investment approved company, manufactures a wide range of contemporary hardwood furniture, for both the local and international markets at its factory in Horana. The year under review was very challenging for the Company both in terms of marketing as well as product quality. The company continued to incur losses. Steps have been taken to reduce the Group’s exposure.

Maskeliya Tea Gardens Ceylon Ltd.
Maskeliya Tea Gardens markets high quality, pure Ceylon tea, both internationally and locally, under the brand name ‘St. Clair’s Tea’ which is renowned, both locally and globally, for its freshness, taste, and aroma The St. Clair’s range includes a high quality assortment of black teas, green teas, flavoured teas, and organic teas catering to the discriminating tea drinker, as well as a collection of unique gift items.

34

Richard Pieris and Company PLC Annual Report 2009/2010

Corporate Social Responsibility
Food safety is also a key requirement in the Plantation Sector. Several of our tea factories have obtained certification from Fair-trade Labeling Organization and the Ethical Tea Partnership, whose members are leading retailers in the U.K.

Fair and Competitive Trading Practices
Our policy is to be fair and honest, being accessible and straightforward in our dealings and to always deliver what we promise. The Richard Pieris Group actively engages in a number of economic, social and environmental support initiatives thus contributing towards its responsibilities to stakeholders. We aim to engage positively with all stakeholders, responding to them swiftly and efficiently while continuing to welcome their views. The Group has structured its Corporate Social Responsibility objectives to protect the interests of its stakeholders. It has instituted a policy that requires each of its Sectors to plan and execute a sustainable and wide-ranging programme in all areas in which it carries out its business. All companies in the Group guarantee the highest quality of their products and services. Many companies have international and national certifications and strive to provide the maximum level of convenience, service and value for money to its customers.

Employees
Employee Health and Safety The Richard Pieris Group is one of the largest private sector employers in the country. We see our employees as key stakeholders whose contribution is vital for the continued success of the Company. The health and safety of our employees is a priority. All factories and other workplaces have been provided with the equipment required to maintain high safety standards. Training programmes are conducted to educate employees on health and safety matters in the workplace. Medical facilities are provided to all employees. Further details of the Group’s commitment to its employees are to be found in other sections of this Annual Report. Community & Country The Richard Pieris Group carries out a wide range of diverse activities across all provinces in Sri Lanka. It has long

Food Safety
As a leading retailer, food safety is a key priority. The Arpico Supercentres maintain stringent policies on food safety and quality. Arpico employees define and verify quality standards for every product the Group sells. We focus on enabling our customers to eat healthily by ensuring a wide choice of high quality, fresh and affordable food. The company’s “Super Saver” offers essential items at low prices without compromising on quality. We continue to invest in local and sustainable sourcing. The Group has loyal relationships built with shoppers and suppliers and supports its community to ensure the long term sustainability of the business.

Customers
Richard Pieris is a highly customer oriented group of companies. It mobilises its competencies, energy and resources to build a high performing service to its customers, treating their needs and wants as high priority.

Richard Pieris and Company PLC Annual Report 2009/2010

35

held a reputation of being a responsible corporate body. Its initiatives reach out across the Island from small villages to urban centres.

The Group provided financial assistance to the children of estates workers to pursue tertiary education at national universities. Building infrastructure The development of estate roads continued, with roadways being constructed leading to estates and villages. Worker housing was improved in particular by re-roofing of houses. Assistance was also provided to develop kovils and cultural centres in estates.

CSR Initiatives
Social welfare The Company provided services for thousands of internally displaced persons in camps in Vauniya. This included the provision of a number of essential items such as mattresses, water tanks and other household goods. Seminars were conducted on the prevention of alcohol abuse in most of the estates in the plantation sector. Classes on nutrition were also held at the Child Development Centres located in many of the estates. Supporting health care The Group also supported the health care system by donating much-needed medicines to several hospitals. The Plantation sector continued to work towards the improvement of medical facilities on its estates. Many health camps, including eye camps, were conducted. Assisting education The Group supported children’s education by donating books and other educational aids to underprivileged youngsters. Children of the Group’s factory staff were also presented with the books they required to start the new school year.

The Group obtains environmental certifications from global and local environmental authorities, wherever applicable. This includes certifications from the Forest Stewardship Council, the Central Environmental Authority and ISO 2000 certificate. The waste products in our manufacturing and other business processes are treated through modern waste disposal systems and most are recycled in order to minimise the adverse impact on the environment. The Group also encourages individual employees to inculcate environmentfriendly practices in their work habits and their personal lives. This includes energy conservation and recycling of waste and by-products. The Group plays a key role in the Agricultural Sector and recognizes that this carries with it many responsibilities in respect of the environment. It carries out these responsibilities through various environmental conservation activities in the Plantation Sector. The Group focuses on forestry conservation systems in all its estates and has formulated and implemented a long term forestry management plan for the sustainable management of forest blocks and harvestable timber extents.

Suppliers
Building lasting partnerships with our suppliers We are committed to working in partnership with our suppliers to ensure the best possible service to our customers. A good relationship with our suppliers is vital to our success. We therefore aim to be a loyal customer to our suppliers. Arpico has a large number of suppliers from different parts of the world. Year after year, the Group strives to develop partnerships with Small and Mediumsized Enterprises (SMEs) in Sri Lanka and supports small producers in Sri Lanka by providing them with guidance in the use of appropriate technology for manufacture and channels to market. Environment The Group is committed to the protection of the environment, particularly to reducing our carbon footprint, saving energy, increasing our transport efficiency, preventing waste and increasing recycling.

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Richard Pieris and Company PLC Annual Report 2009/2010

Financial Review
Overall Group Performance
The Group achieved an operating profit of Rs. 1,969 mn and a profit after tax of Rs. 712 mn a remarkable turnaround following two consecutive years in which it made losses. The Group’s strategy of focusing on core businesses, consolidating its operations and exiting from poorly performing ones is paying dividends. The end of the civil conflict in the country, the recovery from the Global Financial Crisis and high Tea and Rubber prices contributed to this performance. The profit recorded is the second highest in a decade. Group turnover grew marginally by 6%, from Rs. 21,103 mn to Rs. 22,339 mn, while the increase in Cost of Sales was lower at 3%, from Rs. 17,152 mn to Rs. 17,654 mn, in the same period. Gross profit increased from Rs. 3,950 mn to Rs. 4,685 mn recording a growth of 19% while profit from operations grew by 43% to Rs. 1,969 mn. The reduction in group finance cost by 33% from Rs. 1,436 mn to Rs. 969 mn contributed to a large extent to the growth in profitability. Group profit before tax amounted to Rs. 1,060 mn as compared to a loss of Rs. 16 mn last year. Following the growth in the profit before tax, the Group’s tax expense increased by 83% to Rs. 330 mn. Group profit after tax grew by 333% to Rs. 712 mn during the year under review. During the year, Minority Interest increased by Rs. 107 mn to Rs. 131 mn. This resulted in a profit level of Rs. 580 mn attributable to the shareholders of the parent company, a growth of 277%.

Turnover
Group Turnover grew by 6% to Rs. 22,339 mn during the year. The Retail Sector made the largest contribution, recording a turnover of Rs. 9,043 mn which is 40% of Group turnover. Revenue grew by 4% despite the challenging economic environment. As a result of the decline in the purchasing power of consumers, turnover declined during the first half of the current financial year compared to the first half of the previous year. However, with the economic recovery, sales gathered momentum in the second half of the year, and recorded a significant growth compared to the second half of the previous year. The Plantation Sector contributed 29% to Group turnover by recording a turnover of Rs. 6,519 mn. The Sector turnover grew by 25% during the year, despite lower production, mainly due to the increase in tea and rubber prices. The Plastic Sector turnover declined from Rs. 2,959 mn to Rs. 2,858 mn a decrease of 3% during the financial year. The production of PVC Pipes ceased operations last year and recommenced towards the end of the financial year, contributing to the decrease in turnover. The contribution of this sector to Group turnover dropped from 14% to 13%. The downward revisions in the prices of finished products caused the Tyre Sector to record a marginal decline of 0.3% in net turnover despite the 6% growth in volumes. Turnover of the

sector amounted to Rs. 2,101 mn while contributing 9% to Group turnover. Turnover of the Rubber Sector, which was badly affected by the global recession declined from Rs. 2,008 mn to Rs. 1,768 mn due to the slow recovery of the US and the European economies. The Central Bank’s policy of strengthening the local currency against US Dollar reduced the competitive advantage of the local exporters over products from Chinese and Indian markets. The Country’s exports declined by 13% from US $ 8,111 mn to US $ 7,085 mn. Group Export turnover also declined from US $ 15.5 mn to $ 14.6 mn which was 6% negative growth. The Group’s main export markets in Europe and Asia Pacific amounted to 48% and 37% of the total export revenue respectively.

Segmental importance in Net Turnover in 2009/2010

Rubber Tyre Plastics Retail Services Plantations

7.92% 9.40% 12.79% 40.48% 0.23% 29.18%

Richard Pieris and Company PLC Annual Report 2009/2010

37

Cost of Sales and Operating Expenses
Cost of sales was Rs. 17,654 mn, an increase of 3% compared to the previous financial year. This has increased at a slower rate than the percentage increase of turnover and amounted to 79% of the turnover compared to 81%, mainly due to the reduction in raw material prices in the Plastic and Tyre Sectors during the first half of the year. The total operating expenses, inclusive of Cost of Sales, decreased from 93% to 91% due to strict management of costs.

Despite the gratuity provision of Rs. 497 mn, which resulted from the wage increase granted to plantation workers with effect from April 2009, the Plantation Sector continued to be the biggest contributor to the Group’s operating profit. Sector profits increased from Rs. 555 mn to Rs. 823 mn, a growth of 48% due to the steep increase in commodity prices during the year. Enhanced volumes together with strong working capital management and cost controls enabled the Retail Sector to record a growth of 9% in operational profits. The operational profits increased from Rs. 472 mn to Rs. 515 mn and accounted for 23% of the Group’s operating profits. The Plastic Sector showed the highest growth in profitability during the period. Increased demand and reduction in raw material prices contributed to increased profitability. Operating profits of the sector increased from Rs. 138 mn to Rs. 321 mn, a significant growth of 133%. The Tyre Sector contributed Rs. 300 mn to the group operational profits an increase of 27% from the previous year. This can be attributed to the increase in market share, low raw material prices in the second and third quarter and improved productivity. Despite the negative growth in turnover, the Rubber Sector made a positive contribution of Rs. 65 mn to the Group as compared to Rs. 26 mn in the previous year. This growth was achieved due to improvement in

product quality, enhancement of yield and lower rubber prices that prevailed in the first half of the year.

Finance Cost
Inflation decreased gradually during the year as the prices of major imports reduced. The Central Bank’s decision to open the country’s capital account to foreigners helped the government to raise foreign currency debt at a lower cost than borrowing from the local debt market. This resulted in enhanced liquidity in the local money market and as a result the average prime lending rate declined from 18.50% to 10.91%. Consequently, the average cost of borrowing reduced significantly. The reduction of Rs. 1,603 mn in group debt during the year, together with the decline in borrowing rates resulted in a decrease in the group finance cost by 33% to Rs. 969 mn. Interest cover ratio of the Group improved significantly from 0.96 to 2.03.

Profit from Operations
The Group generated an operating profit of Rs. 1,969 mn, an impressive growth of 43%, as a result of all core businesses performing better than last year.

Profit/Loss on Discontinued Operations
The operations of Arpitech Pvt Limited recommenced in response to the expected growth in the construction industry. The losses incurred by discontinued operation reduced from Rs. 108 mn to Rs. 18 mn during the year under review. Losses from discontinued operations include the losses from the operations of Arpico Homes and RPC Global Travels.

Segmental Operating Profits in 2009/2010

Rubber Tyre Plastics Retail Services Plantations

3% 14% 15% 23% 8% 37%

Minority Interest
Minority Interest of the RPC Group mainly comprises the minority shareholdings of the Plantation Sector.

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Richard Pieris and Company PLC Annual Report 2009/2010

Financial Review contd.
Minority interest of the Group increased from Rs. 24 mn to Rs. 131 mn due to significant improvement in Plantations sector after tax profits. Trade and other receivables balance amounted to Rs. 2,550 mn the same level as in the previous year. Cash at bank and in hand increased by Rs. 302 mn due to positive cash balances in the Plantation, Retail and Plastic. Trade Creditors and payable balance also increased by Rs. 508 mn to Rs. 2,632 mn. The negative working capital status of the Group continued to improve and amounted to Rs. 795 mn at the year end, an improvement of Rs. 751 mn. This improvement can be attributed to increase in inventory and cash & cash equivalents and the significant reduction in short term borrowings. The current ratio improved from 0.80 to 0.89 while the quick assets ratio improved from 0.50 to 0.56.
Operating Cash Flow Classification
Rs. mn 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 (500) (1,000)

Investment / Acquisition and Disposals
No major capital expenditure projects were undertaken in line with the strategic decision to focus on core business areas The Plantation sector continued to incur expenditure on replanting of Tea, Oil palm and Rubber. The Retail Sector upgraded the Battaramulla super center and Wattala show room.

05/06

06/07

07/08

08/09
27.21 45.64 8.16

Cash Profit before working capital change Net Operating Cash flow Working Capital Change

Group Financial Position and Liquidity Non Current Assets
Total Non Current Assets increased marginally from Rs. 10,795 mn to Rs. 10,803 mn during the year under review. Property Plant & Equipment amounted to Rs. 9,513 mn as at 31st March 2010. The total value of the Group’s Real Estate Portfolio stood at Rs. 8,930 mn which is significantly higher than the book values, details of which are given in the Real Estate Portfolio Statement on page 114.

Capital Structure
Total Assets of the Group grew by 3% during the year to Rs. 17,365 mn while total liabilities stood at Rs. 12,069 mn, as compared to Rs. 12,329 mn in the previous period.

Cash Flows
During the year the Group generated operational cash profits of Rs. 3,319 mn before working capital changes and Rs. 3,443 mn after working capital changes. Healthy levels of operational profits of Retail, Plantations, Tyre and Plastic sectors were the main contributors. This and the reduction of group finance cash expense by Rs. 467 mn resulted in a Rs. 2,156 mn net cash flow from operating activities during the year, a growth of 64 % when compared to the previous year. The Group recorded an outflow of Rs. 542 mn from investing activities relating mainly to expenditure incurred on replanting agricultural crops. The repayment of loans amounted to Rs. 1,661 mn exceeding the proceeds of new loans amounting to Rs. 1,445 mn.

Capital Structure
% 100
26.26 27.75 27.12 27.14

80

44.20

43.94

45.24

6.41

6.77

Current assets increased by Rs. 432 mn to Rs. 6,560 mn while total current liabilities decreased by Rs. 319 mn to Rs. 7,355 mn. Inventory increased by Rs. 161 mn due to increase in the commodity and raw material prices in the latter part of the financial year.

20
23.13 21.53

19.83

7.81

0

05/06

06/07

07/08

08/09

18.99

Total Shareholders Fund Minority Interest Short Term Fund Long Term Fund

09/10

21.91

8.59

Working Capital

40

42.36

60

09/10

(1,500)

Richard Pieris and Company PLC Annual Report 2009/2010

39

Total Assets were funded by Shareholders’ Funds (22%), Minority Interest (9%), Long Term Funds (27%) and Short Term Fund (42%). During the year the contribution from Shareholders’ Fund increased from 19% to 22% while Short Term Funds dropped from 46% to 42%. Minority Interest and Long Term Funds were at the same level of importance as in the previous year.

challenges faced in the macroeconomic environment. Healthy cash profits generated by the business units, particularly Retail, Plastic and Plantations, accounted for the decrease in the current year. The borrowings of the Retail, Plastic and Plantation Sectors reduced by Rs. 617 mn, Rs. 518 mn and Rs. 239 mn respectively. The Tyre sector contributed Rs. 232 mn to the debt reduction with the services sector contributing Rs. 24 mn. The slow recovery of the US and European economy and the increase in commodity prices resulted in the borrowings of the Export Sector growing by Rs. 27 mn. 61% of the Group debt portfolio is short term and 39% is long term with 53% secured and 47% on a clean basis. The mix of local currency and foreign currency debt is 90% and 10% respectively. This is matched to the Group turnover mix of local and export revenue. The gearing ratio has improved to 50% as at end of the year compared to 60% in the previous year. The repayment profile and security offered on the long term debt is listed out in Note 13 to the financial statements on pages 92 - 94 Information relating to the short term borrowings is given in Note 19 to the financial statements on page 98.

when compared to the previous year. The Earnings Price per Share was Rs. 4.52 compared to negative Rs. 2.57 and Earnings Yield of 8% compared to negative 10% in the previous year.

Market Capitalization
The CSE was ranked as one of the best performing share markets in the world. The All Share Price Index grew by 125% to 3385 points. This unprecedented performance can be attributed to the positive outlook for the economy following the end of the civil war. The shift of investor’s interest from low yielding Government Securities to the equity market and the entry of new foreign investments funds to Sri Lanka contributed to the growth in the share market. The Richard Pieris and Company PLC share price closed at Rs. 55/- as at 31st March 2010 an increase of 120% from the closing price of Rs. 25/- the previous year. Market capitalization increased from Rs. 3,206 mn to Rs. 7,054 mn. The share of Richard Pieris & Company PLC traded in the range of Rs. 23.75 to Rs. 68.75 during the year. 40,975,300 shares were traded in the market.

Equity
The Company’s Stated Capital is Rs. 1,578 mn comprising 128,251,023 Ordinary Shares. Due to the healthy profits generated by all sectors of the group, total Shareholders’ Fund increased from Rs. 3,213 mn to Rs. 3,793 mn.

Debt
The total borrowings of the Group amounted to Rs. 5,231 mn as at 31st March 2010, a reduction of Rs. 1,603 mn during the year. Group debt reduced by Rs. 2,627 mn during the last two years despite tremendous
Total Debt vs Finance Cost
Rs. mn 9,000 7,500 6,000 4,500 3,000 1,500 0

Distribution
Directors recommend a first and final dividend of Rs. 1/- per share.

Financial Risks
Financial risks associated with the operations of the Group and its risk management processes are discussed in detail in the Risk Management Report on pages 40 - 44.

05/06

06/07

07/08

08/09

09/10

Shareholders’ Return / Return on Equity (ROE) / Earnings per Share (EPS)
The Group achieved a Return on Equity of 17%, an impressive growth of 270%

Total Debt Finance Cost

40

Richard Pieris and Company PLC Annual Report 2009/2010

Risk Management
Managing of business and financial risks is of fundamental importance in maintaining sustainable growth and making steady progress towards the achievement of corporate goals and objectives. Although complete ‘elimination’ of risk is not a possibility, continuous reviews are carried out to ensure that the Group ‘minimizes’ the risks wherever possible. Towards this end, various strategies are considered and adopted:

Risk Exposure Financial Risk Management 1. Liquidity and Cash Management

Group Objectives

Risk Minimization Strategies
   

To ensure faster response to market opportunities by ensuring instant funding ability. To maintain a ‘sufficient’ liquidity position at all times.

Funding of long term assets through equity and long term loans. Availability of unused short term borrowing facilities to the Group at all times. Funding of inventory by short term creditors. The Group owns land and buildings with market values significantly in excess of its book values that can be offered as collateral for future funding requirements. Sourcing of funding requirements through many financial institutions. Structuring the loan portfolio to combine foreign currency and local currency denominated borrowings. Continuous monitoring is being done to match the mix of foreign and local denominated borrowings to the proportion of export and local turnover of the group. Using fixed and variable rate borrowings to strike a balance. Centralized Treasury that coordinates Group funding requirements thus ensuring more effective borrowing terms. Practicing effective hedging techniques such as interest rate swaps.

2.

Interest Rate Risk

 

To minimize adverse effects of interest rate volatility. To ensure cost of borrowing is at minimum level.

 

Richard Pieris and Company PLC Annual Report 2009/2010

41

Risk Exposure 3. Currency Risk

Group Objectives

Risk Minimization Strategies

To minimize risks associated with the fluctuation in foreign currency rates in relation to export proceeds, import payments and foreign currency debt transactions.

Export proceeds exceeding the import payments and foreign currency debt payments act as a natural hedge. Ensuring effective Treasury operations through various hedging techniques such as forward bookings, forward sales, swaps and options contracts etc.

Business Risk Management 1. Credit Risk

To minimize risks associated with debtor defaults.

    

Obtaining insurance cover for export debtors. Developing and implementing Credit Policies Measuring the credit risk and maintaining risk rating system. Obtaining bank guarantees, deposits and collateral for all major local customers. Following stringent assessment procedures to ensure credit worthiness of the customers prior to granting of credit. Demarcating the local areas and appointing new distributors thus increasing the number of customers with the objective of reducing credit exposure due to the reliance of a few customers. Obtaining comprehensive insurance covers for all tangible assets. Adoption of stringent procedures with regards to the moving of assets from one location to another. Carrying out mandatory preventive maintenance programs. Carrying out frequent employee training programs in areas such as fire prevention. Carrying out of system audits and other control mechanisms such as inventory and cash counts throughout the Group by our central Internal Audit Department.

2.

Asset Risk

To minimize risk from fire, theft and machinery & equipment breakdown.

 

 

3.

Internal Controls

To maintain a sound system of internal control to safeguard shareholders’ wealth and Group assets.

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Richard Pieris and Company PLC Annual Report 2009/2010

Risk Management contd.
Risk Exposure 4. Reputation Risk Group Objectives
 

Risk Minimization Strategies

To prevent the causes that damage our reputation. To minimize the impact if, despite our best endeavors, a reputation crisis should occur.

Having in place a budgetary process and a budgetary control mechanism on a monthly basis to ensure that the Group’s performance is in line with its targets. Adopting stringent quality assurance policies with regard to goods bought out from third parties as well as the input, processes and output of own brand and in-house manufactured products. Ensuring effective communication with various stakeholders including employees, bankers, media, regulators, customers, suppliers, shareholders and the community at large. Providing the front line managers and the sales staff with adequate training in order to improve service standards as well as to educate staff on the importance of customer service. Maintaining healthy relationships with trade unions through regular dialogue Entering into collective agreements with trade unions. Improving employee benefits by way of financial incentives and welfare activities. Improving the Human Resource function of the Group with regards to employee recruitment, performance appraisals and in-house as well as external training programs. Continuous investment in new machines. Investing in Research and Development activities throughout the year. Investing in hardware and developing software in-house.

5.

Human Capital and Labour Risk

To ensure a smooth flow of operations without any undue disruptions. To project our self as a human employer, successful in motivating, developing, retaining and attracting the best of human capital.

   

6.

Technological Risk

To keep pace with the current technological development and safeguard against obsolescence.

  

Richard Pieris and Company PLC Annual Report 2009/2010

43

Risk Exposure 7. Procurement Risk

Group Objectives

Risk Minimization Strategies
 

To minimize risk associated with price and availability.

 

Developing new products to improve quality and manage costs. Establishing relationships with many global and local suppliers for raw materials and commodities in order to reduce overdependency on a single supplier/brand. Ensuring effective category management to reduce the risk of non-availability of goods at our retail outlets. Adoption of backward integration strategies. Centralized purchasing division which has enabled us to create a reliable network of global suppliers. Entering into forward contracts for raw material purchases. Adopting a monthly declaration policy. Identifying slow-moving stocks and effectively laying out a channel for these to be sold off. Adopting security systems at the retail outlets such as security tags with alarm systems, surveillance cameras and deployment of security to manage theft. Ensuring high standards of quality in the eyes of the customer. Increasing productivity and efficiency in order to ensure our prices remain competitive despite increasing wage, energy and transportation costs. Carrying out Research and Development activities to identify needs. Further strengthening our Arpico brand through aggressive advertising campaigns and target marketing. Introducing pioneering products

8.

Inventory

To reduce stock obsolescence and manage stock holding costs. Reducing the risk associated with theft and shrinkage.

 

9.

Risk of Competition

To maximize our market share and maintain market leadership in the respective industries.

 

 

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Richard Pieris and Company PLC Annual Report 2009/2010

Risk Management contd.
Risk Exposure 10. Intellectual Capital Risk Group Objectives

Risk Minimization Strategies
 

To protect ourselves against possible violations, fraudulent usage and infringements on the Group’s copyrights. To minimize risk of not meeting profit expectations.

The introduction of a CRM program in our retail chain. The provision of various value added services at our key retailing outlets. Registering our brands and trademarks. Successfully obtaining patents for manufactured radial tyres. Furthering our Arpico brand image through promotions and advertising. Adopting a stringent approval procedure for Capital expenditure based on the level of investment and the expected pay back. Carrying out extensive feasibility studies for large scale investments. External expertise is obtained wherever required.

11. Capital Investments Risk

   

12. Information Systems Risk

To minimize risk associated with Data Security, Hardware and Communication and Software.

      

Maintaining of spare servers. Mirroring of hard disks with critical data. Data back-ups stored in off-site locations. Vendor agreements for support service and maintenance. Regular upgrading of Virus Scanners, Firewalls etc. Compliance with statutory requirements for environmental preservations. Carrying out Application Control Audits. Compliance with statutory requirements for all tax and other payments.

13. Environmental, Political and Regulatory Risk

To minimize the negative impact from the changes in the external environment which are beyond our control.

Richard Pieris and Company PLC Annual Report 2009/2010

45

Our People
The Richard Pieris Group is one of the largest employers in the corporate sector. The Group currently has employee strength of 29,217. It takes pride in the knowledge, experience, skills and capabilities of its employees and the invaluable contribution they make towards the achievement of the Group’s goals. The Group appreciates and values talent and provides a solid base to attract, develop, motivate and retain its employees. The Group has contributed Rs. 7.6 bn to the national economy and 58% of the value addition has been distributed among its employees. The Group’s Human Resource Division is responsible for an employee’s journey within the Group, with particular focus on:
    

its recruitment process which includes evaluating candidate’s competencies and attitudes to fit the various needs of the businesses.

promotions and succession planning. The Group supports a number of widely recognized development programs in order to provide its dedicated, long-standing employees with development opportunities. The Corporate Human Resources arm of the Group strives to create an environment in which all employees, regardless of race, gender, age or religious affiliation can feel confident of achieving their professional and personal objectives whilst working towards the goals of the Group. The execution and successful completion of Training Road Maps for most Sectors, based on a comprehensive analysis of training needs, resulted in a series of training programs over the last year. This will be extended to cover all sectors of the Group. The Training Academy launched last year focused on the Retail sector, proved a success.

On Boarding – Induction
Once recruited, the candidate is subject to a familiarization process, designed and monitored by the Human Resources Division. The process is unique to each employee and takes into consideration the candidate’s skills and experience. It is also cutomised to suit the employee’s role. The process includes overall exposure to the Group businesses, so that the employee feels welcomed, and a valued member of the ‘Arpico Family’. The On Boarding process includes pre-arrival preparation, a structured orientation, formal and semi- formal introductions and networking. The candidate’s progress is followed up by regular evaluations. This process provides the new recruit with an opportunity to understand Richard Pieris’s vision and their role in helping to achieve its goals.

Selection and Recruitment Induction process Training & Development Career Progress and Performance Based Rewards Welfare & Recreational Activities

Training & Development
The Group has a planned training & development program. Training is tailored to meet the needs of the different Sectors and includes development of technical and soft skills, as well as leadership qualities. We also conduct common programmes at which employees from different companies participate. This enables interaction among employees of different sectors and encourages team work. Training and development also provides opportunities for internal

Career Progress & Performance Based Rewards
Richard Pieris believes in rewarding employees for their contribution and this is made possible with the transparent, comprehensive Performance Management System (PMS) for all executive staff, together with detailed customized score cards carried out for non-executive staff based on the nature of their work. The PMS is driven across the Group from the top layer of staff to the bottom. We believe it helps

Selection and Recruitment
The Richard Pieris Group enjoys a long-standing reputation as an employer of choice throughout Sri Lanka, a position strengthened continuously through the Group’s various image-building activities. This enables the Group to attract staff of the right caliber and skills to suit its businesses. The Group maintains high standards in

46

Richard Pieris and Company PLC Annual Report 2009/2010

Our People contd.
improve productivity and encourages innovation. This is done through an integrated rewards and recognition scheme applied to the different levels of each Sector. The process begins with a pre determined set of objectives and goals, agreed at the beginning of each financial year, with subsequent surveys measuring improvement and performance against these goals. Objective evaluations are carried out bi-annually and the outcome is used as a base for employee rewards. movie nights, social dancing classes, an art competition for the children of employee’s and trade exhibitions for the benefit of employees. In order to inculcate a fun-learning culture the Group introduced a quiz, “RPC Master Minds” focused on financial knowledge. The Sports Committee of the Group was particularly active during the year. Inter company Badminton, Netball, Cricket and Volleyball tournaments were held. Richard Pieris employees also took part in the Mercantile Badminton and in Mercantile Cricket Tournaments.

Welfare & Recreational Activities
At Richard Pieris we believe that it is essential to have a work life balance. This has induced us to plan and organize recreational activities in which employees and their families are encouraged to take part. The medical needs of staff are considered a priority. Employees are enrolled with a 24 hour medical service, medical expenses are reimbursed and all employees are on a surgical and hospitalization scheme. The Nawinna complex has an in- house medical centre. In addition health camps and eye clinics were organized at many locations during the year. Our employees enjoy many facilities including a subsidized lunch, discounts on Super Centre purchases and holiday bungalow facilities. In addition, the Human Resource Division implemented a wide range of activities aimed at improving staff morale and increasing the sense of belonging to the Group. Among the activities organized during the year were monthly

Statement of Value Added
2009/2010 Rs .000 Turnover (Gross) Cost of material & services purchased 22,564,356 (15,367,246) 7,197,210 360,159 7,557,369 % 2008/2009 Rs .000 21,649,635 (15,989,902) 5,659,733 510,290 6,170,023 %

Other Income

Distribution of value added To employees - Remuneration To government - Duties & taxes To providers of capital - Interest on loan capital - Minority interest - Dividend to shareholders Retained in the business - Depreciation - profit/(loss) retained

4,420,596

58%

3,653,443

59%

847,506

11%

774,897

13%

969,147 131,490

13%

1,450,331 24,055

24%

608,226 580,204 7,557,369

8% 8%

596,380 (329,083) 6,170,023

10% -5%

Richard Pieris and Company PLC Annual Report 2009/2010

47

Group Structure
1. RUBBER SECTOR
RICHARD PIERIS EXPORTS PLC Business Activity Manufacture and Export of rubber mats and sealing rings Dr. Sena Yaddehige M S D Galagedara Shaminda Yaddehige P D Samarasinghe J H P Ratnayeke S S G Liyanage L C R De C Wijetunge Renton De Alwis Viville P Perera Stated Capital Group Holding Chairman/CEO Managing Director Resigned w e f 11.08.2009 Director Director Director Director Ceased to be a Director w e f 31.07.2009 Director Director Rs. 220,262,000/00 Represented by 11,163,745 shares 80.26% MICRO MINERALS (PRIVATE) LIMITED Business Activity Manufacture of rubber fillers Dr. Sena Yaddehige W Abeysirigunawardene P D Samarasinghe B L P Jayawardana M S D Galagedara Stated Capital Group Holding Chairman Director Director Director Director Resigned w e f 11.08.2009 Rs. 9,126,000/00 Represented by 912,600 shares 55.18%

PLAYCRAFT LANKA (PRIVATE) LIMITED Business Activity Cessation of business w. e. f. 31/08/2000 W Abeysirigunawardene P D Samarasinghe Stated Capital Group Holding Director Director Rs. 5,900,000/00 Represented by 590,000 shares 65.35%

ARPITALIAN COMPACT SOLES (PRIVATE) LIMITED Business Activity Manufacture and export of resin rubber shoe soling sheets Dr Sena Yaddehige P D Samarasinghe Fabio Piccolo Lino Piccolo M S D Galagedara J H P Ratnayeke Stated Capital Group Holding Chairman Director Director Director Director Resigned w e f 11.08.2009 Director Rs. 334,248,770/00 Represented by 33,424,877 shares 50.43%

2. TYRE SECTOR
RICHARD PIERIS TYRE COMPANY LIMITED Business Activity Tyre retreading ,Re-manufacturing & trading Dr Sena Yaddehige J H P Ratnayeke P J Janadheera P D Samarasinghe Stated Capital Group Holding Chairman Director Director Director Rs. 40,000,000/00 Represented by 4,000,000 shares 100%

RICHARD PIERIS NATURAL FOAMS LIMITED Business Activity Manufacture and export of foam rubber products Dr. Sena Yaddehige P D Samarasinghe J H P Ratnayeke Shaminda Yaddehige M S D Galagedara S S Poholiyadde Stated Capital Group Holding Chairman Director Director Director Director Resigned w e f 11.08.2009 Director Rs. 640,822,600/00 Represented by 64,082,260 shares 80%

ARPIDAG INTERNATIONAL (PRIVATE) LIMITED Business Activity Manufacture of precured tyre retreading material Dr Sena Yaddehige M A Tirona J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director Director Director Rs. 45,999,800/00 Represented by 459,998 shares 51%

ARPICO NATURAL LATEXFOAMS (PRIVATE) LIMITED Business Activity Manufacture and export of foam rubber products Dr. Sena Yaddehige P D Samarasinghe Shaminda Yaddehige M S D Galagedara Stated Capital Group Holding Chairman Director Director Director Resigned w e f 11.08.2009 Rs. 90,000,000/00 Represented by 9,000,000 shares 80%

RICHARD PIERIS RUBBER COMPOUNDS LIMITED Business Activity Mixing rubber compounds Dr. Sena Yaddehige W Abeysirigunawardene J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director Director Director Rs. 17,000,000/00 Represented by 1,700,000 shares 100%

RICHARD PIERIS RUBBER PRODUCTS LIMITED Business Activity Manufacture of rubber products Dr. Sena Yaddehige S S G Liyanage W Abeysirigunawardene P D Samarasinghe J H P Ratnayeke Stated Capital Group Holding Chairman Director Director Director Director Rs. 27,000,000/00 Represented by 2,700,000 shares 100%

48

Richard Pieris and Company PLC Annual Report 2009/2010

Group Structure contd.
3. PLASTICS SECTOR
ARPICO FLEXIFOAM (PRIVATE) LIMITED Business Activity Manufacture of polyurethane foam products Dr. Sena Yaddehige J H P Ratnayeke S S G Liyanage E A Senanayake P D Samarasinghe L Wijeyesinghe Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Director Managing Director Director Director Director Director Director Rs. 25,000,020/00 Represented by 2,500,002 shares 100% ARPITECH (PRIVATE) LIMITED Business Activity Manufacture of PVC pipes & fittings Dr. Sena Yaddehige S S G Liyanage P D Samarasinghe J H P Ratnayeke Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Director Director Director Director Director Rs. 35,000,020/00 Represented by 3,500,002 shares 100%

4. RETAIL SECTOR
PLASTISHELLS LIMITED Business Activity Manufacture of rotational moulded products Dr. Sena Yaddehige J H P Ratnayeke S S G Liyanage E A Senanayake P D Samarasinghe Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Director Director Managing Director Director Director Director Director Rs. 34,160,030/00 Represented by 3,416,003 shares 98.39% RICHARD PIERIS DISTRIBUTORS LIMITED Business Activity Managing & operating a chain of retail network Dr. Sena Yaddehige P D Samarasinghe J H P Ratnayeke S S G Liyanage M S D Galagedara Dr. Harsha Cabral Stated Capital Group Holding Chairman Director Director Director Director Resigned w e f 11.08.2009 Director Rs. 1,096,760,960/00 Represented by 106,676,096 shares 100%

ARPICO PLASTICS LIMITED Business Activity Manufacture of plastic products Dr. Sena Yaddehige S S G Liyanage E A Senanayake P D Samarasinghe J H P Ratnayeke P A S Kularatne Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Managing Director Director Director Director Director Director Director Rs. 29,000,000/00 Represented by 2,900,000 shares 100%

ARPICO INTERIORS (PRIVATE) LIMITED Business Activity Interior decorating Dr. Sena Yaddehige F N Vithanage J H P Ratnayeke M S D Galagedara P D Samarasinghe Stated Capital Group Holding Chairman Director Director Director Resigned w e f 11.08.2009 Director Rs. 30,000,020/00 Represented by 3,000,002 shares 100%

ARPICO FURNITURE LIMITED Business Activity Cessation of business w.e.f 31.03.2004 J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director Rs. 40,000,000/00 Represented by 4,000,000 shares 100%

ARP-ECO (PRIVATE) LIMITED Business Activity Converting plastic waste material to usable alletized products Dr. Sena Yaddehige S S G Liyanage J H P Ratnayeke P D Samarasinghe E A Senanayake Stated Capital Group Holding Chairman Managing Director Director Director Director Rs. 20/00 Represented by 02 shares 100%

ARPIMALLS DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Operates retailing centres Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe Company No. of shares Chairman Director Director RPD 16,000,001 22,000,000 RPC 5,000,001

Ord. Pref.

Stated Capital Group Holding

Rs. 430,000,020/00 Represented by 43,000,002 shares 100%

Richard Pieris and Company PLC Annual Report 2009/2010

49

RPC TIMBERLINE (PRIVATE) LIMITED Business Activity Manufacture of wooden products Dr. Sena Yaddehige P D Samarasinghe Ms. C M Pietersz Ms. M Jayasekera S P Gunaratne Stated Capital Group Holding Chairman Director Director Director Director Rs.26,500,020 represented by 2,650 ,002 shares 100%

EXOTIC HORTICULTURE (PVT.) LTD Business Activity Cultivation of fruits Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe M S D Galagedara Stated Capital Group Holding Chairman Director Director Director Resigned w e f 11.08.2009 Rs. 10,000,000/00 Represented by 1,000,000 shares 100%

HAMEFA KEGALLE (PRIVATE) LTD Business Activity Manufacture & Export of furniture

5. PLANTATION SECTOR
RICHARD PIERIS PLANTATIONS (PVT.) LTD Business Activity Managing agents of plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director Director Rs. 70/00 represented by 07 shares 100%

Dr. Sena Yaddehige P D Samarasinghe J H P Ratnayke Stated Capital Group Holding

Chairman Director Director Rs. 28,000,020/00 Represented by 2,800,002 shares 34.03%

NAMUNUKULA PLANTATIONS PLC Business Activity Rubber, Tea, Cinnamon & Coconut Plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe R L Kumararatne V K J Thalpawila A Dias N C Pieris Stated Capital Group Holding Chairman Director Director Director Director Director Director Rs. 350,000,010/00 Represented by 23,750,001 shares 58.74%

RPC MANAGEMENT SERVICES (PRIVATE) LIMITED Business Activity Investment & management of the plantation companies Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe J M A Ratnayeke R L Kumararatne Prof. K Goonesekera Stated Capital Group Holding Director Deputy Chairman Director Director Director Director Rs. 75,000,000 Represented by 7,500,000 shares 100 %

RPC PLANTATION MANAGEMENT SERVICES (PVT) LTD Business Activity Investment & management of plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe R L Kumararatne J M A Ratnayeke Stated Capital Group Holding Chairman Director Director Director Director Rs.241,062,500/00 Represented by 24,106,250 shares 100%

MASKELIYA PLANTATIONS PLC Business Activity Tea Plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe R L Kumararatne S P Jayakoddy Dr. S A B Ekanayake Dr. H S D Soysa Stated Capital Group Holding Chairman Deputy Chairman Director Director Director Director Director Rs. 350,000,000/00 Repreented by 26,976,745 shares 63.67%

MASKELIYA TEA GARDENS CEYLON LIMITED Business Activity Trading &, marketing of value added tea Dr. Sena Yaddehige P D Samarasinghe R L Kumararatne J H P Ratnayeke Stated Capital Group Holding Director Director Director Director Rs. 15,000,070 Represented by 1,500,007 shares 100%

KEGALLE PLANTATIONS PLC Business Activity Rubber, Tea and Coconut Plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe S. S Poholiyadde R L Kumararatne Dr. Nugawela L N de S Wijeyeratne Stated Capital Group Holding Chairman Deputy Chairman Director Director Director Director Director Rs. 250,000,010/00 Represented by 25,000,001 shares 68.06%

50

Richard Pieris and Company PLC Annual Report 2009/2010

Group Structure contd.
6. SERVICES
RICHARD PIERIS GROUP SERVICES (PRIVATE) LIMITED Business Activity Provides Company Secretarial Services Dr. Sena Yaddehige J H P Ratnayeke Mrs. R J Siriweera Stated Capital Group Holding Chairman Director Director Appointed w e f 15.12.2009 Rs. 20/00 Represented by 02 shares 100% ASIAN ALLIANCE INSURANCE COMPANY LTD Business Activity Insurance J H P Ratnayeke Prof. Lakshman R. Watawala W D N H Perera K D Dhammika Perera L N de S Wijeyeratne Ramal G Jasinghe A C Seneviratne H L L M Nanayakkara Issued Capital Group Holding Chairman Director Director Director Director Director Director Director

ARPICO INDUSTRIAL DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Operates industrial estates Dr. Sena Yaddehige P D Samarasinghe Stated Capital Group Holding Company No. of shares Chairman Director Rs. 106,400,000/00 Represented by 10,640,000 shares 100% RPC 1,499,999 9,140,000 RPD 1

Rs. 250,000,000/00 Represented by 25, 000,000 shares 25%

RPGS are not company secretaries to this company

ARPICO EXOTICA ASIANA (PRIVATE) LIMITED Business Activity Leisure Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director Director Rs. 20/00 represented by 02 shares 100%

Ord 1,500,000 Pref

RPC REAL ESTATE DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Property & Real Estate Development Projects Dr. Sena Yaddehige P D Samarasinghe Stated Capital Group Holding Company No. of shares Chairman Director Rs.667,000,020/00 Represented by 66,700,002 shares 100% RPC 01 RPD 01 66,700,000

RPC SHIPPING (PRIVATE) LIMITED Business Activity Shipping Agency Representation Dr. Sena Yaddehige H F C Mendis P D Samarasinghe Stated Capital Group Holding Chairman Director Resigned w e f 31.10.2009 Director Rs. 20/00 represented by 02 shares 100%

Ord 2 Pref.

RPC RETAIL DEVELOPMENTS (PRIVATE) LIMITED Business Activity Construction, Property and Real Estate Development Dr. Sena Yaddehige P D Samarasinghe Stated Capital Group Holding Company No. of shares Chairman Director Rs. 187,000,020/00 Represented by 18,700,002 shares 100% RPC 1 RPD 1 18,700,000

RPC CONSTRUCTION (PRIVATE) LIMITED Business Activity Business of construction nationally and internationally Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Director Deputy Chairman Director Rs.20, 000,070/00 represented by 2,000,007 shares 100%

Ord 2 Pref

RPC AIRLINE SERVICES (PRIVATE) LIMITED Business Activity Business of national and international airline travel Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe H F C Mendis Stated Capital Group Holding Chairman Director Director Director Resigned w e f 31.10.2009 Rs. 20/00 represented by 02 shares 100%

RPC LOGISTICS LIMITED Business Activity Freight forwarding and allied services Dr. Sena Yaddehige H F C Mendis P D Samarasinghe J H P Ratnayeke Stated Capital Group Holding Chairman Managing Director Resigned w e f 31.10.2009 Director Director Rs 20, 000,070/00 Represented by 2,000,007 shares 100%

Richard Pieris and Company PLC Annual Report 2009/2010

51

ARPICO HOMES LIMITED Business Activity Property & Real Estate Development Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe M S D Galagedara Stated Capital Group Holding Director Director Director Director Resigned w e f 11.08.2009 Rs. 70/00 represented by 07 shares 100%

MARKRAY SYSTEMS (PRIVATE) LIMITED Business Activity To carry on the business of designing and development of software Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe S Kalugala Stated Capital Group Holding Chairman Director Director Director Appointed w e f 01.10.2009 Rs. 20/00 represented by 02 shares RPC 1 RPD 1

R P C GLOBAL TRAVELS (PRIVATE) LIMITED Business Activity Business of national and international airline travel and trade Cessation of Business w e f 31.03.2009 Dr. Sena Yaddehige F C Mendis J H P Ratnayeke P D Samarasinghe M S D Galagedara M M Udeshi Stated Capital Group Holding Director Director Resigned w e f 31.10.2009 Director Director Director Resigned w e f 11.08.2009 Director Rs.6,000,020/00 Represented by 600,002 shares 100%

HARDYROPES (PRIVATE) LIMITED Business Activity Manufacture and distribution of plastic ropes P D Samarasinghe S S G Liyanage Stated Capital Group Holding Director Director Rs. 20/00 represented by 02 shares RPC 1 RPC Logistics 1

FERHAM ORGANICS (PRIVATE) LIMITED Business Activity Engaged in agri-business SHADYGROVE RESIDENCIES (PRIVATE) LIMITED Business Activity Construction of residential houses & luxury apartments P D Samarasinghe W S Kalugala Stated Capital Group Holding Director Director Rs. 20/00 represented by 02 shares RPC 1 RPD 1 P D Samarasinghe Stated Capital Group Holding Director Rs. 20/00 represented by 02 shares RPC 1 MPL 1

RPC SOUTHERN INDUSTRIAL PARK (PRIVATE) LIMITED Business Activity Development of township and industrial estates J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Director Director Rs. 20/00 represented by 02 shares RPC 1 NPL 1

R P C PRECISION CRAFT (PRIVATE) LIMITED Business Activity Importers & exporters of timber, steel and wooden furniture Dr. Sena Yaddehige P D Samarasinghe Stated Capital Group Holding Chairman Director Rs. 20/00 represented by 02 shares RPC 1 RPD 1

R P C POLYMERS (PRIVATE) LIMITED Business Activity Manufacturers, exporters and importers of all plastic products Dr Sena Yaddehige J H P Ratnayeke P D Samarasinghe S S G Liyanage Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Director Director Director Director Director Rs. 187,000,020/00 represented by 18,700,002 shares RPC 1 Plastishells 13,000,001 AID 5,700,000

Financial Information

54 58 61 62 64 65 66 67 68 70 71

Annual Report of the Board of Directors Corporate Governance Report of the Remuneration Committee Report of the Audit Committee Statement of Directors’ Responsibility Auditor’s Report Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements

54

Richard Pieris and Company PLC Annual Report 2009/2010

Annual Report of the Board of Directors
The Directors of Richard Pieris and Company PLC are pleased to present to their members their Annual Report together with the audited financial statements of its Group and the Company, for the year ended 31 March 2010. The Directors approved the financial statements on 24th May 2010 Principal Activities & Operational Review Richard Pieris and Company PLC is the holding company that owns, directly and indirectly, investments in a number of companies constituting the Richard Pieris Group. The principal activities of the Group are described under the Group Structure on pages 47 - 51 of the report. A review of the Group’s business and its performance during the year, with comments on financial results and future developments, is contained in the Chairman and CEO’s Review, Sector Review and the Financial Review of this Annual Report. The measures taken by the Company to manage its risks are detailed in the report titled Risk Management on pages 40 - 44 of this report. Future Developments The Group intends to continue to pursue a strategy of focusing on its core business activities. In order to achieve this, the Group will concentrate on enhancing the performance of it’s retail, plantation, tyre, rubber and plastics business sectors. Further information on future developments is provided in the Chairman and CEO’s Review and Sector Review of this report. Group Revenue The turnover of the Group was Rs. 22.3 bn. A detailed analysis of the Group’s turnover identifying the contributions from different sectors is given in Note 21 to the Financial Statements. The Group’s exports from Sri Lanka were Rs. 1.6 bn. Trade between Group companies is conducted at fair market prices. Results & Dividends Details relating to the Group profits are given in the table on Page 55. The Group reported a Profit after tax amounting to Rs. 729.5 mn. The Directors recommend a cash dividend amounting to Rs.128.25mn to all shareholders at the rate of Rs.1.00 per ordinary share and subject to approval of the shareholders payable on or before 8th July 2010. The dividends represent a redistribution of dividends received by the company and therefore will not be subject to the 10% withholding tax otherwise applicable. Group Investments The Group did not incur any expenditure on investments other than investments in subsidiary companies during the year. Details of this are given in Note 5 to Financial Statements. Property, Plant & Equipment Capital expenditure on property, plant, equipment and work-in-progress incurred during the year under review amounted to Rs. 619 mn. Information relating to this is given in Note 3 to the Financial Statements. Land is included as described in Accounting Policies in the Financial Statements. Capital expenditure approved and contracted for after the year-end is given in Note 31 to the Financial Statements. The value of property stated in the Financial Statements is not in excess of its current market values. Freehold Property A description of the property owned by the Group is shown under the Group Real estate portfolio on page 114. Stated Capital The stated capital of the Company as at 31 March 2010 was Rs. 1.58 bn. The details of the stated capital is given in Note 9 to the Financial Statements. Reserves Total Group Reserves as at 31st March, 2010 amount to Rs. 2.1 bn. (Rs. 1.6 bn as at 31 March 2009). The details of which are given in Notes 10 and 11 to the Financial Statements. Corporate Donations Donations made by the Company and Group to charitable organisations amounted to Rs. 0.2 mn and Rs. 2.0 mn respectively. Taxation The general corporate income tax rate in effect during the year was 35%. The rate of tax on qualified export profits was 15%. Agricultural profits were exempted from Income Tax. Companies that enjoy tax holiday status and other concessionary rates are listed in Note 27 to the Financial Statements.

Richard Pieris and Company PLC Annual Report 2009/2010

55

In computing the Group’s tax liability, the maximum relief available to investors under the provisions of the Inland Revenue Act has been claimed. It is the Group’s policy to provide for deferred taxation on all known temporary differences, on the liability method. Details on the Group’s exposure to taxation are disclosed in Note 27 to the Financial Statements. Share Information Information relating to earnings, dividend, net assets and market value per share is given in the Ten Year Summary on pages 110 - 111 of this report. Substantial Shareholdings The twenty major shareholders and the percentage held by each one of them as at 31st March, 2010 are given in pages 112 and 113 under Shareholder Information. Directors The names of Directors who served during the year are given on pages 12 and 13 of this report, under the caption of ‘Board of Directors’. Mr. Moraji M Udeshi was appointed to the Board of Directors of the Company in terms of section 210 of the Companies Act No. 7 of 2007. A Notice of the following Ordinary Resolution has been received by the Company, from Mr. Anthony Kenneth Christie, 25, Jayawardena Avenue, Dehiwala , a shareholder of the Company. “That Mr. Morarji Meghji Udeshi of No. 16, Queens Terrace, Colombo 3., who is 82 years of age be

and is hereby appointed a Director of the Company in terms of section 211 of the Companies Act No. 07 of 2007, and it is further specially declared that the age limit of 70 years referred to in Section 210 of the Companies Act no. 07 of 2007 shall not apply to the said Mr. Morarji Meghji Udeshi”. Prof. Lakshman R. Watawala retires by rotation in terms of Article 85 of the Articles of Association of the Company and being eligible offers himself for reelection at the Annual General Meeting. Mr. Viville P Perera who was appointed to the Directorate w.e.f. 01.08.2009 retires in terms of Article 91 of the Articles of Association of the Company

and being eligible offers himself for election at the Annual General Meeting. Directors’ Interest in Contracts with the Company and the Interest Register Directors’ interests in contracts or proposed contracts with the Company both direct and indirect are disclosed on page 56. These interests have been declared at the meetings of directors. The directors have no direct or indirect interest in any other contract or proposed contract of the Company. The Company maintains an interest register as required by the Companies’ Act No. 07 of 2007. Information pertaining to directors’ interest in contracts, their remuneration and their share ownership 2009/10 Rs.’000 2008/09 Rs.’000

Group Profits The net profit / (loss) earned by the Group after providing for all expenses, known liabilities and depreciation on property, plant and equipment was From which the deduction of income tax and transfer to the deferred taxation account was Leaving the Group with a profit / (loss) after tax from continuing operations of From which the profit/(loss) after tax from discontinued operations deducted was Leaving the Group with a profit/(loss) for the year of From which Minority Interest deducted was Leaving a profit /(loss) attributable to the equity holders of the parent was To which the retained profit brought forward form the previous year added was Leaving a retained profit to be carried forward amounting to

1,060,159

(16,654)

(330,592) 729,567 (17,873) 711,694 131,490 580,204 1,296,717

(180,411) (197,065) (107,963) (305,028) 24,055 (329,083) 1,625,800

1,876,921

1,296,717

56

Richard Pieris and Company PLC Annual Report 2009/2010

Annual Report of the Board of Directors contd.
Directors’ Interest in Contracts Directors’ Interest in Contracts in relation to transactions with related entities, transactions with Key Management Personnel and other related disclosures are stated in Note 34 (Related party disclosures) to the financial statements. In addition, the Company carried out transactions in the ordinary course of business with the following entities having one or more directors in common. Transactions with related undertakings Name of Director Group Asia Siyaka Commodities (Pvt) Ltd

Position

Transaction Details

2009/2010 Rs.Mn

2008/2009 Rs.Mn

Dr. Sena Yaddehige (Resigned w.e.f. 30.11.2009) Mr. J.H.P. Ratnayake

Director Director

Packing Materials Brokerage Store rent Others Loans Interest paid Letter of credit facility

30.20 26.54 7.12 5.31 1,019.69 130.28 352.00

27.3 26.7 9.2 4.5 1,028.4 209.6 250.0

National Development Bank PLC

Dr. Sena Yaddehige Director Prof. Lakshman R. Watawala (Alternate Director to Dr. Sena Yaddehige) Mr. J.H.P. Ratnayake Mr. J.H.P. Ratnayake Mr. P.D. Samarasinghe Director Chairman Director

Asia Capital PLC Asia Securities (Pvt) Ltd Swadeshi Marketing Limited

Purchase of Motor Vehicle Services Rendered Purchase of goods for resale Rent received Services provided for import clearance

14.73 0.92 0.01

12.0 12.1 12.8 0.9 16.2

Swadeshi Industrial Works Limited

Mr. P.D. Samarasinghe

Director

The list of Directors at each of the subsidiary and associate Companies have been disclosed in the group structure on page 47 to 51. Directors’ Shareholding Directors’ Shareholding in Richard Pieris and Company PLC is stated in page 113.

are disclosed in the interest register. Directors’ Remuneration Directors’ fees and emoluments, in respect of the Group and the Company for the financial year ended 31st March 2010 are disclosed in note 34.2 to the Financial Statements.

Vision & Long Term Goals The Group’s Vision and Long Term Goals are given in pages 2 - 3 of this report. Environmental Protection The Company has not engaged in any activities detrimental to the environment. The Group’s efforts in

relation to environmental protection are set out in the Corporate Social Responsibility Report in pages 34 - 35. Employment Policies Group employment policies are based on recruiting the best people, providing them training to enhance their skills, recognition of innate skills and

Richard Pieris and Company PLC Annual Report 2009/2010

57

competencies of each individual while offering equal career opportunities regardless of gender, race or religion and to retain them with the Group as long as possible. Health and safety of the employees has always received priority in the HR agenda. The number of persons employed by the company and its subsidiaries at the year end was 29,217. Statutory Payments The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to employees have been made up to date. Events Subsequent To the Balance Sheet Date There have not been any material events that occurred subsequent to the Balance Sheet Date that require disclosure or adjustments to the Financial Statements, other than those disclosed if any, in Note 33 to the Financial Statements. Board Committees The Board has appointed two sub-committees namely, the Audit

Committee and the Remuneration Committee. Their compositions and functions are given in pages 58 - 63 of the report. Corporate Governance / Internal Control The Directors acknowledge their responsibility for the Group’s corporate governance and the system of internal control. The practices carried out by the Company in relation to corporate governance and internal controls are explained in pages 58 - 60 of this report. The Board is satisfied with the effectiveness of the system of internal control for the period up to the date of signing the Financial Statements. Directors’ Responsibility for Financial Reporting The Statement of Directors’ Responsibility for financial reporting of the Company and the Group is set out in page 64 of this report. Compliance with Other Laws & Regulations The Directors, to the best of their knowledge and belief, confirm that the Group has not engaged in any

activities that contravene the laws and regulations applicable in Sri Lanka. Financial Statements are published quarterly in line with the listing rules of the Colombo Stock Exchange. Annual General Meeting The Annual General Meeting will be held at the Registered Office of the Company, No. 310, High Level Road, Nawinna, Maharagama, on 30th June 2010. The Notice of the Annual General Meeting is on page 118 of this report. Auditors The Financial Statements for the year have been audited by Messrs. Ernst & Young, Chartered Accountants. In accordance with the Companies Act No. 7 of 2007, a resolution proposing the re-appointment of Messrs. Ernst & Young, Chartered Accountants, as Auditors to the Company and authorising the Directors to fix their remuneration will be proposed at the Annual General Meeting.

By Order of the Board

P D Samarasinghe Director/ Chief Operating Officer No. 310, High Level Road, Nawinna, Maharagama. 24th May 2010

W J Viville Perera Director

Company Secretary Richard Pieris Group Services (Pvt) Limited Secretaries

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Richard Pieris and Company PLC Annual Report 2009/2010

Corporate Governance
The Board of Directors of Richard Pieris and Company PLC is committed and takes responsibility to maintain the highest standards of Corporate Governance. Richard Pieris’ has designed its Corporate Governance policies and practices to ensure that the Company is focused on its responsibilities to its stakeholders and on creating long term shareholder value. The Company recognises the interests of all its stakeholders including shareholders, employees, customers, suppliers, consumers and the other communities in which it operates. The Group complies with the rules on Corporate Governance, included in the Listing Rules of the Colombo Stock Exchange, and is guided by the principles included in the Code of Best Practice on Corporate Governance issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka. This statement sets out the Corporate Governance policies, practices and processes adopted by the Board. The Board and its Operations The Company is governed by its Board of Directors, who directs and supervises the business and affairs of the Company on behalf of the shareholders. The Board comprises seven Directors, of which three are Executive Directors whilst four are Non-Executive Directors of which three are Independent, ensuring an independent outlook to temper the expediency of the experts. Brief profiles of the Directors are set out on pages 12 and 13. The Board has assessed the independence of the Non-Executive Directors. During the year the Board met on 9 occasions. Prior to each meeting, the Directors are provided with all relevant management information and background material relevant to the agenda to enable informed decisions. Board Papers are submitted in advance on group performance, new investments, capital projects and other issues which require specific Board approval. A separate information memorandum is provided on statutory payments at each Board Meeting. The Chairman, who is also the Chief Executive Officer, is responsible for matters relating to policy, maintaining regular contact with the other Directors, shareholders and external stakeholders of the Company. He is responsible for all aspects of the Group’s overall commercial, operational and strategic development and assisted by the Chief Operating Officer and an Executive Management Committee comprising Executive Directors and Heads of Companies of the Strategic Business Units (SBU). The Finance function devolves on the Group Chief Financial Officer, who is present by invitation at board meetings when financial matters are discussed. The Board of Directors has access to independent professional advice as and when deemed necessary for decision making. The main functions of the board are to:  Direct the business and affairs of the company.  Formulate short and long term strategies, as a basis for the operational plans of the company and monitor implementation.  Report on their stewardship to shareholders.  Identify the principal risks of the business and ensure adequate risk management systems in place.  Ensure internal controls are adequate and effective.  Approve the annual capital and operating budgets and review performance against budgets.  Approve the interim and final financial statements of the group.  Determine and recommend interim and final dividends for the approval of shareholders.  Ensure compliance with laws and regulations.  Sanction all material contracts, acquisitions or disposal of assets and approve capital projects. All Non-Executive Directors are independent with no direct or indirect material relationship with the Company. Their wide range of expertise and significant experience in commercial, corporate and financial activities bring an independent view and judgement to the Board. Sub Committees of the Board The Board is responsible for the establishment and functioning of all Board Committees, the appointment of members to these committees and their compensation. The Board has

Richard Pieris and Company PLC Annual Report 2009/2010

59

delegated responsibilities to two Board Sub Committees which operate within clearly defined terms of reference. Audit Committee The Audit Committee is composed of two Independent Non-Executive Directors namely Prof. Lakshman R. Watawala, Chairman and Prof. Susantha Pathirana. The Chief Executive Officer, Chief Operating Officer, Group Chief Financial Officer, Internal Audit Manager and functional heads of subsidiaries attend meetings by invitation. The Audit Committee Report on page 62 describes the activities carried out by the Committee during the financial year. Remuneration Committee The Remuneration Committee is composed of two Independent NonExecutive Directors - its Chairman, Prof. Lakshman R. Watawala and Prof. Susantha Pathirana, together with Mr. James Mather, former Senior Partner M/s Ernst & Young. The Report of the Remuneration Committee on page 61 highlights its main activities. Appointment of Directors The Company does not have a Nomination Committee to recommend additions to the Board. The Board as a whole decides on the appointments of new members. Mr. W J V .P Perera was appointed to the Board with effect from 1st August 2009.

Relationship with Shareholders The Board maintains healthy relationships with its key shareholders (individual and institutional) while maintaining a dialogue with potential shareholders as well. The Annual General Meetings are held to communicate with the shareholders and their participation is encouraged. Apart from this, its principal methods of communication include the corporate website, the annual report, quarterly financial statements and press releases. Internal Controls The Board is responsible for instituting on effective internal control system to safeguard the assets of the Company and ensure that accurate and complete records are maintained from which reliable information is generated. The system includes all controls including financial, operational and risk management. Strategies adopted by the Company to manage its risk are set out in its report on Risk Management on page 40. Apart from the strategic plans covering a three year time horizon, a comprehensive budgetary process is in place, where annual budgets, identifying the critical success factors and functional objectives, prepared by all subsidiaries are, approved by the Board, at the commencement of a financial year, and its achievement monitored monthly, through a comprehensive monthly management reporting system. Clear criteria and benchmarks have also been set out for the evaluation of capital projects and new investments.

The Internal Audit Division reporting to the Chairman, regularly evaluates the internal control system across the organisation and its findings are reviewed first by the Audit Committee and significant issues are thereafter reported to the Board. The Board reviewed the internal control procedures in existence and are satisfied with its effectiveness. Relationship with Other Stakeholders The Board identifies the importance of maintaining a healthy relationship with its key stakeholders and ensures the Group as a whole inculcates this practice. Internal communication is mainly conducted through the quarterly newsletter, emails, memos and circulars. The Board also ensures that the Group policies and practices are in line with the Company’s values and its social responsibilities. The group promotes protection of the environment, health and safety standards of its employees and others within the organisation. The relevant measures taken are given in detail in the Corporate Social Responsibility report on page 34. Compliance The Board places significant emphasis on strong internal compliance procedures. The Financial Statements of the Group are prepared in strict compliance with the guidelines of the Sri Lanka Accounting Standards and other statutory regulations. Financial statements are published quarterly in line with the Listing Rules of the Colombo Stock Exchange through

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Richard Pieris and Company PLC Annual Report 2009/2010

Corporate Governance contd.
which all significant developments are reported to shareholders quarterly. The Board of Directors, to the best of their knowledge and belief, are satisfied that all statutory payments have been made to date. Going Concern The Directors have continued to use the ‘Going Concern’ basis in the preparation of the Financial Statements, after careful review of the financial position and cash flow status of the Group. The Board of Directors believes that the Group has adequate resources to continue in operation for the foreseeable future.

Name of Director Dr S Yaddehige Mr. P D Samarasinghe Mr. J H P Ratnayeke Prof. Lakshman R Watawala Prof. Susantha Pathirana Mr. M M Udeshi Mr W J V P Perera

Executive   

Non- Executive

Independent

   

  

Corporate Governance Requirements under Section 7 of the Listing Rules issued by the Colombo Stock Exchange. Colombo Stock Exchange Non Executive Directors Independent Directors Disclosures relating to Directors Remuneration Committee Audit Committee Status of Richard Pieris and Company PLC In Compliance In Compliance In Compliance In Compliance In Compliance

Richard Pieris and Company PLC Annual Report 2009/2010

61

Report of the Remuneration Committee
The Remuneration Committee, appointed by and responsible to the Board of Directors, consists of two independent Non Executive Directors Prof. Lakshman R Watawala, Prof. Susantha Pathirana and Mr. James Mather, former partner of Ernst & Young. The Committee is chaired by Prof. Lakshman R Watawala.The Committee met on several occasions during the financial year. The Remuneration Committee has reviewed and recommended the following to the Board of Directors: 1. 2. 3. Policy on remuneration of the Executive Staff Specific remuneration package for the Executive Directors Revision of fees for the non Executive Directors

In a highly competitive environment attracting and retaining high caliber executives is a key challenge faced by the Group. In this context, the Committee took into account, competition, market information and performance evaluated methodology in declaring the overall remuneration policy.

Prof. Lakshman R Watawala Chairman 24th May 2010

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Richard Pieris and Company PLC Annual Report 2009/2010

Report of the Audit Committee
The Audit Committee Charter, approved by the Board of Directors defines the purpose, authority, composition, meeting, and responsibilities of the Committee. The purpose of the Audit Committee is to: 1. Assist the Board of Directors in fulfilling its overall responsibilities for the financial reporting process 2. Review the system of internal control and risk management 3. Monitor the effectiveness of the internal audit function 4. Review the Company’s process for monitoring compliance with laws and regulations. 5. Review the independence and performance of the external auditors 6. To make recommendations to the board on the appointment of external auditors and recommend their remuneration and terms of engagement The Audit Committee consisted of two independent and Non Executive Directors, namely Prof. Lakshman R. Watawala and Prof. Susantha Pathirana. The Chairman of the Committee is a Senior Chartered Accountant. The Company Secretary functions as Secretary to the Audit Committee. The principal activities of the Committee are detailed below. Meetings The Audit Committee held 12 meetings during the year under review. The Group Chief Financial Officer, Group Internal Audit Manager and functional heads of the Strategic Business Units (SBUs) were invited if deemed necessary for audit committee meetings. Meetings were held with the external auditors regarding the scope and the conduct of the annual audits. Internal Audit and Risk Management The Internal Audit Programme was reviewed by the Committee to ensure that it covered the major business units of the Group. The Chief Internal Auditor was invited to be present at all Audit Committee deliberations. He presented a summary of the salient findings of all internal audits and investigations carried out by his department for the period. The responses from the Managing Directors of the SBUs to the internal audit findings were reviewed and where necessary corrective action was recommended and implementation monitored. The Committee reviewed the IT Risk Management addressing issues relating to hardware, software and skilled staff and recommended areas which needed to be strengthened. The Committee also had the responsibility to review the loss making SBU’s of the Group and strategies for turning round these Companies and recommending suitable corrective action. Internal Controls During its meetings, the Committee reviewed the adequacy and effectiveness of the internal control systems and the Group’s approach to its exposure to the business and financial risks. Processes are in place to safeguard the assets of the organisation and to ensure that the financial reporting system can be relied upon in the preparation and presentation of financial statements. A comprehensive Management Report and Accounts are produced at month end highlighting all key performance criteria pertaining to the Company’s SBUs which is reviewed by the Senior Management on a monthly basis. SBU Boards review performance on a quarterly basis. Financial Statements The Committee reviewed the Group’s Quarterly Financial Statements, the Annual Report and Accounts for reliability, consistency and compliance with the Sri Lanka Accounting Standards and other statutory requirements, including the Companies Act, No 7 of 2007, prior to issuance. It also reviewed the adequacy of disclosure in published financial statements. External Auditors The Audit Committee has reviewed the other services provided by the External Auditors to the group to ensure their independence as Auditors has not been compromised.

Richard Pieris and Company PLC Annual Report 2009/2010

63

The Committee reviewed the Management Letters issued by the External Auditors and the Management response thereto. The external auditors kept the audit committee informed on an ongoing basis of all matters of significance. The committee met with the auditors and discussed issues arising from the audit. The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be re-appointed as Auditors for the financial year ending 31st March, 2011 subject to the approval of the shareholders at the next Annual General Meeting. Conclusion The Audit Committee is satisfied that the control environment prevailing in the organisation provides reasonable, but not absolute assurance that the financial position of the Group is satisfactory and that systems are in place to minimise the impact of identifiable risks and that the Listing Rules of the Colombo Stock Exchange have been met.

Prof. Lakshman R Watawala Chairman 24th May 2010

64

Richard Pieris and Company PLC Annual Report 2009/2010

Statement of Directors’ Responsibility
In keeping with the provisions under the Companies Act No. 7 of 2007, the Directors of Richard Pieris and Company PLC, acknowledge their responsibility in relation to financial reporting of both, the Company and that of its Group. These responsibilities differ from those of its Auditors, M/s. Ernst & Young, which are set out in their report, appearing on page 65 of this report. The financial statements of the Company and its subsidiaries for the year ended 31st March 2010 included in this report, have been prepared and presented in accordance with the Sri Lanka Accounting Standards, and they provide the information as required by the Companies Act No. 7 of 2007, Sri Lanka Accounting Standards and the Listing Rules of the Colombo Stock Exchange. The Directors confirm that suitable accounting policies have been used and applied consistently, and that all applicable accounting standards have been followed in the preparation of the financial statements exhibited on pages from 66 to 109 inclusive. All material deviations from these standards if any have been disclosed and explained. The judgments and estimates made in the preparation of these financial statements are reasonable and prudent. The Directors confirm their responsibility for ensuring that all companies within the Group maintain accounting records, which are sufficient to prepare financial statements that disclose with reasonable accuracy, the financial position of the Company and its Group. They also confirm their responsibility towards ensuring that the financial statements presented in the Annual Report give a true and fair view of the state of affairs of the Company and its Group as at 31st March 2010, and that of the profit for the year then ended. The overall responsibility for the Company’s internal control systems lies with the Directors. Whilst recognising the fact that there is no single system of internal control that could provide absolute assurance against material misstatements and fraud, the Directors confirm that the prevalent internal control systems instituted by them and which comprise internal checks, internal audit and financial and other controls are so designed that, there is reasonable assurance that all assets are safeguarded and transactions properly authorised and recorded, so that material misstatements and irregularities are either prevented or detected within a reasonable period of time. The Directors’ are of the view that the Company and its Group have adequate resources to continue operations in the foreseeable future and have continued to use the going- concern basis in the preparation of these financial statements. The Directors’ have provided the Auditors M/s. Ernst & Young Chartered Accountants with every opportunity to carry out reviews and tests that they consider appropriate and necessary for the performance of their responsibilities. The Auditors have examined the financial statements together with all financial records and related data and express their opinion which appears as reported by them on page 65 of this report. By Order of the Board,

Company Secretary Richard Pieris Group Services (Pvt) Limited Secretaries 310, High Level Road, Nawinna, Maharagama 24th May 2010

Richard Pieris and Company PLC Annual Report 2009/2010

65

Auditor’s Report

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF RICHARD PIERIS AND COMPANY PLC Report on the Financial Statements We have audited the accompanying financial statements of Richard Pieris and Company PLC (“Company”), the consolidated financial statements of the Company and its subsidiaries which comprise the balance sheets as at 31 March 2010, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements 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 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. 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. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2010 and the financial statements give a true

and fair view of the Company’s state of affairs as at 31 March 2010 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2010 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company. Report on Other Legal and Regulatory Requirements In our opinion, 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 2007.

31st May 2010 Colombo

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Richard Pieris and Company PLC Annual Report 2009/2010

Balance Sheet
As at March 31 Assets Non-current assets Property, plant and equipment Leasehold property Investment property Intangible assets Investments in subsidiaries Investments in associates Other investments Deferred tax assets Current assets Inventories Trade and other receivables Taxation receivable Amounts due from subsidiaries Short term investments Cash at bank and in hand Total assets Equity and liabilities Equity attributable to equity holders of the parent Stated capital Capital reserves Revenue reserves Foreign currency translation Minority interests Total equity Non-current liabilities Interest bearing borrowings Net liability to the lessor payable Deferred income Deferred tax liabilities Employee benefit liabilities Current liabilities Trade and other payables Current portion of interest bearing borrowings Current portion of net liability to the lessor Deposits Amounts due to subsidiaries Current tax liabilities Short term borrowings Total liabilities Total equity and liabilities 13 14 15 16 17 Note 2010 Rs. ‘000 Group 2009 Rs. ‘000 Company 2010 2009 Rs. ‘000 Rs. ‘000

3 3 3 4 5 5 5 16

9,512,842 629,919 480,177 180,919 10,803,857 2,464,038 2,550,148 181,874 42,057 1,322,843 6,560,960 17,364,817

9,513,034 654,136 491,491 136,757 10,795,418 2,303,039 2,551,594 245,205 7,974 1,020,867 6,128,679 16,924,097

61,480 699,207 2,447,584 37,500 95,750 36,953 3,378,474 67,039 6,957 1,629,758 42,057 266,271 2,012,082 5,390,556

76,079 703,076 2,207,584 37,500 120,750 36,953 3,181,942 64,577 6,957 2,119,524 7,974 1,348,036 3,547,068 6,729,010

6 7 8

9 10 11 12

1,578,475 126,901 2,056,364 31,152 3,792,892 1,503,071 5,295,963 1,957,680 672,158 528,898 24,981 1,529,685 4,713,402 2,632,913 1,239,549 25,394 7,746 100,559 3,349,291 7,355,452 12,068,854 17,364,817

1,578,475 126,901 1,476,160 32,371 3,213,907 1,380,908 4,594,815 2,354,617 697,432 478,147 21,804 1,103,222 4,655,222 2,124,604 1,062,216 24,948 26,704 23,377 4,412,211 7,674,060 12,329,282 16,924,097

1,578,475 10,574 654,962 2,244,011 2,244,011 428,469 50,141 478,610 232,239 605,000 7,745 148,167 1,674,784 2,667,935 3,146,545 5,390,556

1,578,475 10,574 520,373 2,109,422 2,109,422 1,073,469 45,114 1,118,583 208,940 437,794 26,704 372,032 2,455,535 3,501,005 4,619,588 6,729,010

18 13 14

19

I certify that the financial statements comply with the requirements of the Companies Act No. 7 of 2007

Coralie Pietersz Group Chief Financial Officer The Board of Directors is responsible for the preparation and presentation of these financial statements.

P D Samarasinghe Director/ Chief Operating Officer

W J Viville Perera Director

The accounting policies and notes from pages 71 to 109 form an integral part of these financial statements. 24th May 2010

Richard Pieris and Company PLC Annual Report 2009/2010

67

Income Statement
For the year ended March 31 Continuing operations Revenue Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations Finance cost Profit/(loss) from operations after finance cost Share of results of associates Profit/(loss) before tax Income tax (expense)/reversal Profit for the year from continuing operations Discontinued Operations Loss after tax for the year from discontinued operations Profit/(loss) for the year Attributable to: Equity holders of the parent Minority interests Note Group 2010 2009 Rs. ‘000 Rs. ‘000 Company 2010 2009 Rs. ‘000 Rs. ‘000

21

22,339,288 (17,654,136) 4,685,152 355,879 (658,359) (2,354,806) (58,169) 1,969,697 (969,147) 1,000,550 59,609 1,060,159 (330,592) 729,567

21,103,176 (17,152,757) 3,950,419 505,401 (617,593) (2,417,822) (41,849) 1,378,556 (1,436,225) (57,669) 41,015 (16,654) (180,411) (197,065)

533,684 533,684 38,597 (237,916) 334,365 (199,776) 134,589 134,589 134,589

433,176 433,176 213,306 (374,644) 271,838 (319,669) (47,831) (47,831) 3,185 (44,646)

22

23 24 25 26 27

28

(17,873) 711,694

(107,963) (305,028)

134,589

(44,646)

580,204 131,490 711,694

(329,083) 24,055 (305,028)

Earnings/(loss) per share Basic / diluted (Rs.) Earnings/(loss) per share from continuing operations Basic / diluted (Rs.) Dividend per share (Rs.)

29

4.52

(2.57)

29 33

4.66 1.00

(1.72) -

Figures in brackets indicate deductions. The accounting policies and notes from pages 71 to 109 form an integral part of these financial statements.

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Richard Pieris and Company PLC Annual Report 2009/2010

Cash Flow Statement
For the year ended March 31 Cash flows from operating activities Profit/(loss) before tax and minority interest from continuing operations Loss before tax from discontinued operations Adjustments for Depreciation Impairment of property, plant and equipment Amortisation of leasehold property Interest charges Provision for defined benefit plans Profit on sales of property, plant and equipment Change in the value of short term investments Profit on investments Share of net profit of associates Exchange differences on translation of foreign currency Amortisation of grants and subsidies Allowances for bad debt and bad debts written off Allowances for obsolete and slow moving inventories Amortisation of goodwill, licences and technical know-how Allowances for unrealised profit Operating profit before working capital changes (Increase) / decrease in inventories (Increase) / decrease in trade and other receivables Increase / (decrease) in trade and other payables Cash generated from operations Interest paid Income tax paid Defined benefit plan costs paid Net cash flows from / (used in) operating activities Group 2010 2009 Rs. ‘000 Rs. ‘000 Company 2010 2009 Rs. ‘000 Rs. ‘000

1,060,159 (17,873)

(16,654) (107,963)

134,589

(47,831)

584,008 29,093 24,217 969,147 557,486 (1,038) (34,082) (44,161) (881) (23,508) 147,073 48,048 10,725 10,673 3,319,086 (219,721) (145,812) 489,352 3,442,905 (969,147) (186,900) (131,022) 2,155,836

572,242 29,442 24,138 1,436,225 203,845 (215,096) 5,100 (12,051) (35,751) 19,748 (21,128) 132,276 67,386 10,302 3,732 2,095,793 788,111 399,333 (191,699) 3,091,538 (1,436,225) (202,981) (138,273) 1,314,059

25,878 199,776 9,799 (34,082) 53,749 389,709 458,563 (219,534) 628,738 (199,776) (4,772) 424,190

24,246 319,669 7,061 (213,306) 5,100 (12,051) 128,502 211,390 (128,243) 112,470 195,617 (319,669) (3,466) (1,673) (129,191)

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69

For the year ended March 31 Cash Flows from / (used in) investing activities Purchase of investment in subsidiary Purchase of investment in associate and other investments Net proceeds from sale / (acquisition) of investments Purchase and construction of property plant and equipment Proceeds from sale of property, plant and equipment Grants received Net cash flows from/ (used in) investing activities Net cash inflow before financing Cash Flows from (Used in) Financing Activities Proceeds from interest bearing loans and borrowings Repayment of interest bearing loans and borrowings Principal payment under finance lease liabilities Dividend paid by subsidiary companies to minority shareholders Net cash flows (used in) financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of cash and cash equivalents at the end of the year Bank and cash balances 20 Short term borrowings 20

Group 2010 2009 Rs. ‘000 Rs. ‘000

Company 2010 2009 Rs. ‘000 Rs. ‘000

(618,858) 2,851 74,259 (541,748) 1,614,088

54,524 (730,296) 297,790 113,132 (264,850) 1,049,209

(240,000) (7,410) (247,410) 176,780

(55,000) 265,763 (47,480) 233,391 396,674 267,483

1,445,223 (1,661,459) (24,828) (8,128) (249,192) 1,364,896 (3,391,344) (2,026,448)

551,015 (1,140,492) (19,686) (43,970) (653,133) 396,076 (3,787,420) (3,391,344)

(477,795) (477,795) (301,015) (1,107,498) (1,408,513)

(435,361) (4,197) (439,558) (172,075) (935,423) (1,107,498)

1,322,843 (3,349,291) (2,026,448)

1,020,867 (4,412,211) (3,391,344)

266,271 (1,674,784) (1,408,513)

1,348,037 (2,455,535) (1,107,498)

The accounting policies and notes from pages 71 to 109 form an integral part of these financial statements.

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Richard Pieris and Company PLC Annual Report 2009/2010

Statement of Changes in Equity
Attributable to equity holders of the parent Capital Revenue Retained Foreign reserves reserves profit currency translation Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Stated capital 1,578,475 1,578,475 1,578,475 1,578,475 126,901 126,901 126,901 126,901 179,443 179,443 179,443 179,443 1,625,800 (329,083) 1,296,717 1,296,717 580,204 1,876,921 21,599 10,772 32,371 32,371 (1,219) 31,152 Minority interest Total Rs. ‘000 3,532,218 (329,083) 10,772 3,213,907 3,213,907 580,204 (1,219) 3,792,892 Rs. ‘000 1,390,232 24,055 (45,677) 10,591 1,707 1,380,908 1,380,908 131,490 (8,128) (1,199) 1,503,071 Total equity Rs. ‘000 4,922,450 (305,028) (45,677) 21,363 1,707 4,594,815 4,594,815 711,694 (8,128) (2,418) 5,295,963

Group Balance as at 1st April 2008 Profit / (loss) for the period Subsidiary dividend to minority shareholders Effect of foreign currency translation Adjustments due to changes in holding Balance as at 31st March 2009 Balance as at 31st March 2009 Profit for the period Subsidiary Dividend to Minority Shareholders Effect of foreign currency translation Balance as at 31st March 2010 Company Balance as at 1st April 2008 Loss for the period Balance as at 31st March 2009 Balance as at 31st March 2009 Profit for the period Balance as at 31st March 2010

1,578,475 1,578,475 1,578,475 1,578,475

10,574 10,574 10,574 10,574

-

565,019 (44,646) 520,373 520,373 134,589 654,962

-

2,154,068 (44,646) 2,109,422 2,109,422 134,589 2,244,011

-

2,154,068 (44,646) 2,109,422 2,109,422 134,589 2,244,011

The accounting policies and notes from pages 71 to 109 form an integral part of these financial statements.

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Notes to the Financial Statements
1. CORPORATE INFORMATION Richard Pieris and Company PLC is a public limited liability company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The registered office and principal place of business of the company is located at 310, High Level Road, Nawinna, Maharagama. In the Annual Report of the Board of Directors and in the financial statements, “the company” refers to Richard Pieris and Company PLC as the holding company and “the group” refers to the companies whose accounts have been consolidated therein. The financial statements for the year ended 31st March 2010 were authorised for issue by the Directors on 24th May 2010. The principal activities of the group are stated in the Annual Report of the Board of Directors. All values presented in the financial statements are in Sri Lanka rupees thousands (Rs.’000s) unless otherwise indicated. The significant accounting policies are discussed below. 1.1 GENERAL POLICIES 1.1.1 Statement of compliance The Balance Sheet, Income Statement, Statement of Changes in Equity and the Cash Flow Statement, together with the accounting policies and notes (the “financial statements”) have been prepared in compliance with the Sri Lanka Accounting Standards (SLAS) issued by the Institute of Chartered Accountants of Sri Lanka. 1.1.2 Basis of preparation The financial statements, presented in Sri Lanka rupees, have been prepared on an accrual basis and under the historical cost convention unless stated otherwise. The preparation and presentation of these financial statements is in compliance with the Companies Act No. 07 of 2007. 1.1.3 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial year. 1.1.4 Comparative information The accounting policies applied by the group are consistent with those used in the previous year. Previous year’s figures and phrases have been re-arranged, wherever necessary, to conform to the current year’s presentation. 1.1.5 Events after the balance sheet date All material post balance sheet events have been considered and appropriate adjustments or disclosures have been made in the respective notes to the financial statements. 1.2 CONSOLIDATION POLICY 1.2.1 Basis of consolidation The consolidated financial statements include the financial statements of the company, its subsidiaries and other companies over which it has control. The Group’s Financial Statements comprise the consolidated financial statements of the company and the group which have been prepared in compliance with the group’s accounting policies. All intra group balances, income and expenses and profits and losses resulting from intra group transactions are eliminated in full. 1.2.2 Acquisitions and divestments Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The results of subsidiaries, joint ventures and associates acquired or incorporated during the year have been included from the date of acquisition, or incorporation while results of subsidiaries, joint ventures and associates disposed have been included up to the date of disposal. 1.2.3 Subsidiaries Subsidiaries are those enterprises controlled by the parent. Control exists when the parent holds more than 50% of the voting rights or otherwise has a controlling interest. Subsidiaries are consolidated from the date the parent obtains control until the date that control ceases. Subsidiaries consolidated have been listed in the Group Structure. The total profits and losses for the period, of the Company and of its subsidiaries included in consolidation and all assets and liabilities of the Company and of its subsidiaries included in consolidation are shown in the Consolidated Income Statement and Balance Sheet respectively. Minority interests, which represents the portion of profit or loss and net assets not held by the group, are shown as a component of profit for the period in the Income Statement and as a component of equity in the Consolidated Balance Sheet, separately from parent shareholders’ equity.

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Notes to the Financial Statements contd.
The Consolidated Cash Flow Statement includes the cash flows of the Company and its subsidiaries. 1.2.4 Associates Associates are those investments over which the group has significant influence and holds 20% to 50% of the equity and which are neither subsidiaries nor joint ventures of the group. All associates are incorporated in Sri Lanka. The investments in associates are carried in the Balance Sheet at cost plus post acquisition changes in the group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment. After application of the equity method, the group determines whether it is necessary to recognise any additional impairment loss with respect to the group’s net investment in the associate. The Income Statement reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the group recognises its share of any changes in the Statement of Changes in Equity. When the group’s share of losses in an associate equals or exceeds the interest in the undertaking, the group does not recognise further losses unless it has incurred obligations or made payments on behalf of the entity. The group ceases to use the equity method of accounting on the date from which it no longer has significant influence in the associate. The accounting policies of associate companies conform to those used for similar transactions of the group. Accounting policies that are specific to the business of associate companies are discussed in note 2.7. 1.2.5 Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cashgenerating units that are expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cashgenerating unit to which goodwill relates. Where the recoverable amount of the cash generating unit is less than the carrying amount, an impairment loss is recognised. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. 1.2.6 Financial year Results of all subsidiaries and associates (except for Asian Alliance Insurance PLC) are drawn for the twelve month period up to 31st March, which is their year end. The results of Asian Alliance Insurance PLC is drawn for the twelve month period up to 31st December, which is their year end. 2.1 SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which has the most significant effect on the amounts recognised in the Financial Statements. Going Concern When preparing financial statements, management has made assessment of the ability of the constituents of the Group to continue as a going concern, taking into account all available information about the future, including intentions of curtailment of businesses, as decided by the Board, as disclosed in Note 28 to the Financial Statements.

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Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Allowance for doubtful debts The Group reviews at each balance sheet date all receivables to assess whether an allowance should be recorded in the Income Statement. The management uses judgment in estimating such amounts in the light of the duration of, outstanding and any other factors management is aware of that indicates uncertainty in recovery. Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the Balance Sheet date, that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year are discussed below. The respective carrying amounts of assets and liabilities are given in related notes to the financial statements. Defined benefit plans The cost of defined benefit plansgratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature

of these plans, such estimates are subject to significant uncertainty. Intangible assets For the purposes of impairment testing, goodwill is allocated to cash generating units when cash generating units to which goodwill has been allocated are tested for impairment annually, using Value in Use method. The calculation of value in use for the cash generating unit is most sensitive to the assumptions of sales growth, discount rates and cost increases due to inflation Inventory valuation – Produce inventory The Group has valued part of unsold produce inventory at since realised prices. The balance unsold inventory remained as at the balance sheet date valued at an estimated selling price based on most recent selling prices available subsequent to the year end. 2.2 FOREIGN CURRENCY TRANSLATION 2.2.1 Foreign currency transactions The consolidated financial statements are presented in Sri Lanka Rupees, which is the company’s functional and presentation currency. The functional currency is the currency of the primary economic environment in which the entities of the group operate. All foreign exchange transactions are converted to Sri Lanka Rupees, at the rates of exchange prevailing at the time the transactions are effected. Monetary assets and liabilities denominated in foreign currency

are retranslated to Sri Lanka Rupee equivalents at the exchange rate prevailing at the Balance Sheet date. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. The resulting gains and losses are accounted for in the Income Statement. 2.2.2 Foreign operations The Balance Sheet and Income Statement of subsidiaries which are deemed to be foreign operations are translated to Sri Lanka Rupees at the rate of exchange prevailing as at the Balance Sheet date and at the average annual rate of exchange for the period respectively. Arpitalian Compact Soles (Private) Limited use US Dollars as its functional currency as it conducts the majority of its business in US Dollars and is entitled to the benefits provided to companies approved by the Board of Investment of Sri Lanka. Arpitalian Compact Soles (Private) Limited adopted US Dollars as its measurement and functional currency in line with SLAS 21 which deals with “Effects of Changes in Foreign Exchange Rates” and has been translated to the presentation currency of the group, Sri Lankan Rupees, for consolidation purpose. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the Income Statement.

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Notes to the Financial Statements contd.
2.3 TAX 2.3.1 Current tax Provision for income tax is based on the elements of income and expenditure as reported in the financial statements and is computed in accordance with the provisions of the relevant tax statutes. 2.3.2 Deferred tax Deferred taxation is the tax attributable to the temporary differences that arise when taxation authorities recognise and measure assets and liabilities with rules, that differ from those of the consolidated financial statements. Deferred 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 are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when the asset is realised or liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted as at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority. Deferred tax relating to items recognised directly in equity is recognised in equity. 2.4 VALUATION OF ASSETS AND THEIR BASES OF MEASUREMENT 2.4.1 Property, plant and equipment a) Cost and valuation Property, plant and equipment is stated at cost or fair value less accumulated depreciation and any accumulated impairment in value. The carrying values of property plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. All items of property, plant and equipment are initially recorded at cost. Where items of property, plant and equipment are subsequently revalued, the entire class of such assets are revalued at fair value. When an asset is revalued, any increase in the carrying amount is credited directly to a revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the Income Statement, in which case the increase is recognised in the Income Statement. Any revaluation deficit that offsets a previous surplus in the same asset is directly offset against the surplus in the revaluation reserve and any excess recognised as an expense. Upon disposal, any revaluation reserve relating to the asset sold is transferred to retained earnings. Items of property, plant and equipment are derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is included in the Income Statement in the year the asset is derecognised. Immature and mature plantations The cost of replanting and new planting are classified as immature plantations upto the time of harvesting the crop. Further the general charges incurred on the plantation are apportioned based on the labour days spent on respective replanting and new planting, and capitalised on the immature areas. The remaining portion of the general charges is expensed in the accounting period in which it is incurred. The cost of areas coming in to bearing are transferred to mature plantations and depreciated over their useful life period. Infilling cost Where infilling results in an increase in the economic life of the relevant field beyond its previously assessed standard of performance, the costs are capitalized in accordance with Sri Lanka Accounting Standard 32 “Plantations” and depreciated over the useful life as rates applicable to mature

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plantations. Infilling costs that are not capitalised have been charged to the Income Statement in the year in which they are incurred. b) Depreciation Provision for depreciation is calculated by using a straight line method on the cost or valuation of all property, plant and equipment, other than freehold land, in order to write off such amounts over the estimated useful economic life of such assets. The estimated useful life of assets are as follows: Buildings 20-60 years Plant, machinery tools and electrical installations 5-10 years Furniture, fixtures and fittings 4-10 years Office and other equipment 5-10 years Computers 3-10 years Motor vehicles 4-10 years Land improvements 20 years Replanting and new planting - Tea 33 years - Rubber 20 years - Coconut 50 years The useful life and residual value of assets are reviewed, and adjusted if required, at the end of each financial year. c) Finance leases Property, plant and equipment on finance leases, which effectively transfer to the group substantially all the risk and benefits incidental to ownership of the leased items, are capitalised and disclosed as finance leases at their cash price and depreciated over the period the group

is expected to benefit from the use of the leased assets. The corresponding principal amount payable to the lessor is shown as a liability. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the outstanding balance of the liability. The interest payable over the period of the lease is transferred to an interest in suspense account. The interest element of the rental obligations pertaining to each financial year is charged to the Income Statement over the period of lease. The cost of improvements to leasehold property is capitalised, disclosed as leasehold improvements, and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. d) Operating leases Leases, where the lessor effectively retains substantially all of the risks and benefits of ownership over the term of the lease, are classified as operating leases. Lease payments are recognised as an expense in the Income Statement over the term of the lease. 2.4.2 Leasehold property Leasehold property is stated at recorded carrying values as at the effective date - Sri Lanka Accounting Standard 19 - Leases. Such carrying amounts are amortised over the remaining lease term or useful life of the leased property whichever is shorter. No further revaluations of these leasehold property will be carried out.

The leasehold rights are being amortised in equal amounts over the following periods: Bare land Mature plantations Leasehold buildings Machinery Land improvements 53 years 30 years 25 years 15 years 30 years

2.4.3 Investment property Properties held to earn rental income, and properties held for capital appreciation have been classified as investment property. Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. After initial recognition the company measures all of its investment property using the cost model in accordance with the requirements in SLAS 18 (Revised 2005) Property, Plant and Equipment other than those that meet the criteria to be classified as held for sale. Investment properties are derecognised when disposed, or permanently withdrawn from use because no future economic benefits are expected. Any gains or losses on retirement or disposal are recognised in the Income Statement in the year of retirement or disposal. Transfers are made to investment property, when there is a change in use, evidenced by ending of owner

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Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property, when there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. Where group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements, and accounted for as per SLAS 18 (revised 2005) Property, Plant and Equipment. 2.4.4 Intangible assets An intangible asset is initially recognised at cost, if it is probable that future economic benefit will flow to the enterprise, and the cost of the asset can be measured reliably. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. 2.4.5 Investments All quoted and unquoted securities, which are held as non-current investments, are valued at cost. The cost of the investment is the cost of acquisition inclusive of brokerage and costs of transaction. The carrying amounts of long term investments are reduced to recognise a decline which is considered other than temporary, in the value of investments, determined on an individual investment basis. In the company’s financial statements, investments in subsidiaries and associate companies have been accounted for at cost, net of any impairment losses which are charged to the Income Statement. Income from these investments are recognised only to the extent of dividends received. Short term investments are carried at market value. 2.4.6 Impairment of assets The group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the income statement except for impairment losses in respect of property, plant and equipment which are recognised against the revaluation reserve to the extent that it reverses a previous revaluation surplus. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. Previously recognised impairment losses other than in respect of goodwill, are reversed only if there has been an increase in the recoverable amount of the asset. Such increase is recognised to the extent of the carrying amount had no impairment losses been recognised previously. 2.4.7 Inventories Inventories other than produce inventories are valued at the lower of cost and net realisable value after making due allowances for obsolete and slow moving items. Net realisable value is the estimated selling price less estimated costs of completion and the estimated costs necessary to make the sale. The costs incurred in bringing inventories to its present location and condition, are accounted for as follows: a) Raw materials At actual cost on first-in first-out basis and weighted average cost b) Work-in- progress At the cost of direct materials, direct

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labour and an appropriate proportion of production overheads based on normal operating capacity. c) Finished goods At purchase cost and /or cost of direct materials, direct labour and an appropriate proportion of production overheads based on normal operating capacity. d) Goods in transit At actual cost e) Produce inventories At since realised price 2.4.8 Trade and other receivables Trade and other receivables are stated at the amounts they are estimated to realise, net of allowances for bad and doubtful receivables. Allowances have been made for bad and doubtful debts. Bad debts are written off when identified. 2.4.9 Cash and cash equivalents Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand and short term deposits with a maturity of 3 months or less, net of outstanding bank overdrafts and short term borrowings. 2.5 LIABILITIES AND PROVISIONS 2.5.1 Employee Benefit Liabilities a) Defined benefit plan – Gratuity The group measures the present value of the promised retirement benefits of gratuity, which is a defined benefit plan using Projected Unit Credit method (PUC). The services of a qualified actuary is obtained to determine the valuation once in every 2 years for plantation

companies and every 3 years for other companies in the group. Actuarial gains and losses are recognised as income or expenses immediately. This item is stated under Employee Benefit Liabilities in the Balance Sheet. The basis of payment of retiring gratuity as follows: Length of service (years) No. of months salary for each completed year of service 0 ½ ¾ 1 1¼

period necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is set up as deferred income. Where the group receives non-monetary grants, the asset and that grant are recorded at nominal amounts and is released to the Income Statement over the expected useful life of the relevant asset by equal annual installments. 2.5.3 Provisions, contingent assets and contingent liabilities Provisions are made for all obligations existing as at the Balance Sheet date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. All contingent liabilities are disclosed as a note to the financial statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable. 2.6 INCOME STATEMENT 2.6.1 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 value added taxes, after eliminating sales within the group. The following specific criteria are used for recognition of revenue:

00-04 05-10 11-20 21-30 Over 30

b) Defined contribution plans Employees’ Provident Fund and Employees’ Trust Fund Employees are eligible for Arpico Employees’ Provident Fund Contributions / Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions in line with the respective Statutes and Regulations. The Companies contribute 12% and 3% of gross emoluments of employees to the Arpico Employees’ Provident Fund / Employees’ Provident Fund and Employees’ Trust Fund respectively. 2.5.2 Grants and subsidies Grants are recognised where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the

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Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
a) Sale of goods Revenue from the sale of goods is recognised when the significant risk and rewards of ownership of the goods have passed to the buyer with the group retaining neither a continuing managerial involvement to the degree usually associated with ownership, nor an effective control over the goods sold. b) Rendering of services Revenue from rendering of services is recognised in the accounting period in which the services are rendered or performed. c) Construction revenue Construction revenue is recognised by reference to the stage of completion, determined by taking into accounts the labour hours incurred to date as a percentage of total estimated labour hours for each contract. Where the contract outcome cannot be measured reliably, revenue is recognised only to the extent of expenses incurred that are recoverable. d) Plantation companies In keeping with the practice in the Plantation Industry revenue or profit or loss on Perennial Crops are recognised in the financial period of harvesting. Revenue is recorded at invoice value net of brokerage, public sale expenses and other levies related to turnover. e) Turnover based taxes Turnover based taxes include Value Added Tax, Economic Service Charge, Turnover Tax and Nation Building Tax. Companies in the group pay such taxes in accordance with the respective statutes. 2.6.2 Dividend Dividend income is recognised when the shareholders’ right to receive the payment is established. 2.6.3 Rental income Rental income is recognised on an accrual basis over the term of the lease. 2.6.4 Royalties Royalties are recognised on an accrual basis in accordance with the substance of the relevant agreement. 2.6.5 Interest income Interest income is recognised as and when the interest accrues. 2.6.6 Gains and losses Net gains and losses of a revenue nature arising from the disposal of property, plant and equipment and other non-current assets, including investments, are accounted for in the Income Statement, after deducting from the proceeds on disposal, the carrying amount of such assets and the related selling expenses. Gains and losses arising from activities incidental to the main revenue generating activities and those arising from a group of similar transactions which are not material, are aggregated, reported and presented on a net basis. 2.6.7 Other income Other income is recognised on an accrual basis. 2.6.8 Borrowing costs Borrowing costs are recognised as an expense in the period in which they are incurred except to the extent where borrowing costs that are directly attributable to the acquisition, construction or production of assets that takes a substantial period of time to get ready for its intended use or sale, is capitalised. 2.7 SIGNIFICANT ACCOUNTING POLICIES THAT ARE SPECIFIC TO THE BUSINESS OF ASSOCIATE COMPANIES 2.7.1 Asian Alliance Insurance PLC a) Non - Life (General) Insurance Business - Gross Written Premiums Gross Written Premium is generally recognised as written upon inception of the policy. Upon inception of the contract, premia are recorded as written and are earned primarily on a pro-rata basis over the term of the related policy coverage. However, for those contracts for which the period of risk differs significantly from the contract period, premia are earned over the period of risk in proportion to the amount of insurance protection provided. Earned premia are calculated on the 24th basis except for marine business, which is computed on a 6040 basis. b) Life Insurance Business – Gross Written Premium Premia from traditional long term insurance contacts, including participating contacts and annuity policies with life contingencies, are recognised as revenue when cash is recieved from the policyholder. 2.8 SEGMENT INFORMATION 2.8.1 Reporting segments The activities of the segments are described in the Segmental Review of Operations. Segmentation has been determined based on primary format and secondary format. Primary format represents the business segments, identified based on the differences in

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the products and services produced which has a similar nature of process, risk and return while the secondary format is on the basis of geographical areas in which the products or services are sold. The operating results of the segments are described in Note 21 to the financial statements. The geographical analysis is by the location of the customer. Since the manufacturing and marketing service as well as the assets and liabilities are located in Sri Lanka, only the turnover has been analysed into the geographical location. 2.8.2 Segment information Segment information has been prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements of the group. 2.9 EFFECT OF SRI LANKA ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE: The following standards have been issued by the Institute of Chartered Accountants of Sri Lanka and are effective for the accounting periods on the dates specified below. a) Sri Lanka Accounting Standard 44 Financial Instruments; Presentation (SLAS 44) and Sri Lanka Accounting Standard 45 Financial Instruments; Recognition & Measurement (SLAS 45) SLAS 44 and 45 becomes effective for financial years beginning on or after 1 January 2011. Accordingly, the financial Statements for the year ending 31 March 2012 will adopt SLAS 44 and 45, for the first time.

These two standards together provide comprehensive guidance on identification, classification, measurement and presentation of financial instruments (including derivatives) into financial assets, financial liabilities and equity instruments. In order to comply with the requirements of these standards, the Group is in the process of assessing the effect of adoption of the aforesaid two standards. Due to the complex nature of the effects of these standards, the impact of adoption cannot be estimated as at the date of publication of these financial statements. b) Sri Lanka Accounting Standard 39- Share Based Payments (SLAS 39)SLAS 39- Share based payments, effective for periods beginning on or after 1st January 2010 will be first adopted in the year ending 31 March 2011. This standard requires an expense to be recognized where the Group buys goods or services in exchange for shares or rights over shares (equity –settled transactions), or in exchange for other assets equivalent in value to a given number of shares or rights over shares ( cash- settled transactions). For equity-settled share-based payment transactions, the Group is required to apply SLAS 39 for grants of shares, share options or other equity instruments that were granted after 1 January 2010. The Group is in the process of evaluating the impact of this standard. However, it is unlikely that this Standard will have a material impact on the financial statements.

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Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
3. A. Property plant & equipment Group As at 01.04.2009 Rs.’000 Cost / valuation Land / Land Improvements Buildings/Buildings improvements Immature / mature plantations Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers Capital work in progress Disposals/ transfers Rs.’000 Effect of foreign currency translation Rs.’000 As at 31.03.2010 Rs.’000

Additions Impairment Rs.’000 Rs.’000

1,698,708 2,232,079 3,558,361 3,426,274 426,270 388,897 487,436 307,659 160,143 12,685,827

56,097 89,875 362,366 56,566 4,974 3,087 16,639 5,491 58,602 653,697

-

(362) (2,445) (3,647) (844) (34,839) (42,137)

(1,153) -

1,754,805 2,320,801 3,920,727

(6,887) 3,475,953 430,882 (149) 389,390 (16) 500,412 312,306 183,906 (8,205) 13,289,182

As at 01.04.2009

Charge for the Impairment year Rs.’000 Rs.’000

On disposals

Rs.’000 Depreciation / amortization Land Improvements Buildings Immature / mature plantations Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers

Rs.’000

Effect of foreign currency translation Rs.’000

As at 31.03.2010

Rs.’000

32,838 353,106 404,901 1,701,191 268,315 195,440 402,107 252,075 3,609,973

6,089 64,131 96,778 234,605 42,351 39,060 33,966 21,862 538,842

5,438 23,469 139 4 43 29,093

(400) (175) (1,042) (3,524) (523) (5,664)

(275) (3,460) (139) (17) (3,891)

38,927 422,400 501,279 1,955,805 310,630 233,323 432,532 273,457 4,168,353

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3. Property plant & equipment contd. Net Book Values

2010 Rs.’000 1,715,878 1,898,401 3,419,448 1,520,148 120,252 156,067 67,880 38,849 183,906 9,120,829

2009 Rs.’000 1,665,870 1,878,973 3,153,460 1,725,083 157,955 193,457 85,329 55,350 160,377 9,075,854

Land / Land Improvements Buildings/Buildings improvements Immature / mature plantations Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers Capital work in progress

Assets acquired on finance leases

As at 01.04.2009

Additions Impairment

Disposals/ transfers

Rs.’000 Cost / valuation Immature / mature plantations Plant & machinery Office & other equipment Motor vehicles

Rs.’000

Rs.’000

Rs.’000

Effect of foreign currency translation Rs.’000

As at 31.03.2010

Rs.’000

758,385 134,286 836 4,630 898,137

-

-

-

-

758,385 134,286 836 4,630 898,137

As at 01.04.2009

Charge for the Impairment year Rs.’000 Rs.’000

On disposals

Rs.’000 Depreciation / amortization Immature / mature plantations Plant & machinery Office & other equipment Motor vehicles

Rs.’000

Effect of foreign currency translation Rs.’000

As at 31.03.2010

Rs.’000

364,200 94,449 254 2,054 460,957

25,730 16,802 59 2,576 45,167

-

-

-

389,930 111,251 313 4,630 506,124

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Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
3. Property plant & equipment contd. 2010 Rs.’000 Net Book Values Immature / mature plantations Plant & machinery Office & other equipment Motor vehicles Total carrying amount of property, plant and equipment 2009 Rs.’000

368,455 23,035 523 392,013 9,512,842

394,185 39,837 582 2,576 437,180 9,513,034

B.

Leasehold Property As at 01.04.2009 Additions Impairment Disposals/ transfers currency translation Rs.’000 Effect of foreign As at 31.03.2010

Rs.’000 Cost / valuation Land Buildings

Rs.’000

Rs.’000

Rs.’000

Rs.’000

828,468 201,280 1,029,748

-

-

-

-

828,468 201,280 1,029,748

As at 01.04.2009

Charge for the Impairment year Rs.’000 Rs.’000

On disposals

Rs.’000 Amortization Land Buildings

Rs.’000

Effect of foreign currency translation Rs.’000

As at 31.03.2010

Rs.’000

239,553 136,059 375,612

16,720 7,497 24,217

-

-

-

256,273 143,556 399,829

2010 Rs.’000 Land Buildings Total carrying amount of leasehold property 572,195 57,724 629,919

2009 Rs.’000 588,915 65,221 654,136

Richard Pieris and Company PLC Annual Report 2009/2010

83

3. Property plant & equipment contd. Of the 42 JEDB / SLSPC estates handed over to the Kegalle Plantations PLC and Maskeliya Plantations PLC, all estate leases except for that of Ambanpitiya Estate has been executed as at the balance sheet date. With regard to Namunukula Plantations lease agreements for 10 estates have been executed and memorandum of record has been signed for the balance 10 estates. All of these leases will be retroactive to June 22, 1992 the date of formation of the companies. In terms of the ruling obtained from Urgent Issue Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka the leasehold right to bare land and all immovable assets under finance lease in these estates have been taken into the books of the companies retroactive to June 22, 1992. While the bare land has been accounted for based on a value established just prior to the formation of the companies upon a revaluation carried out by a valuation specialist, Mr. D.R. Wickremasinghe, all other immovable assets under finance leases have been taken into the books of the companies at their book values as they appeared in the books of JEDB /SLSPC, on the day immediately preceding the date of formation of the companies. The assets are amortised on a straight line basis over their estimated useful lives. Land and buildings and certain movable assets and liabilities of the SLSPC at Glencroft Office situated at Norwood Estate have not been incorporated in the financial statements of Maskeliya Plantations PLC. The other assets of the two companies included under Property, plant and equipment represents all other movable assets vested in the company by gazette notification at the date of formation of the company. The unexpired period of the lease as at the balance sheet date was 35 years. Lease rentals prepaid to acquire land use rights, which was previously shown under property plant and equipment have now been re-classified under leasehold property. Prepaid lease rentals paid to acquire land rights are amortised over the lease term in accordance with the pattern of benefits provided. Property (excluding leasehold property) with a carrying amount of Rs. 2,579 mn( 2009-Rs. 5,835 mn) are pledged as security for loans obtained. Borrowing costs amounting to Rs. 28.76 mn (2009 Rs. 35.15 mn) have been capitalised which was incurred on long term loans related to immature plantations in the plantation sector using a capitalisation rate of 11.77% (2009 - 11.75%-15%). Impairment of Property, plant and equipment The recoverable amount for certain items of plant and machinery was estimated and impairment losses were recognized to reduce the carrying amounts as follows: Richard Pieris Natural Foams Ltd Hamefa Kegalle (Pvt) Ltd C. Company Rs. 16 mn Rs. 13 mn As at 01.04.2009 Additions Disposals/ transfers Effect of foreign currency translation Rs.’000 As at 31.03.2010

Rs.’000 Cost / valuation Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers

Rs.’000

Rs.’000

Rs.’000

58,251 25,400 15,055 66,776 25,553 191,035

818 517 1,434 306 3,075

-

-

59,069 25,917 16,489 66,776 25,859 194,110

84

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
3. Property plant & equipment contd. As at 01.04.2009 Charge for the year Rs.’000 On disposals Effect of foreign currency translation Rs.’000 As at 31.03.2010

Rs.’000 Depreciation / amortization Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers

Rs.’000

Rs.’000

40,914 18,450 7,577 32,838 15,177 114,956

3,034 1,365 1,381 8,887 3,008 17,675

-

-

43,948 19,815 8,958 41,724 18,185 132,630

Net book value

2010 Rs.’000 15,121 6,102 7,531 25,052 7,674 61,480

2009 Rs.’000 17,337 6,950 7,477 33,938 10,377 76,079

Plant, machinery, tools & electrical installations Office & other equipment Furniture, fixtures & fittings Motor vehicles Computers

Investment property D. Company As at 01.04.2009 Rs.’000 Gross carrying amounts Freehold land Buildings on freehold land Plant and machinery Additions Rs.’000 Disposals/ transfers Rs.’000 As at 31.03.2010 Rs.’000

474,423 256,966 24,307 755,696

4,334 4,332

-

474,423 261,300 24,307 760,030

As at 01.04.2009 Rs.’000 Depreciation Buildings on freehold land Plant and machinery

Charge for the Year Rs.’000

On Disposals Rs.’000

As at 31.03.2010 Rs.’000

37,614 15,006 52,620

6,425 1,778 8,203

-

44,039 16,784 60,823

Richard Pieris and Company PLC Annual Report 2009/2010

85

3.

Property plant & equipment contd. 2010 Rs. 000 2009 Rs. 000

Net Book Values Freehold land Buildings on freehold land Plant and machinery Total carrying amount of investment property

474,423 217,261 7,523 699,207

474,423 219,352 9,301 703,076

Rental income earned from investment property by the company amounted to Rs128.mn (Rs.124mn in 2008/2009). Direct operating expenses incurred by the company amounted to Rs. 3.3.mn (Rs.7.5mn in 2008/2009). Fair value of Investment property as at 31 March 2010 amounted to Rs. 4,945mn.

4

Intangible Assets Goodwill Rs.000 Licences Rs.000 Other intangibles Rs.000 Total Rs.000

Cost/Carrying value As at 1 April 2009 Acquired / Incurred during the period Retired / Disposed during the period Discontinued Operation As at 31 March 2010 Accumulated amortisation/impairment As at 1 April 2009 Amortisation for the year Exchange traslation difference As at 31 March 2010 Net book value As at 1 April 2009 As at 31 March 2010

445,807 445,807

16,708 16,708

70,082 70,082

532,597 532,597

8,725 8,725

6,684 3,341 10,025

25,697 7,384 589 33,670

41,106 10,725 589 52,420

437,082 437,082

10,024 6,683

44,385 36,412

491,491 480,177

86

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
(a) Goodwill Goodwill represents the excess of an acquisition over the company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition, and is carried at cost less accumulated impairment losses. The group Goodwill of the group has been allocated to four cash-generating units, for impairment testing as follows: 1. Kegalle Plantations PLC 2. Namunukula Plantations PLC 3. Maskeliya Plantations PLC 4. Arpico Super Centre in Kandy Goodwill is not amortised, but is reviewed for impairment annually and whether there is an indication that goodwill may be impaired. For the purpose of testing goodwill for impairment, goodwill is allocated to the operating entity level, which is the lowest level at which the goodwill is monitored for internal management purpose. The recoverable amount of the goodwill is determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management for one year, and forecast for the four years thereafter, covering a five year period. (b) Licenses Licenses include separately acquired four operating licenses stated at cost less accumulated amortizations and impairment losses. Licences acquired during the year have been amortized evenly over the period of five years commencing from the financial year 2007/2008. (c) Other intangible assets Other intangible assets represents the value of services provided by the foreign collaborator on engineering assembly know-how training, technological assistance and works management to Arpitilian Compact Soles (Private) Limited. This is amortized over a period of fifteen years and commencing from the financial year 2000/2001. The recoverable amount of the know how is determined based on a value in use calculation using cash flow projections based on financial budgets approved by senior management for one year, and forecast for the four years thereafter, covering a five year period. Key assumptions used in Value in Use calculations Volume growth - Volume growth is based on past performance, the approved budget and expected performance of such CGU based on the actual performance. Discount rates - Discount rates reflect management’s estimate of the risk specific to the unit. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. Cost increase due to inflation - Expected inflationary levels over the next five years based on management judgement were used to estimate the increase in costs over similar periods.

Richard Pieris and Company PLC Annual Report 2009/2010

87

5 A

Investments Company investment in subsidiaries
% Holding 31.03.2010 31.03.2009 31.03.2010 No of shares Movement 31.03.2009 31.03.2010 Value Rs.000 Movement 31.03.2009

Quoted investments Richard Pieris Exports PLC (Rs237mn) * Unquoted investments Richard Pieris Distributors Ltd. Arpidag International (Pvt) Ltd. ( Rs. 100/- each) Richard Pieris Tyre Co. Ltd. Richard Pieris Rubber Products Ltd. Richard Pieris Rubber Compounds Ltd. Arpico Furniture Ltd. Arpico Plastics Ltd. Arpico Industrial Development Co. Ltd. Ordinary Shares 12% Redeemable Cumulative preference shares Plastishells Ltd. Richard Pieris Natural Foams Ltd. Arpico Flexifoam (Pvt) Ltd. Arpitalian Compact Soles (Pvt) Ltd. Ordinary Shares 10% Redeemable Cumulative Preference Shares RPC Management Services (Pvt) Ltd. Richard Pieris Group Services (Pvt) Ltd. Arp-Eco(Pvt) Ltd. RPC Logistics (Pvt) Ltd. Richard Pieris Plantations (Pvt) Ltd. R P C Real Estate Development Co. (Pvt) Ltd. Arpico Homes (Pvt) Ltd. Arpico Exotica Asiana (Pvt) Ltd. RPC Globe Travel (Pvt) Ltd. RPC Construction (Pvt) Ltd. Arpitech Ltd. Arpimall Development Co (Pvt) Ltd. Arpico Interiors (Pvt) Ltd. Provision for fall in value of the investment in Arpico Furniture Ltd. RPC Globe Travel (Pvt) Ltd. RPC Construction (Pvt) Ltd. Arpitech Ltd. Company investments in subsidiaries

81

81

8,959,997

-

8,959,997

200,555

-

200,555

100 51 100 100 100 100 100 100

100 51 100 100 100 100 100 100

106,673,960 234,598 4,000,000 2,700,000 1,700,000 4,000,000 2,900,000 1,500,000 9,140,000 3,361,000 14,022,253 25,000,018 4,000,000 6,404,500 7,500,000 2 2 2,000,002 7 2 2 2 600,000 2,000,000 3,500,000 5,000,000 2,500,000

22,500,018

106,673,960 234,598 4,000,000 2,700,000 1,700,000 4,000,000 2,900,000 1,500,000 9,140,000 3,361,000 14,022,253 2,500,000 4,000,000

812,130 27,110 50,000 27,000 17,000 40,000 29,000 15,000 91,400 35,615 143,479 250,000 40,000 64,045 550,250 20,000 6,000 20,000 35,000 50,000 25,000 2,548,584 (40,000) (6,000) (20,000) (35,000) 2,447,584

225,000 15,000 240,000 240,000

812,130 27,110 50,000 27,000 17,000 40,000 29,000 15,000 91,400 35,615 143,479 25,000 40,000 64,045 550,250 5,000 6,000 20,000 35,000 50,000 25,000 2,308,584 (40,000) (6,000) (20,000) (35,000) 2,207,584

98 22 100 16

98 31 100 16

100 100 100 100 100 100 100 100 100 100 100 24 83

100 100 100 100 100 100 100 100 100 100 100 24 83

1,500,000 -

6,404,500 7,500,000 2 2 500,002 7 2 2 2 600,000 2,000,000 3,500,000 5,000,000 2,500,000

88

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
B Group investments in subsidiaries
% Holding 31.03.2010 31.03.2009 Investor Richard Pieris Distributors Ltd. Investee Playcraft Lanka (Pvt) Ltd. Arpimalls Development Co (Pvt) Ltd. Ordinary shares 6% redeemable cumulative preference shares Arpico Interiors (Pvt) Ltd. RPC Real Esatate Development (Pvt) Ltd. 6% redeemable cumulative preference shares RPC Retail Development (Pvt) Ltd. 6% redeemable cumulative preference shares Investor Arpico Industrial Development Company (Pvt) Ltd Investee R P C Polymers (Pvt) Ltd Investor Richard Pieris Exports PLC Investee Richard Pieris Natural Foams Ltd Playcraft Lanka (Pvt) Ltd. Micro Minerals (Pvt) Ltd. Arpitalian Compact Soles (Pvt) Ltd. Arpico USA Arpico Natural Latex Foams (Pvt) Ltd. Investor Richard Pieris Natural Foams Ltd. Investee Arpico Natural Latex Foams (Pvt) Ltd. Investor Plastishells Ltd. Investee R P C Polymers (Pvt) Ltd Investor Richard Pieris Plantations (Pvt) Ltd. Investee Exotic Horticulture (Pvt) Ltd. Maskeliya Tea Garden Ltd. RPC Timberline (Pvt) Ltd. Precision Craft (Pvt) Ltd. RPC Plantation Management Services (Pvt) Ltd. 31.03.2010 No of shares movement 31.03.2009 31.03.2010 Value Rs.000 movement 31.03.2009

36 76 17 -

36 76 17

213,756 16,000,000 2,200,000 500,000 66,700,000 1,870,000

-

213,756 16,000,000 2,200,000 500,000 66,700,000 1,870,000

2,138 160,000 220,000 5,000 667,000 187,000

-

2,138 160,000 220,000 5,000 667,000 187,000

31

-

5,700,000

5,700,000

-

57,000

57,000

-

43 36 69 44 100 44

51 36 69 44 100 44

27,560,000 217,750 627,400 11,995,001 4,000,000

5,000,000 -

22,560,000 217,750 627,400 11,995,001 4,000,000

284,820 2,138 6,274 119,950 40,000

50,000 -

234,820 2,138 6,274 119,950 40,000

56

56

5,000,000

-

5,000,000

50,000

-

50,000

69

-

13,000,000

13,000,000

-

130,000

130,000

-

100 100 75 100 100

100 100 75 100 100

999,999 1,499,999 2,000,000 1 24,106,249

-

999,999 1,499,999 2,000,000 1 24,106,249

10,000 14,999 20,000 330,000

-

10,000 14,999 20,000 330,000

Richard Pieris and Company PLC Annual Report 2009/2010

89

B

Group investments in subsidiaries contd.
% Holding 31.03.2010 31.03.2009 31.03.2010 No of shares movement 31.03.2009 31.03.2010 Value Rs.000 movement 31.03.2009

Investor RPC Management Services (Pvt) Ltd. Investee Maskeliya Plantations PLC (Rs. 511mn) * Precision Craft (Pvt) Ltd. Investor RPC Plantation Management Services (Pvt) Ltd. Investee Namunukula Plantations PLC (Rs. 415mn) * Kegalle Plantations PLC (Rs. 800 mn) * Investor Kegalle Plantations PLC Investee Richard Pieris Natural Foams Ltd. Hamefa Kegalle (Pvt) Ltd.

64 -

64 -

17,176,744 1

-

17,176,744 1

400,549 -

-

400,549 -

59 68

59 68

13,950,000 17,015,000

-

13,950,000 17,015,000

397,163 190,974

-

397,163 190,974

35 100

17 100

22,500,000 2,800,000

15,000,000 -

7,500,000 2,800,000

225,000 14,000 3,534,005

150,000 387,000

75,000 14,000 3,147,005

Provision for fall in value of investment in Playcarft Lanka (Pvt) ltd. Namunukula Plantations PLC Arpico Natural Latex Foams (Pvt) Ltd.

(4,276) (29,167) (50,000) 3,450,562

387,000

(4,276) (29,167) (50,000) 3,063,562

C

Company / Group investment in associates
% Holding 31.03.2010 31.03.2009 31.03.2010 No of shares movement 31.03.2009 31.03.2010 Value Rs.000 movement 31.03.2009

Company Quoted investments Asian Alliance Insurance PLC (Rs208 mn) * Company investments in associates (at cost) Group investments in associates Quoted Investments Investor Richard Pieris Distributors Ltd. Investee Asian Alliance Insurance PLC (Rs138mn)* Unquoted Investments Investor Namunukula Plantations PLC Investee AEN Palm Oil Processing (Pvt) Ltd. Group investment in associates (at cost) Group share of associate companies - retained assets Asian Alliance Insurance PLC AEN Palm Oil Processing (Pvt) Ltd. Group investment in associates (equity basis)

15

15

3,750,000

-

3,750,000

37,500 37,500

-

37,500 37,500

10

10

2,500,600

-

2,500,600

25,006

-

25,006

33

33

2,696,012

-

2,696,012

29,960 92,466

-

29,960 92,466

66,289 22,164 180,919

28,882 15,280 44,162

37,407 6,884 136,757

90

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
D Other investments Investment Unquoted investments Richard Pieris Plantations (Pvt.) Ltd . - Debentures RPC Timberline Ltd 31.03.2010 Value Rs.’000 movement 31.03.2009 Investor Richard Pieris and Company PLC

Provision for value of investment in RPC Timberline (Pvt) Ltd Reversal of intra group debentures / adjustments

65,750 55,000 120,750 (25,000) 95,750 (95,750) -

(25,000) (25,000) 25,000 -

65,750 55,000 120,750 120,750 (120,750) -

Class of shares refer to ordinary shares of Rs. 10/- each unless otherwise stated. * Amounts stated within brackets correspond to market values as at 31st March 2010. In the opinion of the Directors any reduction in market value below cost is considered to be of temporary nature. The value of unquoted investments based on net assets amounted to Rs. 4,221 mn (Rs. 3521 mn in 2008/2009)

6

Inventories Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 -

Raw materials Growing crop-nurseries Work-in-progress Finished goods Produce inventories Other inventories Goods in transit Provision for unrealised profit

560,514 42,392 123,558 1,225,858 478,019 48,068 4,881 2,483,290 (19,252) 2,464,038

450,152 21,751 153,374 1,310,781 321,147 49,049 5,364 2,311,618 (8,579) 2,303,039

Inventories are net of allowances for slow moving and obsolete inventories. The amount of write-down of inventories recognised as an expense is Rs. 42 mn (2009 Rs. 89.5 mn) which is recognised under administration expenses. Inventory carried at net realisable value as at 31st March 2010 amounted Rs. 467 mn (2009 Rs. 1.46 mn) which is recognised in cost of sales and administrative expenses. Inventory with a carrying amount of Rs. 896 mn (2009 Rs. 653.3 mn) are pledged as security for loans obtained, details of which are disclosed in Note 13 to the financial statements.

Richard Pieris and Company PLC Annual Report 2009/2010

91

7

Trade and other receivables Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 18,627 909 47,503 67,039 11,614 2,034 50,929 64,577

Trade debtors Less: Allowances for bad and doubtful debts Advances, deposits and prepayments Loans to employees Other debtors

2,222,259 (408,170) 1,814,089 270,904 6,765 458,390 2,550,148

2,062,458 (277,030) 1,785,428 286,023 7,071 473,072 2,551,594

8

Short term investments
2009/2010 No. of shares 54 319,700 10,100 2008/2009 No. of shares 54 319,700 10,100 Group / Company 2009/2010 2008/2009 Market value Cost Market value Cost Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 11 41,968 78 42,057 42,057 6 17,721 192 17,919 24,138 42,057 4 7,915 55 7,974 7,974 6 17,720 192 17,918 (9,944) 7,974

Quoted investments John Keells Holdings PLC Asian Hotel Properties PLC Dialog Telekom PLC Appreciation / (provision) forfall in value of investment

9

Stated capital 2009/2010 Number of Value of shares shares in ‘000 Rs. ‘000 2008/2009 Number of Value of shares shares in ‘000 Rs. ‘000 128,251 128,251 1,578,475 1,578,475

Fully paid ordinary shares at the beginning of the year Movements during the year Balance at the end of the year

128,251 128,251

1,578,475 1,578,475

10 Capital reserves Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Capital reserve Revaluation reserve Capital redemption reserve fund 122,713 2,375 1,813 126,901 122,713 2,375 1,813 126,901 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 6,386 2,375 1,813 10,574 6,386 2,375 1,813 10,574

92

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
11 Revenue reserves Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 A. General reserve 179,443 179,443 1,876,921 2,056,364 179,443 179,443 1,296,717 1,476,160 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 654,962 654,962 520,373 520,373

B.

Retained profit

12 Foreign currency translation Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 At the beginning of the year Exchange translation difference for the year At the end of the year 32,371 (1,219) 31,152 21,599 10,772 32,371 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 -

Foreign currency translation relates to the resulting exchange difference on translation of Arpitalian Compact Soles (Pvt.) Ltd.’s accounts maintained in US dollars, into Sri Lankan rupees.

13 Interest bearing loans and borrowings 13.1 Summary Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 At the beginning of the year Effect of foreign currency translation New loans obtained Repayments Transferred to Current Liabilities At the end of the year Total Interest bearing loans and borrowings Repayable with in one year Repayable after one year (Note 13.2) 3,416,833 (3,368) 1,445,223 4,858,688 (1,661,459) 3,197,229 (1,239,549) 1,957,680 3,984,763 21,547 551,015 4,557,325 (1,140,492) 3,416,833 (1,062,216) 2,354,617 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 1,511,263 1,511,263 (477,794) 1,033,469 (605,000) 428,469 1,946,624 1,946,624 (435,361) 1,511,263 (437,794) 1,073,469

1,239,549 1,957,680 3,197,229

1,062,216 2,354,617 3,416,833

605,000 428,469 1,033,469

437,794 1,073,469 1,511,263

Richard Pieris and Company PLC Annual Report 2009/2010

93

B.

Interest bearing loans and borrowings repayable after one year.
Lender 2009/2010 31.03.2010 Rs.’000 2008/2009 31.03.2009 Rs.’000 580,000 64,385 80,000 45,000 47,794 125,333 300,000 268,750 77,150 58,613 253,561 1,585 35,420 195,921 37,089 Rs.42 mn per quarter Rs.7.5 mn per quarter Rs. 40 mn per annum Rs. 45 mn per annum Rs. 50 mn per annum Rs. 2.67 mn per month Bullet Repayment in Sep 2010 Rs. 6.25 mn per month Rs. 2.86 mn per month Rs. 15 mn per quarter Rs. 1.25 mn per month Rs. 3.75 mn per month Rs.41,500 per month US $ 306,000 per annum US $ 125,000 per quarter US $ 83,333 per quarter US $ 62,500 per month Mortgage over Land and Building at Kandy & Battaramulla Mortgage over shares of Namunukula Plantations PLC Negative Pledge over Shares of RPC Plantations Management Services (Pvt) Limited HSBC Bank DFCC Bank PLC DFCC Bank PLC National Savings Bank Indian Bank 93,334 300,000 193,750 42,830 255,000 45,577 208,562 1,087 137,709 156,791 Negative Pledge over Shares of Kegalle Plantations PLC Commercial Paper Mortgage over Machinery Mortgage over Land & Building at Dehiwala Mortgage over Land & Building at Mattegoda Corporate Guarantee given by Richard Pieris and Company PLC and shares of Namunukula Plantations PLC National Development Bank PLC Clean Basis Mortgage over Land, Plant & Machinery at Mattegoda Mortgage over Land and Building at Negombo Land & Building at Homagama Mortgage over Land and Buildings at Union Place, Colombo 02 Mortgage over Land and Buildings at Union Place, Colombo 02 Promissory note for US $ 1 mn by Richard Pieris and Company PLC Mortgage over Stocks, Debtors, Plant & Machinery and Land & Building at Ekala Repayment Security

Company

Richard Pieris and Company PLC Commercial Bank PLC Commercial Bank PLC HSBC Bank

412,000 34,385 -

Richard Pieris Distributors Limited Commercial Bank PLC

Arpitech (Pvt) Limited RPC Retail Development Company Limited RPC Timberline (Pvt) Limited Richard Pieris Exports PLC

Pan Asia Bank PLC LOLC PLC Sampath Bank PLC Hatton National Bank PLC Hatton National Bank PLC People’s Bank State Bank of India

RPC Management Services (Pvt) Limited RPC Plantations Management Services (Pvt) Limited Maskeliya Plantations PLC Hatton National Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC 6,290 7,967 Rs. 0.14mn per month 19,226 24,353 Rs. 0.43mn per month 22,401 28,374 Rs. 0.50mn per month Tertiary mortgage over leasehold rights of Brunswick, Strathspey, Laxapana and Moray Estates Secondary mortgage over leasehold rights of Talawakelle Estate 5,636 7,209 Rs. 0.13mn per month 18,955 24,125 Rs. 0.43mn per month 14,471 18,606 Rs. 0.35mn per month Secondary mortgage over leasehold rights of Brunswick, Strathspey, Laxapana and Moray Estates. Primary mortgage over leasehold rights of Talawakelle Estate 3,129 4,520 Rs. 0.16mn per month 5,117 7,235 Rs. 0.18mn per month Primary mortgage over leasehold rights of Brunswick, Strathspey, Laxapana and Moray Estates 5,270 8,598 Rs. 0.28mn per month 39,580 50,000 Rs. 1mn per month Clean Basis DFCC Bank PLC 173,513 215,000 Rs. 3.772 mn per month Mortgage over Shares of Maskeliya Plantations PLC

94

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
B. Interest bearing loans and borrowings repayable after one year.
Lender 2009/2010 31.03.2010 Rs.’000 ADB/Seylan Bank PLC ADB/Seylan Bank PLC ADB/Seylan Bank PLC DFCC Bank PLC Hatton National Bank PLC NDB Investment Bank National Development Bank PLCE-Friend Loan National Development Bank PLCGovernment Relief Package NDB Investment Bank Kegalle Plantations PLC ADB/ National Development Bank PLC 125,000 9,644 15,155 As per monthly Trust Papers Rs. 0.46mn per month Securitization of future tea receivables Corporate guarantee by Richard Pieris and Company PLC for Rs. 33 mn and primary and secondary mortgage over leasehold rights of Atale, Pallegama, Parambe, Weniwella and Yatederiya Estates ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ Seylan Bank PLC Hatton National Bank PLCUSD Dollar Loan Hatton National Bank PLC - E friend Loan ADB/ National Development Bank PLC ADB/ National Development Bank PLC ADB/ National Development Bank PLC 13,696 56,312 29,352 173,000 56,313 25,701 99,129 Rs. 0.26mn per month Rs. 0.63mn per month Primary floating mortgage over leased hold property at Luckeyland Estate, Udupussellawa, Badulla Estates Primary Mortgage over leasehold rights of Atale, Etana, Doteloya, Kirkless and Secondary mortgage over Pallegama, Parambe, Weniwella and Yataderiya Estates. Secondary Mortgage over leasedhold rights of Atale, Etana, Doteloya, Kirkless, Pallegama, Parambe, Weniwella and Yataderiya Estates. ADB/ National Development Bank PLC LOLC PLC Namunukula Plantations PLC DFCC Bank PLC 25,500 8,707 80,402 10,221 104,740 Rs.1.83mn per month Rs. 0.13mn per month Rs. 2mn per month Securitized Sales Proceeds Mortgage over Plant & Machineries at Luskeyland Estate Primary mortgage over leasehold rights of Hulandawa,Pallegoda, Yatadola & Hallala estates and undertaking - from RPC Plantations Management Services (Pvt) Ltd ADB/LOLC PLC ADB/LOLC PLC ADB/LOLC PLC ADB/LOLC PLC Sampath Bank PLC NDB Investment Bank NDB Investment Bank Total Term Loans Transferred to Current Liabilities 17,732 9,100 8,163 20,430 116,500 3,197,229 (1,239,549) 1,957,680 20,532 10,369 8,614 20,430 65,625 120,000 3,416,833 (1,062,216) 2,354,617 Rs.0.23mn per month Rs. 0.10mn per month Rs.0.08mn per month Rs.0.212mn per month Rs.3mn per month As per monthly Trust Papers As per monthly Trust Papers Corporate Guarantee given by Richard Pieris and Company PLC / Mortgage over Stocks & Debtors Promissory Note/ Securitization of future tea receivables Promissory Note/ Securitization of future tea receivables Corporate Guarantee given by RPC Plantation Management Services (Pvt) Ltd 20,535 23,983 30,251 13,470 26,361 30,317 35,820 42,735 Rs. 0.49mn per month Rs. 0.53mn per month Rs. 0.46mn per month $19,930 per month Primary mortgage over leasehold rights of Eadella Estates 117,500 As per monthly Trust Papers Securitization of future tea receivables 23,459 22,019 4,141 13,274 8,063 32,383 2008/2009 31.03.2009 Rs.’000 27,790 26,085 4,841 17,358 11,813 45,900 24,396 Rs. 0.36mn per month Rs. 0.34mn per month Rs. 0.06mn per month Rs. 0.34mn per month Rs. 0.31mn per month Rs.15mn per month Rs. 0.77mn per month Securitization of future tea receivables Corporate Guarantee given by RPC Management Services (Pvt) Ltd Primary mortgage over leasehold rights of Ampitittiakande, Craig & Mousakelle Estates. Repayment Security Company

Richard Pieris and Company PLC Annual Report 2009/2010

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14 Net liability to the lessor of SLSPC / JEDB estates and others
Repayable within 1 year Rs.’000 Group Gross liability (Note 14.1) Less: finance charges Net liability Transferred to current liabilities Net liability to the lessor of SLSPC/JEDB Repayable Repayable after 1 year after 5 years less than 5 years Rs.’000 Rs.’000 Total as at 31.03.2010 Rs.’000 Repayable within 1 year Rs.’000 Repayable Repayable after 1 year after 5 years less than 5 years Rs.’000 Rs.’000 Total as at 31.03.2009 Rs.’000

35,674 (26,716) 8,958

142,699 (103,132) 39,567

1,078,948 (461,272) 617,676

1,257,321 (591,120) 666,201 (8,958) 657,243

35,674 (27,060) 8,614

142,696 (104,652) 38,044

1,114,625 (486,467) 628,158

1,292,995 (618,179) 674,816 (8,614) 666,202

Gross liability - other lease Less: finance charges Net liability to the other lessors Transferred to current liabilities Total net liability to the lessor

20,075 (3,639) 16,436

16,390 (1,475) 14,915

-

25,394

36,465 (5,114) 31,351 (16,436) 14,915 672,158

23,219 (6,885) 16,334

36,713 (5,483) 31,230

-

24,948

59,932 (12,368) 47,564 (16,334) 31,230 697,432

14.1 The leases of the estates have been amended with effect from 22nd June 1996 to an amount substantially higher than the previous lease rental of Rs. 500/- per estate per annum. The first rental payable under the revised basis was Rs. 6,744 million and Rs. 15,744 million for Maskeliya Plantations PLC and Kegalle Plantations PLC respectively from 22nd June 1996 to 21st June 1997. These amounts are to be inflated annually by the Gross Domestic Product (GDP) deflator, and are in the form of a contingent rental. The contingent rental charged to the income statement amounted to Rs. 27.9 mn (2009 - Rs. 24.6 mn). In accordance with the agreement entered into between Kegalle Plantations PLC, Namunukula Plantations PLC and Ministry of Plantations Industries, the Secretary to the Ministry of Plantations Industries has agreed to freeze the lease rental based on the applicable lease rental of the year 1998/99. The above agreements were valid for the period from 22nd June 2002 to 21st June 2008 and the Ministry of Plantations Industries is in the process of finalizing a new agreement. The management fee is computed and paid on the basis of the previous agreement.

96

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
15 Deferred income 2009/2010 Rs. ‘000 Deferred grants and subsidies At beginning of the year Grants received during the year Amortised during the year At end of the year Group 2008/2009 Rs. ‘000

478,147 74,259 (23,508) 528,898

386,143 113,132 (21,128) 478,147

16 Deferred tax liability / (assets) Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 At beginning of the year Transfer from / (to) income statement At end of the year 21,804 3,177 24,981 (2,309) 24,113 21,804 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 (36,953) (36,953) (36,953) (36,953)

Deferred tax assets, liabilities related to the following:

Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000

Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000

Deferred tax liabilities Accelerated depreciation for tax purposes Deferred tax assets Retirement benefit obligations Benefits arising from tax losses Other provisions Net deferred tax liability / (assets)

303,759 303,759 (118,693) (114,961) (45,124) (278,778) 24,981

311,291 311,291 (106,014) (152,979) (30,494) (289,487) 21,804

35,230 35,230 (17,549) (54,634) (72,183) (36,953)

32,360 32,360 (15,790) (53,523) (69,313) (36,953)

Deferred tax assets amounting to Rs. 435 mn (2009 - Rs. 384 mn) for the group and Rs. 124 mn (2009 - Rs. 110 mn) for the company has not been recognized since the companies do not expect these assets to reverse in the foreseeable future.

17 Employee benefit liabilities Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Provision for retiring gratuity At beginning of the year Provision for the year Payments At end of the year Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000

1,103,222 557,485 (131,022) 1,529,685

1,037,650 203,845 (138,273) 1,103,222

45,114 9,799 (4,772) 50,141

39,726 7,061 (1,673) 45,114

Richard Pieris and Company PLC Annual Report 2009/2010

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17 Employee benefit liabilities contd. Actuarial valuation of the defined benefit plan / gratuity, other than of plantation companies, was carried out on 31st March 2009 by Messrs. Actuarial & Management Consultants (Pvt) Ltd, Actuaries. In respect of the plantation companies such valuation was carried by the same party as at 31st March 2010. Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principal assumptions used are as follows: Assumptions 2009/2010 Rs. ‘000 2008/2009 Rs. ‘000

a) Demographic assumptions In respect of non plantation companies Retiring age: Executives Non Executives In respect of plantation companies, Retiring age: Workers (male and female) Other categories of staff (male and female) b) Financial assumptions In respect of non plantation companies Rate of interest net of tax per annum Rate of salary increment Rate of discount In respect of plantation companies, Rate of interest net of tax per annum Rate of salary increment: Workers Staff employees Rates of discount

60 years 55 years

60 years 55 years

60 years 55-58 years

60 years 60 years

12% 8.5% 12%

12% 8.5% 12%

11% 16% every two years 10% per year 11%

10% 11% every two years 20% every three years 10%

18 Trade and other payables Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Trade payables Accrued expenses Others 1,406,537 627,081 599,295 2,632,913 1,289,600 538,479 296,525 2,124,604 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 232,239 232,239 208,940 208,940

98

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
19 Short term borrowings Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Commercial papers (a) Import loans (b) Other short term borrowings ( c) Bank overdrafts (d) 100,191 94,447 1,996,424 1,158,229 3,349,291 500,000 69,940 2,219,597 1,622,674 4,412,211 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 100,191 1,570,000 4,593 1,674,784 450,000 1,790,000 215,535 2,455,535

(a) Repayment of commercial papers will be less than three months. (b) Import loans have been obtained for the purpose of operations and are repayable within thirty to ninety days. (c ) Short term borrowings mainly consist of money market borrowings and will be repayable at maturity within seven to ninety days. (d) Bank overdrafts are repayable on demand.

20 Cash and cash equivalents Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Cash at bank and in hand Treasury bills 602,850 719,993 1,322,843 (3,349,291) (2,026,448) 430,777 590,090 1,020,867 (4,412,211) (3,391,344) Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 266,271 266,271 (1,674,784) (1,408,513) 1,348,037 1,348,037 (2,455,535) (1,107,498)

Short term borrowings (Note 19)

Richard Pieris and Company PLC Annual Report 2009/2010

99

21 Segmental reporting
Business segment Rubber Tyre Plastics Retail Services Plantations Inter/Intra segment eliminations Rs. ‘000 Group

Year ended March 31 2010 Turnover External sales Inter segment sales Intra segment sales Net turnover Results Segment results Loss on disposal of investment Finance costs Share of associate company profits Profit before taxation Taxation on profits Profit for the year from continuing operations Profit / (loss) after tax from discontinued operations Minority interests Profit / (loss) attributable to equity holders of parent Segmental assets Assets Investments in associates Consolidated total assets Segmental liabilities Trade and other payables Non interest bearing liabilities Interest bearing liabilities

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

1,767,918 132,102 43,789 1,943,809

2,100,782 84,836 926,289 3,111,907

2,858,233 221,519 1,400,293 4,480,045

9,042,785 19,498 160,576 9,222,859

50,272 654,040 704,312

6,519,298 638,677 130,432 7,288,407

(1,750,672) (2,661,379) (4,412,051)

22,339,288 22,339,288

64,758

299,640

320,743

515,318

177,840

822,697

(231,298)

1,969,697 1,969,697 (969,147) 59,609 1,060,159 (330,592) 729,567 (17,873) 711,694 (131,490) 580,204

2,318,959 119,950

1,480,950 -

2,265,447 -

4,832,359 25,006

5,733,862 101,545

9,944,975 29,960

(9,392,654) (95,542)

17,183,898 180,919 17,364,817

138,832 90,330 691,374

136,622 139,203 403,699

426,045 39,560 559,561

970,675 119,087 723,066

302,308 50,104 2,653,977

1,355,983 1,804,005 1,522,588

(58,165) -

3,330,465 2,184,124 6,554,265 12,068,854

Other information Capital expenditure Depreciation Impairment of Property Plant & Equipment Segmental cash flow Operating Investing Financing Geographical segment

16,414 80,206 16,000

20,568 40,059 -

313 57,586 -

25,257 113,071 -

7,407 50,661 -

548,899 266,643 13,093

-

618,858 608,225 29,094

(21,192) (66,132) 228,981

375,619 (20,512) (247,630) Sri Lanka

130,677 (120,744) 398,969 USA

553,642 (20,829) 81,892 Europe

676,561 (482,588) (476,446) Japan

1,028,229 (709,975) (16,102) Other

(587,700) 879,032 (218,856) Inter/Intra segment eliminations Rs. ‘000 (2,661,378)

2,155,836 (541,748) (249,192) Group

Rs. ‘000 Net turnover 23,411,238

Rs. ‘000 227,712

Rs. ‘000 767,914

Rs. ‘000 -

Rs. ‘000 593,802

Rs. ‘000 22,339,288

100

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
21 Segmental reporting contd.
Business segment Rubber Tyre Plastics Retail Services Plantations Inter/Intra segment eliminations Rs. ‘000 Group

Year ended March 31 2009 Turnover External sales Inter segment sales Intra segment sales Net turnover Results Segment results Loss on disposal of investment Finance costs Share of associate company profits Profit before taxation Taxation on profits Profit for the year from continuing operations Profit / (loss) after tax from discontinued operations Minority interests Profit / (loss) attributable to equity holders of parent Segmental assets Assets Investments in associates Consolidated total assets Segmental liabilities Trade and other payables Non interest bearing liabilities Dividend payable Interest bearing liabilities

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

Rs. ‘000

2,008,454 124,946 41,350 2,174,750

2,106,578 72,414 917,514 3,096,506

2,958,654 275,442 1,592,617 4,826,713

8,681,243 1,718 130,506 8,813,467

128,094 601,866 434 730,394

5,220,153 540,530 178,333 5,939,016

(1,616,916) (2,860,754) (4,477,670)

21,103,176 21,103,176

25,827

235,217

137,618

472,554

177,902

555,233

(225,795)

1,378,556 1,378,556 (1,436,225) 41,015 (16,654) (180,411) (197,065) (107,963) (305,028) (24,055) (329,083)

2,328,410 119,950

1,481,765 -

2,357,257 -

5,087,483 25,006

6,056,708 101,545

9,068,382 29,960

(9,592,665) (139,704)

16,787,340 136,757 16,924,097

116,385 86,647 872,078

107,649 97,504 519,535

602,572 34,850 909,401

400,158 97,304 1,113,919

318,427 45,221 2,855,316

1,301,793 1,330,640 1,585,499

(65,616) -

2,846,984 1,626,550 7,855,748 12,329,282

Other information Capital expenditure Depreciation Impairment of Property Plant & Equipment Segmental cash flow Operating Investing Financing Geographical segment

19,317 88,091 -

4,723 45,641 -

89,449 43,835 29,442

67,171 115,537 -

54,113 45,374 -

495,528 257,902 -

-

730,301 596,380 29,442

(49,261) (13,211) 94,442

161,977 (1,471) (53,692) Sri Lanka

(32,093) (2,820) USA

688,252 (65,214) (202,271) Europe

(327,007) 621,178 (558,598) Japan

497,405 (135,694) (249,454) Other

374,786 (667,618) 316,440 Inter/Intra segment eliminations Rs. ‘000 (2,860,757)

1,314,059 (264,850) (653,133) Group

Rs. ‘000 Turnover 22,178,668

Rs. ‘000 313,555

Rs. ‘000 870,539

Rs. ‘000 -

Rs. ‘000 601,171

Rs. ‘000 21,103,176

Richard Pieris and Company PLC Annual Report 2009/2010

101

22 Other operating income Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Profit from sale of property, plant and equipment Amortisation of capital grants and subsidies (Note 15) Exchange gain Interest income Scrap sales Rental income Other income Change in the value of short term investments Other gain 1,038 23,508 6,986 61,710 11,004 98,520 119,031 34,082 355,879 215,096 21,128 17,479 38,451 11,572 82,104 113,071 6,500 505,401 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 4,515 34,082 38,597 213,306 213,306

23 Other operating expenses Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 VAT on management fees of plantation companies Others 36,865 21,304 58,169 29,007 12,842 41,849 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 -

24 Profits from operations is stated after charging / (crediting) Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Directors remuneration & fee Auditors remuneration Depreciation Amortisation of property, plant and equipment Impairment losses (Included in administrative expenses) Provision for retiring gratuity Staff costs including EPF/ETF contributions Legal fees Donations Allowances for bad and doubtful debts & bad debts written off Amortisation of intangible assets (Included in administrative expenses) 44,488 15,871 584,008 24,217 29,093 557,486 3,817,863 6,896 1,969 147,073 10,725 56,049 14,159 572,242 24,138 29,442 203,845 3,393,549 5,419 961 132,276 10,302 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 15,496 600 25,878 9,799 30,696 146 201 53,749 25,415 600 24,246 7,061 54,650 499 287 128,502 -

102

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
25 Finance cost Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Interest on long term loans Interest on short term loans 591,758 377,389 969,147 540,209 896,016 1,436,225 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 89,899 109,877 199,776 143,851 175,818 319,669

26 Share of results of associates 2009/2010 Rs. ‘000 Turnover Profit before tax Group’s share of profit before tax 2,548,762 263,728 59,609 Group 2008/2009 Rs. ‘000 2,108,163 173,178 41,015

Total assets and total liabilities of the associates amounts to Rs.3,103mn (2008/2009 Rs.2,463mn) and Rs. 2,354 mn (2008/2009 Rs.1,918mn) respectively. The Group can influence up to 33.33% of the voting rights of the AEN Palm Oil with the effective control of 19.58%.

27 Income tax expense 27.1 Taxation on current year profit Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Richard Pieris and Company PLC Subsidiaries ESC unrecoverable Associates Dividend tax Deferred taxation (Note 27.3) 292,983 292,983 5,017 613 28,802 3,177 330,592 (3,185) 137,269 134,084 (6,949) (1,065) 30,228 24,113 180,411 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 (3,185) (3,185) (3,185)

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103

27.2 Reconciliation of accounting profit to income tax expense of the company and its subsidiaries Group Company 2009/2010 2008/2009 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Profit/loss before tax from continuing operations Loss before tax from discontinued operations Profit from associate companies Disallowed items Allowable expenses Tax exempt income Losses of tax exempt companies 1,060,159 (17,873) (59,609) 982,677 1,773,235 (1,392,471) (520,723) 31,025 873,743 (3,392,906) 3,184,767 665,604 258,593 13,725 20,282 1,350 4,394 298,344 (5,361) 292,983 5,017 613 28,802 3,177 330,592 (16,654) (107,963) (41,015) (165,632) 1,519,457 (1,517,565) (331,358) 282,039 (213,059) (2,256,283) 2,862,716 393,374 119,920 9,355 3,094 1,671 1,881 135,921 (1,837) 134,084 (6,949) (1,065) 30,228 24,113 180,411 134,589 134,589 121,216 (300,464) (44,659) (458,943) 503,602 (47,831) (47,831) 197,351 (482,146) (332,626) (135,738) 468,364 (3,185) (3,185) -

Tax loss brought forward Tax losses carried forward Taxable income Income tax @ 35% Income tax @ 20% Income tax @ 15% Income tax at other rates Social Responsibility Levy (1.5%) (Over) / under provision in the previous year ESC unrecoverable Associates Dividend tax Deferred tax Total income tax expense/(reversal)

(3,185)

27.3 Deferred tax expenses / (reversal) Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Accelerated depreciation for tax purpose Retirement benefit obligations Benefit arising from tax losses Others Total deferred tax (reversal) / charge (7,532) (12,679) 38,018 (14,630) 3,177 22,531 (5,498) 19,089 (12,009) 24,113 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 2,870 (1,759) (1,111) 11,238 (3,090) (8,148) -

The deferred tax effect on undistributed reserves of subsidiaries has not been recognised since the parent can control the timing of the reversal of these temporary differences.

104

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
27.4 Income tax rates and details of tax holidays enjoyed by the group The tax liabilities of resident companies are computed at the standard rate of 35% (quoted and unquoted). The export profits of Richard Pieris Exports PLC is liable to income tax at a concessionary rate of 15% for a period of twenty years commencing from the year of assessment 1995/1996, in terms of Section 52 of the Inland Revenue Act No. 10 of 2006. The export profits of Richard Pieris Natural Foams Limited is also liable to income tax at 15% from the year of assessment 2005/2006. Other profit & income is liable to tax at 35%. Under the Board of Investment Law No. 04 of 1978, the profits of Arpitalian Compact Soles (Private) Limited is liable to income tax at 15% for ten years from the year of assessment 2008/09.Other profits and income is liable to tax at 35%. RPC Polymers has entered into an agreement with the Board of Investment of Sri Lanka under section 17 of the BOI law and accordingly its profit and income is exempt from income tax for a period of three years commencing from the year of assessment 2008/09.The Company will be liable to tax at 10% for a period of 2 years immediately succeeding the last day of said exemption period and thereafter it will be liable at the reduced income tax rate of 20%. Pursuant to agreement entered into with the Board of Investment of Sri Lanka under section 17 of the BOI law, RPC Timberline (Pvt) Ltd will be exempted from the income tax for a period of five years commencing from the year of assessment 2009/10. In terms of an agreement entered in to with the Board of Investments of Sri Lanka under the BOI Law NO.04 OF 1978, RPC Retail Development (Private) Limited will be exempt from tax for a period of three years commencing from the year of assessment 2009/2010 .After the expiry of the tax holiday the company will be liable to income tax at 10% for two years and at 20% thereafter. The profits of Arpico Industrial Development Company (Private) Limited is subject to a concessionary income tax rate of 2% on turnover for a period of fifteen years from the financial year 2002/2003 in terms of the agreement entered into with the Board of Investment of Sri Lanka. Micro Mineral (Private) Limited is taxed at a concessionary rate of 15%, in terms of an agreement entered into with the Board of Investment of Sri Lanka under the Board of Investment of Law No. 04 of 1978. It is entitled to this concessionary rate for a period of twenty years commencing 1st September 1996. Kegalle Plantations PLC, Maskeliya Plantations PLC and Namunukula Plantations PLC are liable for income tax at the rates of 35% on manufacturing activities and profits from agriculture are exempt from income tax for five years which end on 31st March 2011. 27.5 Social Responsibility Levy As per the provision of the Finance Act No. 08 of 2008, with effect from 01st April 2008 Social Responsibility Levy (SRL) is payable at the rate 1.5% on the income tax payable

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105

28 Discontinued operation During the year the group continued to focus on its core business operations and restructure or exit from marginal businesses with limited potential. Accordingly operations of four businesses with incurring losses have been discontinued, namely, Arpico Homes Limited, R P C Global Travels (Private) Limited, Hamefa Kegalle (Private) Ltd, Arpico Natural Latex Forms (Private) Limited. The results of discontinued operations are given below. 2009/2010 Rs. ‘000 Revenue Cost of sales Gross Profit / (loss) Other Income Expenses Loss from discontinued operations Finance cost Loss before tax from discontinued operations Loss per share - Basic / diluted (461) (461) 4,280 (21,692) (17,873) (17,873) (0.14) 2008/2009 Rs. ‘000 167,115 (208,037) (40,922) 4,889 (57,823) (93,856) (14,107) (107,963) (0.84)

As a result of the above, the comparatives presented in the previous financial statements have been changed.

Operating and Investing cash flows for the year are presented below:

2009/2010 Rs. ‘000 (81,142) 550

2008/2009 Rs. ‘000 33,099 179

Net cash flows from operating activities Net cash flows from investing activities

Assets and liabilities of entities that are not going concern The financial statements of the Companies stated above have been prepared on a basis other than on a going concern reflecting the closure of discontinued operations. The aggregated amount of assets and liabilities of such Companies as at 31March 2010 are as follows. Total assets Total liabilities Rs. 149 mn Rs. 460 mn

Accordingly ,adjustments have been made for the diminution in value of all property, plant and equipment so as to reduce their carrying value to their estimated realisable amount, and for any further liabilities which will arise.

106

Richard Pieris and Company PLC Annual Report 2009/2010

Notes to the Financial Statements contd.
29 Earnings per share Basic Earnings per share is calculated by dividing the net profit / (loss) for the year attributable to equity holders of parent by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year and the previous year are adjusted for events, that have changed the number of ordinary shares outstanding, without a corresponding change in the resources such as a bonus issue. Diluted Earnings Per Share is calculated by dividing the net profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the effects of diluted potential ordinary shares. Group 2008/2009 (221,120) (107,963) (329,083)

2009/2010 Profit / (loss) attributable to equity holders of the parent from continuing operations (Rs.’000) Loss attributable to equity holders of the parent from a discontinued operation (Rs.’000) Net profit / (loss) attributable to equity holders of the parent (Rs.’000) Weighted average number of ordinary shares (adjusted for bonus issue) applicable to basic / diluted earnings per share Earnings/(loss) per share - basic / diluted (Rs.) Earnings/(loss) per share from continuing operations - basic / diluted (Rs.)

598,077 (17,873) 580,204

128,251,023 4.52 4.66

128,251,023 (2.57) (1.72)

30 Contingent liabilities The contingent liabilities as at 31st March 2010 on corporate guarantees issued by the Company on loans obtained by subsidiary companies has decreased by Rs. 206 mn to Rs. 234 mn. Guarantees given by subsidiaries on loans obtained amounted to Rs. 285 mn. Following a strike at Richard Pieris Exports PLC a subsidiary of the group, which was considered as unjustifiable,160 workers were terminated on 28th December 2007.Since negotiations failed, the matter has been referred to arbitration by the Minister of Labour and contested at the court of appeal at present. The maximum amount demanded by the union on behalf of the workers is Rs.136 Mn, which demand the company has resisted/opposed. Namunukula Plantations PLC, a subsidiary of the Group, sub leased six (6) estates to Tusker Bottling Ltd who is currently being wound up pursuant to a Court Order. In the event the sub lease agreement is cancelled and the company takes possession of the six sub leased estates, Namunukula Plantaions PLC may be called upon to pay the arrears of statutory payments to the employees which the lessee; Tusker Bottling Ltd failed to pay which is estimated at Rs. 72 mn. There are 32 cases outstanding filed by the Commissioner of Labour (Badulla) against Tusker Bottling Ltd, Namunukula Plantations PLC and the Superintendent of the Estate regarding the payment of employees statutory dues , which the Sub Lessee has failed to pay in respect of the said 6 estates. Namunukula Plantations PLC has filed objections that the company is not liable to pay such dues. The Court has directed the Commissioner of Labour to find out the correct respondent who is liable to pay such dues and institute fresh legal action against the party.

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31 Capital and lease commitments A The capital commitments for property, plant and equipment incidental to the ordinary course of business as at 31st March 2010, approved by the Board were as follows: Group Company 2009/2010 2008/2009 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Contracted but not provided for Approved but not contracted for 374,929 374,929 159,052 159,052 -

B Lease Commitments Future minimum rentals payable under non cancellable operating leases as at 31 March 2010 are as follows: Group 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 Within one year After one year but not more than five years More than five years 73,920 312,765 619,489 1,006,174 69,292 305,373 700,801 1,075,466 Company 2009/2010 2008/2009 Rs. ‘000 Rs. ‘000 -

32 Employee share option plan The Employee Share Option Plan (ESOP) was set up by a Special Resolution adopted by the shareholders at an Extraordinary General Meeting (EGM) of the Company held on 10th June 1998 by allocating 5% of the issued share capital of the company to this scheme. 2% of the options issued have already been exercised by the optionees. The balance 3% of the options granted has not been exercised to date. A second ESOP scheme was set up following a Special Resolution adopted by the shareholders at an EGM of the company held on 29th July 2005 by allocating and granting 5% of the issued share capital of the company at an option price of Rs.100/-. Consequent on the new share issue of 1 for 12 made in 2007 the option price is revised to Rs.46.15 per share. No option under this scheme have been exercised to date. The company does not provide any financial assistance to the employees to purchase shares under this scheme. 33 Post balance sheet events There have been no material events occurring after the Balance Sheet date that require adjustments to or disclosure in the Financial Statements other than; (a) The disposal of 706,500 shares of RPC Timberline (Pvt) Limited (a subsidiary of the group with a controlling interest of 75%) to the joint venture partner and the termination of the joint venture agreement. The Group’s interest after the disposal was reduced to 49%. (b) Richard Pieris Distributors Ltd, the retail company of the Group took over the business operation of five mini stores located in the central province in April 2010. (c) The liquidator of the Tusker Bottling Co. (Pvt) Ltd, to which 06 estates of the Namunukula Plantations PLC had been subleased, withdrew his earlier application dated 28th April 2009 for a disclaimer of the leasehold rights created under the Sub Lease Agreement and such application was allowed by court, when this case was taken up on 14th May 2010.

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Notes to the Financial Statements contd.
33 Post balance sheet events contd. (d) The Board of Directors of the company has declared a final dividend of Rs.1.00 per share for the financial year ended 31st March 2010. As required by section 56 (2) of the Companies Act No 07 of 2007, the Board of Directors has confirmed that the company satisfies the solvency test in accordance with section 57 of the Companies Act No 07, and has obtained a certificate from the auditors, prior to declaring the dividend which is to be paid on 8th July 2010. In accordance with the Sri Lanka Accounting Standard 12 (revised 2005), Events after the Balance Sheet date, the final dividend has not been recognized as a liability in the financial statements as at 31st March 2010.

34 Related party disclosures 34.1 Transaction with related entities Group 2009/2010 2008/2009 Rs.’000 Rs.’000 Company 2009/2010 2008/2009 Rs.’000 Rs.’000

Nature of transactions 34.1.1 Subsidiaries Amounts receivable as at 31 March Amounts payable as at 31 March Allocation of common personnel and administration expenses Rendering of Services Net investments made Dividends received Rent Interest Royalty Allowances

1,629,758 148,167 148,490 67,946 240,000 231,300 128,184 302,103 91,637 49,182

2,119,524 372,032 123,720 21,186 434,511 225,794 125,157 617,310 16,289 108,858

34.1.2

Associates Amounts receivable as at 31 March Amounts payable as at 31 March Insurance premia paid/payable Sale of goods/services Purchase of goods/services 4,994 1,300 72,462 313,164 11,067 53,655 16,482 81,344 258,517 20,586 14,545 24,494 -

34.1.3 Terms and conditions Transactions with related parties are carried out in the ordinary course of business. Outstanding balances at the year end are unsecured and net settlement occurs in cash. 34.1.4 Off balance sheet items Guarantees given by the Company to banks on behalf of related parties are disclosed in Note 13 to the Financial Statements. 34.2 Transactions with key management personnel of the company The Key Management Personnel include members of the Board of Directors of Richard Pieris and Company PLC and its subsidiary companies.

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a)

Key management personnel compensation Group 2009/2010 2008/2009 Rs.’000 Rs.’000 Company 2009/2010 2008/2009 Rs.’000 Rs.’000 15,496 25,415

Short-term employee benefits

44,488

56,049

b) Other transactions with key management personnel Richard Pieris and Company carries out transactions with Key Management Personnel and their close family members on an arm’s length basis except any concessions which have been availed under concessionary schemes uniformly applicable to all staff. This is mainly evident in the Arpico sales outlets island wide. c) Options granted to key management personnel The options granted and held by Key Management Personnel under the Employee Share Option Plan were as follows:

2009/2010 No. of Shares Options granted and obtained under ESOP-1 Cumulative options granted and obtained under ESOP-2 2,645,501 6,235,042

2008/2009 No. of Shares 2,645,501 6,235,042

34.3 Other related party disclosures: (a) Legal fees amounting to Rs. 0.057 mn (2009 Rs. 0.268 mn) by the company and Rs. 3.6 mn (2009 Rs. 2.5 mn) by the group was paid to an entity in which a Key Management personnel was a partner. (b) During the year the Group purchased goods amounting to Rs. 1.89 mn (2009 Rs. 0.8 mn) from an entity controlled by a key management person.

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Ten Year Summary
Net Turn Over
Rs. mn 25,000

2009/2010 Rs. ‘000 TRADING RESULTS Net turnover Profit from operations Loss on disposal of investment Finance cost Profit from operations after finance cost Income from associates before tax Profit/(loss) before tax from continuing operations Income tax expense Profit/(loss) for the year from continuing operations Loss after tax from discontinued operations Profit/(loss) for the year Minority interest Profit/(loss) attributable to equity holders of parent Gross dividend BALANCE SHEET Assets Property, plant and equipment Intangible assets Investments in associates and other investments Current assets

2008/2009 Rs. ‘000

2007/2008 Rs. ‘000

20,000

22,339,288 1,969,697 (969,147) 1,000,550 59,609 1,060,159 (330,592) 729,567 (17,873) 711,694 131,490 580,204 128,251

21,103,176 1,378,556 (1,436,225) (57,669) 41,015 (16,654) (180,411) (197,065) (107,963) (305,028) 24,055 (329,083) -

15,000

10,000

5,000

0

20,142,591 2,045,930 (277,000) (1,472,629) 296,301 27,969 324,270 (77,278) 246,992 (203,216) 43,776 (258,853) (215,077) -

05/06

06/07

07/08

08/09

Profits from Operations
Rs. mn 2,500

09/10

2,000

1,500

10,142,761 480,177 180,919 6,560,960 17,364,817

10,167,170 491,491 136,757 6,128,679 16,924,097

10,125,468 500,857 101,007 7,079,997 17,807,329

1,000

500

0

Profit for the year
Rs. mn 800 600 400 200 0 (200) (400)

Equity and liabilities Stated Capital/Issued capital Capital and revenue reserves Foreign currency translation Preliminary and pre-operating expenses Minority interest Term loans payable after one year Deferred income and Deferred tax Provisions and other liabilities Net liability to the lessor payable after one year Current liabilities

1,578,475 2,183,265 31,152 1,503,071 1,957,680 553,879 1,529,685 672,158 7,355,452 17,364,817

1,578,475 1,603,061 32,371 1,380,908 2,354,617 499,951 1,103,222 697,432 7,674,060 16,924,097

1,578,475 1,932,144 21,599 1,390,232 2,683,162 386,143 1,037,650 722,234 8,055,690 17,807,329

05/06

06/07

07/08

08/09

09/10

05/06

06/07

07/08

08/09

09/10

RATIOS & OTHER INFORMATION Earnings per share (Rs.) Market value per share (Rs.) Price earnings ratio (No. of Times) Net assets per share (Rs.) Return on equity (%) Dividend per share (Rs.) Dividend cover (No. of Times) Interest cover (No. of Times) Current ratio (No. of Times) Gearing ratio (%)

4.52 55.00 12.17 29.57 16.56 1.00 4.52 2.03 0.89 49.69

(2.57) 25.00 25.06 (9.76) 0.96 0.80 59.80

(1.68) 39.00 27.54 (6.09) 1.20 0.88 61.49

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2006/2007 Rs. ‘000

2005/2006 Rs. ‘000

2004/2005 Rs. ‘000

2003/2004 Rs. ‘000

2002/2003 Rs. ‘000

2001/2002 Rs. ‘000

2000/2001 Rs. ‘000

Shareholders Fund
Rs. mn 4,000

15,627,638 1,640,288 (879,601) 760,687 11,646 772,333 (92,231) 680,102 (165,527) 514,575 (208,180) 306,395 59,193

13,093,791 1,256,820 (548,240) 708,580 4,593 713,173 (120,150)

10,118,693 1,316,639 (313,895) 1,002,744 101,455 1,104,199 (151,567)

5,237,157 498,085 (120,136) 377,949 193,647 571,597 (71,738)

4,351,197 260,807 (171,343) 89,464 97,149 186,613 (29,728)

3,561,302 309,386 (162,642) 146,744 101,239 247,983 (56,264)

3,067,308 270,086 (110,947) 159,139 85,517 244,656 (41,439)

3,800 3,600 3,400 3,200 3,000 2,800

05/06

06/07

07/08

08/09 08/09 08/09

593,023 (63,994) 529,029 177,578

952,632 (82,229) 870,403 207,174

499,859 (19,194) 480,665 177,403

156,885 (31,095) 125,790 47,111

191,719 (11,330) 180,389 58,338

203,217 (18,222) 184,995 69,688

Total Assets
Rs. mn

9,433,192 500,816 1,765,956 5,983,116 17,683,080

9,464,246 520,058 96,408 5,801,373 15,882,085

6,203,485 272,053 73,694 4,143,522 10,692,754

5,481,116 286,989 628,540 2,543,878 8,940,523

2,105,783 74,655 1,018,016 1,408,965 4,607,419

1,915,094 80,279 1,045,531 1,338,614 4,379,519

1,769,207 100,979 950,369 1,281,770 4,102,325

18,000 17,500 17,000 16,500 16,000

1,183,856 2,601,033 23,363 1,197,663 2,968,288 353,751 871,716 713,740 7,769,670 17,683,080

1,183,856 2,395,652 17,162 1,022,198 2,197,653 521,598 832,373 691,219 7,020,374 15,882,085

591,928 2,576,931 13,878 805,191 1,224,344 435,731 595,252 441,632 4,007,867 10,692,754

590,540 1,902,699 12,315 760,230 1,515,237 434,425 563,882 446,411 2,714,783 8,940,523

235,556 1,880,271 11,765 220,763 553,159 106,790 151,082 1,448,033 4,607,419

233,352 1,825,889 10,416 (38,793) 196,476 564,626 116,284 123,719 1,308,757 4,379,519

232,295 1,776,006 2,561 (52,097) 292,438 441,642 71,666 90,992 1,233,518 4,102,325

15,500 15,000 14,500

05/06

06/07

07/08

Minorithy Interest
Rs. mn 1,600 1,400

05/06

06/07

07/08

09/10

2.39 65.00 27.20 32.17 8.05 0.50 4.78 1.86 0.77 63.03

4.47 75.00 16.78 30.38 15.61 1.50 2.98 2.30 0.83 58.61

7.36 165.00 11.28 53.77 30.60 3.50 4.20 4.52 1.03 41.93

4.07 92.75 11.39 42.43 20.75 3.00 2.71 5.76 0.94 45.22

1.07 92.50 17.29 36.03 5.99 2.00 2.67 2.09 0.97 41.13

1.53 90.00 11.63 35.18 8.93 2.50 3.09 2.52 1.02 39.93

1.57 50.00 6.28 33.58 9.71 3.00 2.65 3.21 1.04 31.90

1,200 1,000 800 600 400 200 0

09/10

09/10

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Shareholder Information
The Ordinary Shares of the Company are listed in the Colombo Stock Exchange. The audited Income Statement for the year ended March 31, 2010 and the audited Balance Sheet of the Company as at date will be submitted to the Colombo Stock Exchange within two months of the Balance Sheet Date. As at the financial year ended 31st March Distribution of Shareholders Range of shareholding No of share holders as at 31/03/2010 1 501 5,001 10,001 20,001 30,001 40,001 50,001 100,001 1,000,001 500 5,000 10,000 20,000 30,000 40,000 50,000 100,000 1,000,000 & above 1,667 1,475 204 121 54 35 26 55 36 11 3,684

No of % of No of share shares Shareholding holders as at 31/03/2009 255,651 2,691,638 1,553,074 1,768,977 1,370,864 1,213,331 1,177,817 3,759,960 12,078,639 102,381,072 128,251,023 0.20% 2.10% 1.21% 1.38% 1.07% 0.94% 0.92% 2.93% 9.42% 79.83% 100.00% 1,470 1,088 149 96 39 21 20 49 30 12 2,974

No of % of shares Shareholding

210,913 1,763,869 1,068,626 1,337,478 959,091 700,831 895,642 3,457,382 10,045,241 107,811,950 128,251,023

0.16% 1.38% 0.83% 1.04% 0.75% 0.55% 0.70% 2.70% 7.83% 84.06% 100.00%

As at the financial year ended 31st March Composition of Shareholders Category No of share holders as at 31/03/2010 247 3,437 3,684 3,586 98 3,684 No of % of No of share shares Shareholding holders as at 31/03/2009 103,214,977 25,036,046 128,251,023 34,942,259 93,308,764 128,251,023 80.48% 19.52% 100.00% 27.25% 72.75% 100.00% 230 2,744 2,974 2,884 90 2,974 No of % of shares Shareholding

Institutional Investors Individual Investors Total Resident shareholders Non-resident shareholders Total

107,888,659 20,362,364 128,251,023 34,717,515 93,533,508 128,251,023

84.12% 15.88% 100.00% 27.07% 72.93% 100.00%

Public share holding as at March 31,2010 is 44.94% (31.03.2009 Restated - 44.87%)

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Market Activity 2009/10 Highest Price (Rs.) Lowest Price (Rs.) Year End Price (Rs.) No of Transactions No of shares traded Share turnover (Rs.) 68.75 23.75 55.00 18,738 40,975,300 1,904,569,725 Date 22-Feb-10 3-Apr-09 31-Mar-10 2008/09 50.50 21.75 25.00 6,924 23,724,900 876,394,350 Date 10-Jul-08 30-Dec-08 31-Mar-09

Major Shareholders as at 31st March Name of the Shareholder 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Skyworld Overseas Holdings Limited Camille Consulting Corp. HSBC International Nominee Ltd-SSBT- Deutsche Bank Sezeka Limited Rockport Limited National Savings Bank Mr. A.I. Devasurendra Mr. H. A. Pieris Mr. D. W. R. Rutnam The Executor of the Estate of Mrs L.B. S. Pieris Taprobane Holdings Ltd Pershing LLC S/A Averbach Grauson & Co Kalday (Pvt) Ltd. Mrs E De Mel Miss L. A. Pieris Mrs. S. Wambeek Asia Capital PLC Mr. R.J.D Ferdinands Mr R. C. Pieris Employees Trust Fund Board 3/31/2010 34,425,906 21,129,008 15,025,038 11,629,800 6,633,791 4,933,825 2,239,300 1,841,701 1,717,300 1,518,803 1,281,600 966,000 841,867 818,202 757,878 726,275 625,628 576,526 494,752 477,733 108,660,933 % 26.84% 16.47% 11.72% 9.07% 5.17% 3.85% 1.75% 1.44% 1.34% 1.18% 1.00% 0.75% 0.66% 0.64% 0.59% 0.57% 0.49% 0.45% 0.38% 0.37% 84.73% 3/31/2009 34,425,906 21,129,008 15,025,038 11,629,800 6,633,791 4,933,825 N/A 1,841,701 1,717,300 1,518,803 N/A N/A 841,867 818,202 1,463,778 726,275 7,602,328 893,826 518,752 408,633 112,128,833 % 26.84% 16.47% 11.72% 9.07% 5.17% 3.85% N/A 1.44% 1.34% 1.18% N/A N/A 0.66% 0.64% 1.14% 0.57% 5.93% 0.69% 0.40% 0.32% 87.43%

Directors Shareholding as at 31st March No. Name of shareholders

No. of shares as at 31st March 2010 4,140 7,000 24,600 100

No. of shares as at 31st March 2009 86,064 9,050 7,000 24,600 -

1 2 3 4 5 6 7

Dr. Sena Yaddehige Mr. Pravir D Samarasinghe Mr. J H Paul Ratnayeke Prof. Lakshman R Watawala Prof. Susantha Pathirana Mr. M M Udeshi Mr. Viville Perera

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Group Real Estate Portfolio
Freehold Land & Buildings Owning Company Location Land in Perches Building Market Value in (Sq.Ft) 2010 Rs.’mn 59,182 289,202 36,890 223,405 38,306 45,000 56,546 40,757 45,825 4,600 36,300 16,500 26,015 75,961 3,606 1,339 943 393 207 100 10 396 88 122 603 369 192 19 284 120 15 40 84 8,930

Richard Pieris & Co. PLC RPC Real Estate Co. Ltd Arpico Industrial Dev Co (Pvt) Ltd. Richard Pieris Distributors Ltd.

RPC Retail Development (Pvt) Ltd.

Arpimall Development (Pvt) Ltd. Plastishells Ltd. Arpico Flexifoam (Pvt) Ltd Richard Pieris Exports PLC Micro Minerals (Pvt) Limited Richard Pieris Tyre Company Ltd Arpidag International (Pvt) Ltd Total

Hyde Park Corner Maharagama Kandy Mattegoda Maharagama Moratuwa Mulleriyawa Negambo Kelaniya Wattala Dehiwala Battaramulla Mattegoda Dambulla Mattegoda Ja-Ela Bandaragama Kurunagala Maharagama

709 1,739 162 1,402 195 85 192 226 102 100 169 116 340 284 1,136 640 320 450 80

Leasehold Land & Buildings Owning Company

Location

Land in Hec

Building in (Sq.Ft)

(A) Leasehold Land of Plantations Maskeliya Plantations PLC Kegalle Plantations PLC Namunukula Plantations PLC Location

10,561 9,773 11,775 Land in Per

7,112,890 3,507,810 3,026,546 Building in (Sq.Ft)

(B) Leasehold Land of other subsidiaries Plastishells Ltd RPC Polymers (Pvt) Ltd Arpitalian Compact Soles (Pvt) Ltd Richard Pieris Natural Foams (Pvt) Ltd Arpico Natural Latex Foams (Pvt) Ltd Richard Pieris Tyre Company Ltd

Koggala Pallekale Horana Biyagama Biyagama Seethawaka Pallekale Weligama Polonnaruwa

160 160 1,392 751 851 758 252 432 540

2,980 2,980 60,000 30,062 80,920 4,917 27,530 28,347 30,690

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Glossary of Financial Terms
Associate Company A Company other than a subsidiary in which a holding company has a participating interest and exercises significant influence over its operating and financial policies. Current Ratio Current Assets divided by Current Liabilities. A measure of short term liquidity. Debt to Equity Ratio Long term Interest Bearing Borrowings divided by Net Assets. Deferred Taxation Sum set aside for tax in the Financial Statements that will become payable in a financial year other than the current financial year. Dividend Cover Profit attributable to Ordinary shareholders divided by Gross Dividend. Measures the number of times dividend is covered by distributable profit. Dividend per Share Gross Dividend divided by the number of Ordinary Shares in issue at the year end. Dividend Yield Gross Dividend per share as a percentage of the year end market price per share. A measure of return on shareholders’ investment. Earnings Per Share (EPS) Profits attributable to Ordinary Shareholders divided by the weighted average number of Ordinary Shares in issue. Earnings Yield Earnings per Share as a percentage of the year end market price per share. Effective Tax Rate Income Tax expenses divided by profit before tax. Gearing Ratio Proportion of total interest bearing liabilities to total capital employed. Gross Dividend Portion of profits inclusive of tax withheld, distributed to shareholders during the year. Interest Cover Profit Before Tax (PBT) plus net finance cost divided by net finance cost. Measure of entity’s debt service ability. Investment Property A property that is not occupied by the owner, usually purchased specifically to generate profit through rental income and/or capital gains. Market Capitalization Number of shares in issue multiplied by the market value of a share at the reported date. Minority Interest An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes. Net Assets per Share Shareholders’ fund divided by weighted average number of Ordinary Shares in issue. A basis of relative share valuation. Price Earnings Ratio Market Price of a share divided by Earnings per share as reported at that date. Price to Book Value Market price of a share divided by Net Assets per share.

Public Shareholding Shares of a Listed Entity held by any person other than those directly or indirectly held by; a) its parent, subsidiary or associate companies or any subsidiaries or associates of its parent company; and, its directors who are holding office as directors of the Entity, their spouses and children under 18 years of age; and, Chief Executive Officer, his/her spouse and children under 18 years of age; and, any single shareholder who holds 10% or more of the shares.

b)

c)

d)

Related Parties Parties who could control or significantly influence the financial and operating policies of the business. Return on Total Capital Employed Profit before Tax plus net finance cost divided by average total capital employed. Return on Equity Profit after Tax less Preference Share dividend if any, expressed as a percentage of Average Ordinary Shareholders’ Fund.

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Glossary of Financial Terms contd.
Revenue Reserves Reserves considered as being available for distributions. Recession Reduction of a country’s GDP or negative real economic growth for at least two consecutive quarters Segmental Analysis Analysis of financial information to segments of an enterprise specifically, the different industries and the different geographical areas in which it operates. Shareholders’ Fund Stated Capital plus Revenue Reserves. Stated Capital The total of all amounts received by the entity or due and payable to the entity by shareholders in respect of the issue of shares and calls on shares. Subsidiary Company A company is a subsidiary of another company if the parent company holds more than 50% of the voting rights or controls the composition of its Board of Directors. Total Capital Employed Total Shareholders’ Fund plus Minority Interest plus total interest bearing borrowings. Value Addition The quantum of wealth generated by the activities of the Group measured as the differences between net revenue (including other income) and the cost of materials and services bought in. Working Capital Investment Capital required financing the dayto-day operations computed as the excess of current assets over current liabilities.

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Notes

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Notice of Meeting
NOTICE IS HEREBY GIVEN that the Seventy First Annual General Meeting of Richard Pieris & Company PLC will be held at the Registered Office of the Company, No. 310, High Level Road, Nawinna, Maharagama on Wednesday, 30th June 2010 at 4.00.p.m. and the business to be brought before the meeting will be as follows; 1. To consider the Report of the Directors and the Statement of Accounts for the year ended 31st March 2010 with the Report of the Auditors thereon. To declare a dividend as recommended by the Directors. To approve the appointment of Mr. Morarji Meghji Udeshi, who retires at the conclusion of this meeting having reached the age of 70 years pursuant to Section 210 of the Companies Act No. 07 of 2007 as a Director Pursuant to Section 211 of the Companies Act No. 07 of 2007, a Notice of the following Ordinary Resolution has been received by the Company, from Mr. Anthony Kenneth Christie, 25, Jayawardena Avenue, Dehiwala , a shareholder of the Company. “That Mr. Morarji Meghji Udeshi of No. 16, Queens Terrace, Colombo 3., who is 82 years of age be and is hereby appointed a Director of the Company in terms of section 211 of the Companies Act No. 07 of 2007, and it is further specially declared that the age limit of 70 years referred to in Section 210 of the Companies Act no. 07 of 2007 shall not apply to the said Mr. Morarji Meghji Udeshi ” 4. To re-elect Prof. Lakshman Ravendra Watawala who retires by rotation in terms of Article 85 at the Annual General Meeting, a Director. To elect Mr. Viville Prasidus Perera, who retires in terms of Article 91 as a Director. To re -appoint M/s. Ernst & Young, Chartered Accountants as Auditors of the Company and to authorize the Directors to determine their remuneration. To authorize the Directors to determine contributions to charities. To consider any other business of which due notice has been given. To consider and if thought fit pass the following Special Resolutions in order to amend the Articles of Association of the Company in the manner following; I That the existing Article 151 be deleted in its entirety and be substituted by the following in its place, “Where a notice is given by an advertisement, such advertisement, shall be published in Sinhala, Tamil and English national daily newspapers”. II That the following Article 41A be included immediately following the existing Article 41 to read as follows, “The Company shall not register more than three persons as Joint holders (including the principal holder) of any shares (except in the case of executors, administrators or heirs of a deceased member)”. III That the existing Article 34Abe deleted in its entirety and be substituted by the following in its place, “Notwithstanding anything to the contrary contained in the Articles of Association of the Company, so long as the Company is listed on the Colombo Stock Exchange, the Company shall comply with the Rules of the Colombo Stock Exchange and the Central Depository System, which shall be in force from time to time”.

5.

6.

7.

2. 3.

8.

By Order of the Board

Richard Pieris Group Services (Private) Limited Secretaries No. 310, High Level Road, Nawinna, Maharagama 24th May 2010 Note: a) A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of him/her. b) A proxy need not be a member of the Company. The form of proxy will be found inserted in the Annual Report. The completed form of proxy should be deposited at the registered office of the Company No. 310, High Level Road, Nawinna, Maharagama., not less than 48 hours before the time appointed for the holding of the meeting.

c)

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Form of Proxy
I/We* (in block letters) ................................................................................................................................................................ of ............................................................................................................................................................................................ being a member / members of the RICHARD PIERIS & COMPANY PLC, hereby appoint ......................................................................... ..................................................................................................................................................................................................... of ........................................................................................................................................................................................ whom failing DR. SENA YADDEHIGE whom failing PRAVIR DHANOUSH SAMARASINGHE whom failing JAMES HENRY PAUL RATNAYEKE whom failing PROF. LAKSHMAN RAVENDRA WATAWALA whom failing PROF. SUSANTHA DEDDUWA PATHIRANA whom failing MORARJI MEGHJI UDESHI whom failing VIVILLE PRASIDUS PERERA * as my/our proxy to represent me/us and to vote on my/our behalf at the SEVENTY FIRST ANNUAL GENERAL MEETING of the Company to be held on 30TH June 2010 and any adjournment thereof, and at every poll which may be taken in consequence thereof to vote:In favour Against 1. 2. 3. 4. 5. 6. To consider the Report of the Directors and the Statement of Accounts for the year ended 31st March 2010 with the Report of the Auditors thereon. To declare a dividend as recommended by the Directors. To approve under and in terms of Section 211 of the Companies Act No. 07 of 2007, the appointment of Mr. Morarji Meghji Udeshi at this Annual General Meeting, a Director To re-elect Prof. Lakshman R Watawala, who retires by rotation in terms of Article 85 at the Annual General Meeting, a Director To elect Mr. Viville P Perera, who retires in terms of Article 91 as a Director To re-appoint M/s Ernst & Young, Chartered Accountants as Auditors of the Company and to authorise the Directors to determine their remuneration. To authorize the Directors to determine contributions to charities To consider any other business of which due notice has been given Special Resolution No. I as set out in the Notice of Meeting Special Resolution No. II as set out in the Notice of Meeting Special Resolution No. III as set out in the Notice of Meeting Dated this .............................................. day of .............................................. 2010 ......................................................... Signature of shareholder Notes: (i) Please delete the inappropriate words (ii) A proxy need not be a member of the Company. (iii) Instructions as to completion appear on the reverse of this form.

7. 8.

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Richard Pieris and Company PLC Annual Report 2009/2010

Form of Proxy contd.

INSTRUCTIONS AS TO COMPLETION OF PROXY FORM To be valid, this Form of Proxy must be deposited at the registered office of the Company No. 310, High Level Road, Nawinna, Maharagama., not later than 4.00 p. m. on Monday, 28th June 2010. In perfecting the Form of Proxy, please ensure that all details are legible. In the case of a Company/Corporation, the proxy must be under its Common Seal, which should be affixed and attested in the manner prescribed by its Articles of Association. Please indicate with an ‘X’ in the space provided how your proxy is to vote on each resolution. If no indication is given the proxy at his/her discretion will vote as he/she thinks fit. This Form of Proxy shall in the case of an individual be signed by the appointor or his/her Attorney. Where the Form of Proxy is signed under a Power of Attorney, which has not been registered with the Company, the original Power of Attorney together with a photocopy of same or a copy certified by a Notary Public must be lodged with the Company, along with the Form of Proxy.

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Richard Pieris and Company PLC 310 High Level Road Nawinna Maharagama Sri Lanka www.arpico.com

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