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Annual Report

Richard Pieris and Company PLC

08/09

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Contents
3 4 5 6 8 14 35 40 42 47 49 53 54 58 61 62 64 65 66 67 68 70 71 Financial Highlights The Richard Pieris Story Corporate Information The Board of Directors Chairmans Review Sector Review Financial Review Corporate Social Responsibility 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 Auditors Report Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements

113 Group Real Estate Portfolio 114 Ten Year Summary 116 Shareholder Information 118 Glossary of Financial Terms 120 Notice of Meeting 121 Notes 123 Form of Proxy

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Richard Pieris and Company PLC Annual Report 2008/2009

Recession, falling prices, lower sales, inflation, high interest rates - much negativity; the past year has been tough, but we need to look beyond and focus on whats important in order to grow for the future. At Richard Pieris, were doing just that. Were consolidating our business to improve efficiencies, rationalizing our portfolio and investing in profitable business sectors, even as we exit unprofitable ones. We have a clear strategy for growth and that will guide us into a more successful year ahead.

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Richard Pieris and Company PLC Annual Report 2008/2009

Vision

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.

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.

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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 2008/2009

Financial Highlights
2008/2009 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 Loss attributable to Equity holders of the Parent Total Assets Shareholder Funds Market capitalisation Total value addition Per Ordinary Share Earnings (Rs.)* Net Assets (Rs.)* Market value (Rs.)* Ratios (2.57) 25.06 25.00 (1.68) 27.54 39.00 20,818,036 1,350,476 (8,935) (180,411) (189,346) (115,682) (305,028) (329,083) 16,924,097 3,213,907 3,206,276 6,170,023 2007/2008 Rs. 000 20,142,591 2,045,930 324,270 (77,278) 246,992 (203,216) 43,776 (215,077) 17,807,329 3,532,218 5,001,790 6,292,421

he

Return on equity (%) Interest cover (No. of times) Gearing ratio (%)

(10.24) 0.96 59.80

(6.09) 1.20 61.49

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Richard Pieris and Company PLC Annual Report 2008/2009

The Richard Pieris Story


Search any household in Sri Lanka, from the highest to the most humble and your chances of not finding at least one product manufactured or sold by Richard Pieris and Company PLC are slim indeed. From food products, medicines, general plastic and rubber household goods to foam mattresses and furniture, Sri Lankas consumers turn to us for an almost incredible variety of products. In the process, they have turned the name of our Company and the Arpico brand into household words across the country. The beginning of this national institution was modest. The founding partners set themselves up in business as commission agents, general import and export merchants and dealers in estate supplies, and by doing so they were actually creating new dimensions for a Ceylonese mercantile community to emerge. The Companys first business venture was a filling station. Turnover grew by more than 500 percent in the first seven years. In 1940 the business was converted into a limited-liability company with the founding partners as Directors. The issued share capital of Rs. 50,000 was substantial for its day, and the new company boasted 70 employees. Our financial results for the current year were dissapointing, but we succeeded in further consolidation of our businesses. We have gradually evolved into being the market leaders in almost every line of merchandise manufactured and distributed by us. Today, the Group is well established, stable, diversified and forward-looking. Today, Richard Pieris and Company PLC can justifiably claim a place in the front rank of the countrys diversified business conglomerates. Our diversified manufacturing operations in rubber and plastic products combined with our investments in Sri Lankas largest retail super centres and in management of the plantations, make our company shares a secure and dependable long-term investment. When the world went to war, rubber became a precious commodity to the Allies and tyres were reserved for military use. Seeing a business opportunity in the midst of those dark days, Richard Pieris and Company PLC launched a tyre-rebuilding business to meet the demand for these essential products. The Companys first manufacturing venture met with abiding success; today, our Arpico and Arpidag brands remain leaders in the domestic rebuild tyre market. We look forward to a bright future and enhanced shareholder returns by concentrating on our core business operations that we now dominate.

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Richard Pieris and Company PLC Annual Report 2008/2009

Corporate Information
Name of the Company Richard Pieris and Company PLC 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. 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 - Chief Operating Officer/Director Mr. Lalit N. de S. Wijeyeratne - Finance Director Resigned w. e. f. 30.06.2008 Mr. J. H. Paul Ratnayeke - Director Prof. Lakshman R. Watawala - Director Dr. Susantha D. Pathirana - Director Mr. M. M. Udeshi - Director Head/Registered Office No. 310, High Level Road Nawinna, Maharagama, Sri Lanka. Secretaries Richard Pieris Group Services (Private) Limited No. 310, High Level Road, Nawinna, Maharagama, Sri Lanka. Legal Advisors Paul Ratnayeke Associates International Legal Consultants, Solicitors and Attorney-at-Law, No. 59, Gregorys Road, Colombo 7, Sri Lanka. 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 National Development Bank PLC Peoples Bank Sampath Bank PLC Seylan Bank PLC Standard Chartered Bank Indian Bank PABC Bank PLC Nations Trust Bank PLC Auditors Ernst & Young Chartered Accountants No. 201, De Saram Place, Colombo 10, Sri Lanka. Executive Management Committee Mr. Pravir D. Samarasinghe (Chairman) Mr. Michael Andree Mr. Abeyananda Dias Mr. Mahinda Galagedara Mr. Pushpika Janadeera Mr. Sunil Jayakody Mr. V. K. Jayawardena Mr. Ravi Kumararatne Mr. Sunil Liyanage Mr. Franklyn Mendis Mr. Keith Perera Ms. Coralie Pietersz Mr. Sunil Poholiyadda Mr. Niranjan Vithanage Mr. Muditha Welihinda

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Richard Pieris and Company PLC Annual Report 2008/2009

The Board of Directors

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5.

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1. 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 world-wide 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 2. Mr. P. D. Samarasinghe Mr. Pravir Samarasinghe is a PLC, Kegalle Plantations PLC, Namunukula Plantations PLC and Director of National Development Bank PLC. Dr. Yaddehige is presently a Director of a Swiss Phamaceutical Company. He is the Chairman, Managing Director and Chief Executive Officer of the Company.

1.
Exports PLC, Maskeliya Plantations He is a Past President of the

6.

an MBA. He joined the Board of Richard Pieris & Company PLC in 2000. He is a Director of several quoted and unquoted companies. Chartered Institute of Management Accountants (Sri Lanka) and 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 and the National Labour Advisory Council. He is the Chief Operating Officer of the Group.

Fellow of the Institute of Chartered Accountants of Sri Lanka and the Chartered Institute of Management Accountants in UK and holds

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Richard Pieris and Company PLC Annual Report 2008/2009

3. Mr. J. H. P. Ratnayeke - Deputy Chairman Mr. Paul Ratnayeke is a leading commercial lawyer and the Senior Partner and Founder of the firm Paul Ratnayeke Associates. He graduated with honors from the University of Ceylon (Colombo) and has also been awarded a LLM degree by the University of London. He is an Attorney-at-Law of the Supreme Court of Sri Lanka and a Solicitor of the Supreme Court of England and Wales. He is a Director of the Board of Directors of several listed, public and private companies including the Richard Pieris Group and Asia Capital Group. 4. Prof. Lakshman R. Watawala Prof. Lakshman R. Watawala, is a Fellow of the Institute of Chartered Accountants of Sri Lanka, Fellow of the Chartered Institute of Management Accountants and Fellow of the Society of Certified Management Accountants of Sri Lanka. He is the Former Chairman and Director General of the Board of Investment of Sri Lanka, former Chairman of Peoples Bank, Peoples 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 Society of Certified Management AccountantsSri 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. 5. 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. 6. 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

Chairmans Review

The Group completed a difficult year being affected adversely by the macro-economic environment. The increase in the price of raw materials and energy in the first half of the financial year affected our Manufacturing Sectors while the decrease in commodity prices and the global financial crisis in the second half of the year had a negative impact on the Plantation Sector and the Group as a whole.

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Richard Pieris and Company PLC Annual Report 2008/2009

The Group achieved a turnover of Rs. 20.8 bn, a marginal increase from last year. Operating profit before interest and tax amounted to Rs. 1.35 bn a decrease of 34% from last year. The Group incurred a loss of Rs. 189 mn from continuing operations. Despite a reduction in Group borrowing by nearly Rs. 1 bn, Group Finance Cost remained almost at the same level as last year due to high interest rates. The Group incurred an additional loss of Rs. 116 mn from discontinued operations, resulting in a net loss of Rs. 305 mn. The Group continued with its strategy of exiting from businesses Dr. Sena Yaddehige Chairman/CEO/MD I would like to present the Annual Report and Audited Accounts of the Company and its subsidiaries for the year ended 31st March 2009. The Group completed a difficult year being affected adversely by the macro-economic environment. The increase in the price of raw materials and energy in the first half of the financial year affected our Manufacturing Sectors while the decrease in commodity prices and the global financial crisis in the second half of the year had a negative impact on the Plantation Sector and the Group as a whole. High interest rates and inflation continued to have an adverse impact on profitability. As measured by the Colombo Consumers Price Index, the general price level showed an upward trend, leading to an annual average increase of 22.6% in the year 2008 compared with an Economy The countrys economic growth reduced to 6% in the year 2008 compared to last year; with the Agricultural Sector growing by 7.5%, the Industrial Sector by 5.9% and the Service Sector by 5.6%. The annual unemployment rate reduced to 5.2%, while the Per Capita Income rose to US$ 1969. with low profitability and concentrated on its core business. The Group closed down the travel business and the PVC pipe operation.

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Richard Pieris and Company PLC Annual Report 2008/2009

Chairmans Review
increase of 15.8% in the previous year. The Central Bank of Sri Lanka was compelled to continue its tight monetary stance, during the early part of the year, in order to control the inflationary pressure in the country. Due to the tight monetary policy that prevailed and credit controls implemented by all commercial banks, local interest rates remained at high levels for most part of the year. Sector Review Inflation came down sharply from almost 30% in early 2008 to 24.3% in September and reached 5.3% by the end of March 2009. As a result, the Central Bank of Sri Lanka started relaxing its monetary policy by the end of year 2008 by reducing policy rates which resulted in a gradual reduction in the interest rates in the market. The Balance of Payments recorded a deficit of US$ 1,225 mn, which was mainly due to the increase in the cumulative expenditure on imports during the year, which had grown by 24% due to the sharp increase in international commodity prices. The Central Bank of Sri Lanka continued to maintain a fixed value for the local currency against the US $ during the first half of the year but the Rupee showed a sudden depreciation of 6% against the US $ in the latter part of the year due to the settlement of extended oil bills, lower foreign Targeted marketing activities implemented during the year increased the awareness of the Arpico Brand. This and continuous The Sector continued its selective expansion plans. A new Super Store was opened in Boralasgamuwa and the expansion project at Battaramulla is nearly complete. The showrooms concept is being upgraded and the Kurunegala and Wattala showrooms were relaunched, as part of this initiative. The Retail Sector completed another successful year recording an impressive growth despite the economic downturn and drop in consumer spending during the second half of the year. Sales grew to Rs. 8,813 mn, an increase of 8% from last year, with the main contributor being FMCG, while the operating profits grew by 13% to Rs. 473 mn during the year. This sector now contributes 30% of the Groups profits. The arbitrary imposition of taxes including the Nation Building Tax and the Cess on imported raw material is adversely affecting local industries catering both to domestic and international markets. The Policy makers should address these anomalies that are impeding the profitable growth of the private sector. remittance and large withdrawals of foreign investors.

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Richard Pieris and Company PLC Annual Report 2008/2009

this year while the operating profit showed a decrease of 53% from Rs. 1,182 mn to Rs. 555 mn. The sharp decline in commodity prices witnessed in September 2008 had a serious impact on profitability with the surpluses made in the first two quarters being eroded by the poor performance during the latter part of the year. improvements in customer service and close monitoring of the supply chain, to ensure that a wide range of products are available at the right quality and price, enabled the Company to maintain its competitive advantage. The expansion of the customer relationship activities via the Arpico Privilege card, and the expansion of the Arpico Family and Super Saver range of products increased value offerings to customers. The Retail Sector successfully implemented sound working capital management practices during the year and significant steps were taken in the reduction of overheads. The Plantation Sector, with its diversified range of crops, achieved satisfactory results, even though the low global prices of commodities, rising fertilizer prices, cost of energy and high inflation impacted adversely on the Sector. The Sector reported a decrease in turnover from Rs. 6,834 mn last year to Rs. 5,939 mn The Tyre Sector had a successful As a result of the estates investing in machinery, several factories now have facilities for dual manufacture which enables the estates to make optimum use of price fluctuations in small and leafy teas, to increase profitability. This has already shown good results. Along with the prices of other commodities, Oil Palm prices too were affected in the latter half of the year. However, it still remained the largest contributor to the profits of Namunukula Plantations PLC, which continues to expand the area under Oil Palm cultivation. The rubber prices declined, due to the demand for natural rubber plummeting, as a result of the effects the global financial crisis heed on the automotive industry. Both high and low grown tea prices also saw a significant downturn during the second half of the year. In order to reduce the impact strict cost control measures and restrictions on the intake of bought leaf were implemented.

year with a significant growth in both turnover and profitability. Turnover increased by 13% from Rs. 2,748 mn last year to Rs. 3,096 mn this year while operating profitability increased by 50% from Rs. 157 mn to Rs. 235 mn. The first half of the year saw large increases in the price of raw materials which dropped in the second half. The Sector maintained its competitiveness by frequent price revisions in response to changes in raw material prices. The retreading business, which is the main contributor to this sector, recorded an increase of approximately 10%, in market share during the year. It increased its product range and introduced new tread designs. The Tyre Sectors entry into the new tyre market two years ago, leveraging on the fact that it has the largest tyre dealer network in the country, proved a success. It launched a passenger vehicle tyre Corsa during the year, which has shown promising results. The product range has been expanded with the introduction of a new range of tubes and flaps. The Plastic Sector faced a challenging year with high prices of petroleum based raw material in the first half of the year and the adverse economic conditions that prevailed in the second half of the year. Relocation and reconstruction costs of factories along with

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Richard Pieris and Company PLC Annual Report 2008/2009

Chairmans Review
related interest expenses affected profitability. Turnover increased marginally from Rs. 4,169 mn last year to Rs. 4,568 mn this year while profitability decreased by 27% from from Rs. 235 mn last year to Rs. 172 mn this year. The Sectors new rigid Polystyrene plant, which replaced the plant gutted by fire in 2006, was commissioned in the 3rd quarter of 2008 with state-of-the-art machinery and increased capacity. Despite intense competition, the company maintained market share and achieved a satisfactory level of profitability. The sales of rotational moulded products were affected by the slowdown in the construction industry and increased competition. The Company maintained its market share with difficulty but profitability was affected by decreased margins and overcapacity in the industry. The increase in the cost of raw materials and increased competition resulted in a drop in demand for Polyurethane foam products, including mattresses, which affected the profitability during the year. The Company plans to introduce new products based on careful market research in order to regain market share. Despite the effects of the economic downturn, the Distribution The Company continues to have production inefficiencies in its Latex Foam factory that resulted in high wastage. The volumes especially in North America were also affected in the latter part of the year, which contributed towards poor profitability. The company continued its market penetrative initiatives in new and existing key markets during the year which should show results in the future. The outcome for the Retail Sector remains positive. The Company will continue its strategy of selective expansion and providing more value to customers, whilst focusing on overhead and working capital Production levels at Richard Pieris Exports returned to normal after the industrial dispute experienced in the previous year. The Company introduced a number of new products and plans to focus more on value added products with higher margins. The Plantation Sector, will invest in replanting and upgrading the manufacturing process. The increased use of solid fuel should result in lower energy costs. The high cost of fertilizer and the wage structure, which is not tied to productivity, pose major challenges in this sector. The Rubber Export Sector witnessed a steep increase in the prices of raw materials during the first half of the year, due to increases in the price of natural rubber and petroleum based raw materials. Sales orders remain low as markets, especially the U.S.A. were affected by the global economic crisis. The Outlook for 2009/2010 The Group will continue to focus on its core businesses consolidating its operations whilst exiting from poorly performing businesses. The Construction Company continued to make losses and options to attract expertise / or exit are being pursued. Division in the Plastic Sector achieved a turnover which was only marginally less than last year. The Arpitech Water Pump which was launched in 2006 is now the market leader. Sales of Arpilight CFL bulbs also made steady progress during the year. Timberline, a subsidiary of the Company entered into a joint venture with Papoose International (Pvt.) Ltd, a company with synergies to infuse expertise into the Company. The sale to Europe of Arpitalian Compact Soles, a manufacturer of synthetic shoe soling sheets, declined whilst sales growth in the Asia Pacific region was recorded by sourcing several new customers.

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Richard Pieris and Company PLC Annual Report 2008/2009

management, in order to improve profitability. In both Tyre and Plastic Sectors the Group will strengthen its operations in the Countrys North and East. The envisaged increased construction and economic activities will provide opportunities for the Group which already has an established network of Tyre, Hardware and Furniture dealers islandwide. The Group is confident the Tyre Sector will continue to grow whilst the Plastic Sector will recover from the difficulties faced and improve performance in the ensuring year. The export oriented Rubber Sector will continue to face challenges due to the slow down in the global economy. Increased focus on international marketing and improving production process efficiencies augur well for the long term growth of the export sector. The Groups high borrowing position is still a concern and options to reduce gearing to an acceptable level are being looked at. Conclusion I thank all our stakeholders including the employees, our suppliers, our customers, our business partners and my codirectors of Richard Pieris and Company PLC for their support and guidance given in the last

challenging year. I also thank all the shareholders for the confidence placed in the Company.

Dr. Sena Yaddehige Chairman/CEO/MD 16th June 2009

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review
Retail
The Retail Sector had another successful year recording an operating profit growth of 13% despite the economic downturn. Management of overheads and working capital contributed to profitability.

Plantation

The sharp decline in commodity prices and rising costs had a serious impact on operating profitability which reduced by 53%. Despite these challenges the sector achieved an operating profit of Rs. 555 mn.

Tyre

The Tyre sector had a successful year with a 50% growth in operating profitability. Increase in the sales of new tyres and expansion in market share of retreads contributed towards increased profitability.

35%

24% 12%

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Richard Pieris and Company PLC Annual Report 2008/2009

Plastics

18% 12% 9% 01 2 40%

he

This was a challenging year for this sector with high raw material prices in the first half of year, adverse economic conditions and intense competition, which resulted in operating profits declining by 27%. This sector continued to focus on enhancing competitiveness and profitability.

Rubber

The high prices of natural rubber and petroleum based raw material and depressed overseas markets during the second half of the year had an adverse impact on the profitability of this sector. The Sector will continue to focus on international marketing and improving process efficiencies in manufacture.

Services

This sector performed poorly due to the impact of the global financial crisis. Travel operations were discontinued.

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Richard Pieris and Company PLC Annual Report 2008/2009

Building
The Retail Sector continued to be one of the Groups main growth oriented arms during the year under review. Its operations include the Arpico Supercentres/ Stores and its islandwide showroom network. The Sector also provides interior decoration solutions for institutions. The Sector is represented by Richard Pieris Distributors Limited, Arpimalls Development Company (Pvt.) Limited, RPC Retail Development (Pvt.) Limited, RPC Real Estate Development (Pvt.) Limited and Arpico Interiors (Pvt.) Limited. The year 2008/2009 proved to be a challenging year for the Retail Sector due to the adverse economic conditions in the country and the effects of the global financial crisis. The sector did remarkably well in its all-round performance up Richard Pieris Distributors Ltd. Richard Pieris Distributors operates the well-known Arpico chain of Supercentres, Super Stores and Showrooms islandwide. The Company retails a wide However, the Sector recorded an increase of operating profit by 13% when compared to the previous financial year. The growth in turnover and Net Asset Base clearly demonstrates the growth potential of this sector. However, it should be noted that these positive results were achieved primarily due to the significant growth experienced in the first half of the financial year 2008/09, which was followed by a downturn in consumer spending. to the end of August 2008, after which it witnessed a sharp drop in consumer spending as adverse macro events affected sentiment and reduced disposable income.

Sector Review - Retail

a strong retail brand


array of fast moving consumer goods (FMCG), household goods including furniture & electronics, apparel and a host of value added services through its 10 super centres/stores and 28 showrooms. Positive results were shown due to increased turnover, at all existing locations and effective management of overheads and stocks. The Company recorded a significantly higher growth in FMCG sales when compared to the previous year. However, the countrys economic downturn resulted in slower growth in other categories such as household goods including furniture and electronics. A significant negative change was observed in spending patterns among some segments of consumers following the crash of finance companies which occurred in the latter part of 2008.

General Merchandise, Apparel, Furniture & Electronics

The Product Portfolio: Fast Moving Consumer Goods, Food,

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Richard Pieris and Company PLC Annual Report 2008/2009

An initiative was taken to upgrade the companys showroom concept by re-launching the showrooms in Kurunegala and Wattala. A new Super Store was opened during the year at Boralasgamuwa. An outsourced food court was also launched at the companys flagship Supercentre at Hyde Park Corner. An expansion project at the Battaramulla Supercentre is presently nearing completion. Awareness of the Arpico brand was increased amongst existing and potential customers, through carefully targeted marketing and sales strategies. The company focused on growth in its customer numbers by providing greater value added products and services. The Arpico Privilege Card customer base achieved a milestone by increasing its membership to over 100,000 from 70,000 in the previous year. The increasing popularity of the Privilege Card is mainly due to tempting rewards provided to members. The Company continued to enhance its levels of customer convenience, which have added to its competitive edge. This included ample parking space available at all supercentres and super stores, wider aisle space for easy shopping, and state-ofthe-art cool rooms to provide fresh products. Special events were also organised throughout the year, including childrens activities, to create an added level of excitement and provide customers with a

more comfortable environment to shop in. The Companys Super Saver concept was well received by increasingly cost conscious consumers. The Company entered into strategic partnerships with two major mobile service providers on bill payment operations in order to provide customers even more value added services. Successful cost reduction programmes are being continuously introduced and implemented in order to keep the expenses of the retail operation well within budgeted and acceptable proportions in the face of high inflation. The supply chain operation of the company is consistently monitored and improved to give the company the capability of selling a wider product range at the right quality and price. Working capital management was improved to provide a higher cash flow. Inventory control was greatly enhanced and succeeded in reducing inventory significantly. Product offerings were adapted to better suit todays market and the range of Arpico Family branded products was expanded. The Company launched a training school in Nawinna for staff and believes in continuous training and development for its employees. The Company intends to continue its growth in profitability in the

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Retail


coming year through selective expansion of its chain of Supercentres in targeted areas. The Company will further enhance its focus on overhead management and working capital control and take on the challenge of sluggish consumer spending brought on by the economic slowdown. The higher Nation Building Tax is expected to result in a negative impact on consumer spending. However, the Company is using the economic downturn as an opportunity to revisit its value chain and rationalise returns in all areas of operation. The Company is monitoring opportunities in the countrys North East, but has not committed to any plans for this region. Arpimalls Development Company (Pvt.) Ltd. Arpimalls Development Company owns the two large Arpico Supercentres in Battaramulla and Dehiwela that are operated by Richard Pieris Distributors Ltd. During the year under review, the Company continued its profitable record. RPC Retail Development (Pvt.) Ltd. RPC Retail Development owns the 45,000 square foot Arpico Supercentre in Negombo which is now in its second year of operation. Arpico Interiors completed another profitable year, despite the challenges posed by the countrys economic slowdown, especially that in the construction trade. This was compounded by the global recession, the increasing cost of sales and higher import duties and taxes. The Company provides institutional customers in both the public and private sectors with comprehensive solutions for interior decorating and furniture. Its activities are focused on projects for hotels, apartments, health sector and office sector, mainly in the areas of designing, flooring, ceilings and furnishing. Arpico Interiors provides high quality products mainly imported from the U.S.A., Belgium, Dubai, China and Malaysia. Its products are on display at the Interior Dcor Showroom at Hyde Park Corner. Arpico Interiors (Pvt.) Ltd. Arpico Interiors has built up a strong reputation in the interior decoration industry as a provider of turnkey solutions and supplier of furniture and related products. 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 plans to adopt a cautious approach during the coming year, but it is confident of maintaining its profitability. The company has drawn up plans to meet the continuing challenges posed by the economic slowdown in the coming year, by further reducing costs through increased control of stocks and debtors, providing enhanced training for staff and identifying sources of more innovative and branded products. The Company once again deferred its plans to introduce more high end products to its portfolio, until market conditions are more favourable.

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Richard Pieris and Company PLC Annual Report 2008/2009

Consolidating
for growth
Rubber, Oil Palm & Coconut Plantations
The Plantation Sector of the Group is reputed for its diversified range of crops amongst all the regional plantation companies in Sri Lanka. Kegalle Plantations, Maskeliya Plantations and Namunukula Plantations constitute the Plantation Sector. Its portfolio consists of 39% Tea, 37% Rubber, 7% Oil Palm, 2% Coconut and 10% Timber reserves. It has 5% of other subsidiary crops. The results achieved during the period under review could be considered acceptable. The group was on course to achieve record profits for the year, until the dramatic downturn caused by the global financial crisis which affected the commodity markets during the latter part of 2008. The substantial devaluation of currencies among major markets further weakened commodity prices. Continuing challenges for this sector include the low global prices for commodities, rising price of fertilizer, high cost of energy and the threat posed by an escalating wage structure which is yet not tied to productivity. The existing collective agreement expired and a new agreement is under negotiation. The anticipated wage increase will increase costs further at a challenging time for the industry. The Sector further plans to strengthen its activities by divesting its idle assets and make The Sector continues to invest in replanting and upgrading the manufacturing process of all of its major crops, in order to take advantage of improved commodity prices, when the global economy begins to experience a healthy level of growth once again.

Sector Review - Plantations

The Product Portfolio: Leasehold Ownership & Management of Tea,

Considering these circumstances, the sector achieved satisfactory results at operating level during the year under review, with an operating profit of Rs. 555 mn, compared to Rs. 1,182 mn during the previous year. The product mix contributed to the good results which were supplemented by sound strategic planning over the years.

The Government has intervened to assist the industry by providing relief funding for estate operations at a concessionary rate of interest, which is in the final stages of approval. However, the overall profitability of the industry can be adversely affected by the ad hoc introduction of taxes, which are wholly unexpected and therefore cannot be planned for in advance.

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Plantations


full use of existing resources to supplement its cash flow during the period of recession. All three companies in the sector are undergoing a computerization process for payroll, accounting and inventory control, which will especially enhance management information systems to allow better operational and strategic decisionmaking. The Sector continued its programme to upgrade estate roads, utilizing Government Grants through the Plantations Development Programme (PDP). KEGALLE PLANTATIONS PLC Kegalle Plantations continued to be the largest producer of natural rubber in the country but due to the economic crisis, production dropped by 6% compared to the previous year. Kegalle Plantations accounts for 64% of its revenue in rubber, 34% of tea and the balance 2% in coconut. It also has the advantage of having its six tea estates located in three different agro-climatic areas. The Company recorded its finest ever performance up to the end of August 2008, but this was dampened by the economic downturn. Rubber and tea prices declined by 41% and 24% respectively within a period of just one month. Along with the decline in rubber prices, the demand for timber also decreased. Kegalle Plantations continued to maintain its ISO 9001-2000 standards in all its rubber manufacturing facilities, and also emphasized the need to have effluent treatment facilities in all factories to meet the standards of the Central Environmental The Company also continues its long term policy of replanting and a total of 659 hectares has been replanted since 2004. However, the superior quality products of the Company resulted in continued patronage of all of our local and overseas customers, despite the crisis. The company maintained its reputation as a producer of high quality natural rubber and continued its direct export of sole crepe to globally reputed manufacturers of shoes. The company is increasing its production of crepe to capitalize on a growing market. The global economic crisis has led to a disastrous situation in the automotive industry, which in turn has led to a considerable downturn in the rubber tyre industry. Consequently, demand for natural rubber has plummeted, which has alarming short term and long term effects since 70% of rubber production is for the tyre industry. However, with strict controls on all outgoings, Kegalle Plantations performed satisfactorily by the end of the financial year.

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Richard Pieris and Company PLC Annual Report 2008/2009

Authority. The Company is also investing further to upgrade its Udapola Centrifuged Latex Plant. The company continues to maintain the Forestry Stewardship Certification for timber processed from its rubber estates. A significant initiative in the year under review was the commencement of underplanting in rubber estates to optimize land usage. Specifically, these estates are now producing pineapple for the local market, which is a low investment, high yielding crop. The Companys tea operation continues to perform satisfactorily in all three agro-climatic elevations. Gampaha Estate in Udapussellawa was picked as the runner-up in the Ceylon Specialty Estate Tea of the Year Competition held in North America in June 2008. The decision to invest in dual manufacture at two factories in the Udapussellawa region was vindicated during the crisis, as the company obtained the maximum benefit from market conditions which assisted it in this difficult period. The Company continues to benefit from the high price for leafy teas due to this advantage. The Company continued to invest in its human resources through greater training and development of skills. In addition, the company invested in worker housing, crches and other welfare activities,

also providing scholarships to assist the university education of children of all employees. MASKELIYA PLANTATIONS PLC Maskeliya Plantations performance was severely affected by the downturn in tea prices from September 2008 and the Company is going through a challenging period. This was despite a satisfactory level in demand for the companys teas, with several individual estate records being achieved in the Maskeliya Upcot area and teas selling at their best price levels. However, the Company is taking steps to weather the present global crisis, which will place it on a sound footing for a much improved performance in the future. Four of the companys factories now have dual manufacturing capability, which optimizes opportunities from price fluctuations in leafy and small leaf teas. The Company is increasing its purchases of bought leaf, which is made possible by the dual manufacturing capability. The Company continued its programme of replanting its tea estates and a land extent of approximately 2% was replanted during the year under review. Meanwhile, the Company continued its strong commitment to quality and sustainability. All of the

companys manufacturing factories are working towards certification for ISO 22000 by the year 2010. Thus far, five factories have been certified to this standard. The Company continues to adopt best manufacturing practices, and four of its teas were rated in the top ten list. In addition, Craig Estate in Bandarawela received the award for Best Estate Co-operative during the year under review. All of the companys factories will also operate on solid fuel that is homegrown, which will contribute not only towards an improved bottom line, but would also meet the companys goal of clean production. The company is also taking an integrated approach to control fertilizer costs by expanding its composte production. Despite the effects of the global crisis, the Company continued to plan for the future, and focused on its training and development activities to enhance the skills of its employees. There was also a continuation in a full range of worker welfare activities, to enhance the quality of life of the workforce. NAMUNUKULA PLANTATIONS PLC Namunukula Plantations recorded an operating profit of Rs. 204 mn before provisions compared to, Rs. 314 mn achieved in the previous year. The sharp decline in the sale

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Plantations


prices of its main three crops tea, rubber and oil palm - caused a severe setback and directly affected the performance of the company in the second half of the year. With tea prices falling below the cost of production, the Company was obliged to restrict the intake of leaf to large massive trading losses in the third quarter. The situation was further aggravated by a prolonged drought in the southern region which commenced in January 2009. Rubber prices - both crepe and smoke sheet - were badly affected by the economic crisis, resulting in a drop of more than 50% in prices when compared to the first half of the year. Oil palm prices were also adversely affected reaching rock-bottom in the world market. However the company succeeded in achieving a reasonable margin of profit for the season. Oil Palm cultivation continued to be expanded, as it is the largest contributor to its profits. A 10% expansion is planned annually for the next five years. Despite the poor trading results of all major commodities, the company also continued to invest in replanting of rubber. The total investment on field development of rubber and oil palm was over Rs. 84 Mn. The current structure of Customs Duty has also created a significant local demand for the product. The The Company began the amalgamation of several estates which had been fragmented due to acquisition of land for a highway development project. This will allow for better management and cost control. At the end of 2008, the Company was compelled to manage six estates in the Uva range that the Company had subleased in 2006, since the subleasee had abandoned the properties. The Company has since then been paying the workers wages which is to an extent being recovered from the proceeds of the sale of tea. The subleasees bankers had moved to court and a liquidation award was made for the subleasee company. A challenge for the next financial year will be to commence tea manufacturing in all nine low country factories, some of which were closed during the year, whilst establishing standards to maintain the prices above averages for respective elevations. In order to increase additional avenues of income, the Company has made plans to hand over the operation of metal quarries to third parties. Company is staying abreast of the latest trends in the oil palm industry by introducing external experts to continuously enhance its knowledge base and implement best practices. Walpita Estate won the award for Best Worker Housing Scheme in the Galle-Matara-Kalutara region, awarded by the Plantations Human Development Trust.

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Richard Pieris and Company PLC Annual Report 2008/2009

Maintaining
a competitive edge
The Tyre Sector comprises three companies that each represents a different segment of the tyre rebuilding chain, that serves the transportation industry and other vehicle related industries. These are Richard Pieris Tyre Co. Ltd., Arpidag International (Pvt.) Ltd., and Richard Pieris Rubber Compounds Ltd. Richard Pieris Tyre Company maintains an islandwide distribution network which has an established position as the market leader. Arpidag International (Pvt.) Ltd. and Richard Pieris Rubber Compounds Ltd. are supportive companies and supply pre-cured tread and custom mixing facilities respectively. Arpidag International also supply tread and consumables to mini plants in the industry. The year under review was a successful one for the tyre sector, The two halves of the year were a study in contrasts. The first half brought many challenges including the need to make continuous price increases in order to meet the increasing cost of energy and raw materials. The second half brought a higher level of success, as energy costs and raw material prices fell Richard Pieris Tyre Company Richard Pieris Tyre Company cemented its position as the number one marketer of retreaded tyres in Asia by handling 2,000 tyres in a single day. The Company with significant growth in both turnover and profitability. A significant level of growth was maintained at a time when the tyre industry and the entire country experienced a downturn due to both global and local economic conditions, which adversely affected the transport sector in particular. The Sector is optimistic about continued success next year, with further growth expected in volumes, market share and profitability. In comparison, the Sectors main competitor is presently undergoing severe difficulties and has been obliged to shut down several plants. The Sector enhanced its factory in Weligama to better cater to the Southern and South-Eastern regions. Plans are being finalised to establish a strong network in the Northern Province as soon as conditions permit. The Sector already has operations in Jaffna.

Sector Review - Tyre

Commercial Vehicles, Re-Manufactured Radial Tyres, Tubes and Flaps


significantly to bring about more competitive conditions. The Sector was able to reduce its prices and maintained its competitiveness.

The Product Portfolio: Re-Treaded Tyres for Light and Heavy

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Tyre


has a 55% share in the local market. Its retreading operation contributes 70% of its turnover. Richard Pieris Tyre Co. added further products to its retreading and trading product lines, aiming to become a total tyre solution provider. It became the largest truck tyre importer in the country and entered the passenger radial tyre market in the year under review. Retreading turnover increased by 21% without any investment being required by the Company. Trading turnover increased by 12%, acquiring a considerable share in the truck and light truck tyre markets in the country. The retreading product line was expanded by adding the Arpiradial brand, which is especially designed for radial truck and light truck tyres, yet another pioneering product by the Company in Sri Lanka. The Company started the rebuilding of Off Road Tyres and also enhanced its design collection by marketing the Saviya brand. The Company further strengthened its market share by adding two more sizes. The Company entered the passenger vehicle tyre market by launching the brand CORSA, a well known Indonesian brand from Multistrada. Results up to now have been satisfactory and this brand is expected to gain a Plans are also being made to import The Company plans to increase the production capacity of rebuild tyres by 20% in the coming year. Sharp increases in energy and raw materials proved to be considerable challenges during the year under review. Factories handling hot process were amalgamated to gain energy efficiencies and energy efficiency was improved by modifying processes. Labour costs were also high due to the sharp increase in inflation, but the Company utilised existing human resources in a more efficient manner to reduce the impact on its bottom line. The Company has the largest dealer network around the country in the tyre industry. This was leveraged to offer customers delivery of imported tyres anywhere in the country within two days. This has now been further enhanced to a one day service. The Company strengthened its operation in the countrys North and East with a full range of products, especially Indian products. significant market share in the next financial year. The number of tyre tubes being marketed was increased to three by adding two imported Indian tubes - Rubber King and Birla. The Company also added the Super Flaps product to make inroads into the high end market.

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Richard Pieris and Company PLC Annual Report 2008/2009

a Radial Truck tyre to bridge the gap in its high end new tyre range early next year, which will introduce the Birla brand OffThe-Road tyre to the market. Arpidag International (Pvt.) Ltd Arpidag International supplies precured tread to the Richard Pieris Tyre Company and 8% of its volume is supplied to external customers through the ATM brand.

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 production facility which provides a high level of quality. The Company was affected by the

The Company increased its market share by selling treads to local mini plants in the industry and increased the design collection of Arpidag and Arpiradial. The Company was greatly affected by the high price of raw material and increases in energy costs in the first half of the year. Overheads were maintained at the previous years levels and no significant increases recorded. In the second half of the year, the quality of compounds was further increased, while prices were reduced to pass on cost reduction benefits to customers. The company also acquired the process quality certification of ISO: 9001 during the year under review. Arpidag International is now exploring the international market for treads in Europe and Asia. Negotiations with an European buyer are now in the final stages.

economic downturn in export based companies. However, the Richard Pieris Tyre Company continued to purchase constant volumes during the year. The Company utilizes 50% of its capacity to cater to the Richard Pieris Tyre Company. Energy cost was reduced in the second half of the year and the company was able to maintain the previous years levels in overheads. Whenever possible, the company implemented a policy of running at 100% capacity for a full month to maximise labour and energy efficiencies and build up a stock of tyre compound and then shutting the plant during the next month. The Company is continuing its marketing efforts to find potential customers for milling services and help the other two companies in the sector to achieve a higher market share.

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Richard Pieris and Company PLC Annual Report 2008/2009

Promoting
The Product Portfolio: Water Tanks, Polyurethene Foam
The Plastics Sector manufactures and markets a wide range of products, which include mattresses, cushions, sheets - all of polyurethane foam - water tanks, rigifoam products, PVC pipes and fittings, water pumps, CFL bulbs, imported furniture and plastic chairs. The Sector comprises six strategic business units - Arpico Plastics, Arpico Flexifoam, Plastishells, Arpitech, Re-Distribution Division and Rubber Products Ltd. The Sector faced a range of challenges during the year under review, which included high prices of petroleum based raw materials, adverse economic and market conditions, a sharp slowdown in the construction industry and high interest rates. The Sectors products do not constitute a purchase priority in daily life and The Company maintained its market share, despite intensified competition and achieved a reasonable level of profitability during the year under review. Expanded rigid Polystyrene Arpico Plastics is involved in the manufacture of expanded polystyrene products commonly known as Rigifoam which includes containers, sheets and products related to the fishing industry. However, each of the Sectors six SBUs continued to search for market opportunities for the future, while focusing on reducing overheads to enhance their competitiveness and profitability. this proved to be a drawback in the face of the sluggish economy and the reduced spending power of consumers. grounds.

Sector Review - Plastics

efficient manufacturing
Mattresses, Water Pumps, CFL Bulbs, Moulded Plastic & Expandable Rigid Polystyrene Products
The superior quality of its products were further enhanced, mainly due to the installation of stateof-the-art machinery at its new factory complex in Horana which was relocated during the year under review. This also resulted in its installed capacity being increased by 40%, together with the extension of its product range. The Rigifoam market which mainly serves the countrys fisheries industry, continued to perform strongly despite the economic downturn. The Company anticipates a boom in the islands fisheries industry once normalcy is returned to the Northern Province, with its rich coastal fishing

Polyurethane Foam Arpico Flexifoam suffered from a drop in demand for its range of polyurethane foam mattresses,

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Richard Pieris and Company PLC Annual Report 2008/2009

cushions, sheets and other specialized products, due to a sharp increase in the price of raw materials. This was exacerbated by intense competition. The Companys profitability declined during the year under review. The Company continued to market its existing product range and refrained from introducing new products due to the prevailing depressed market conditions. The Company introduced backward integration by its quilting process for mattress covers, which was previously outsourced, which served to reduce costs and also focused on reducing all other overheads.

cost of materials led to a decline in profit margins. The Company also had a large cost of finance to service and recorded a loss for the year under review. The Companys main production facility is in Horana, with satellite plants in Koggala, Pallekelle and Dambulla to cater to regional markets. The Companys performance during the year under review was also hampered by low net margins due to the cost of financing of its new factory complex in Horana. There is now a greater focus on reducing of overheads, especially in the area of inventory control. An enhanced range of purpose built

Arpico Flexifoam - which is an ISO 9001:2000 standard company also possesses the SLS 893 standard, introduced quilting to its Super Star range of mattresses, which is targeted at the middle income market. The company plans to introduce a new range of mattresses targeted at the low end mass market in the next year. Rotational mouldings Plastishells maintained its market share in the water tank, bins and septic tank markets, despite intense competition and overcapacity in the market. However, the general slowdown in the countrys construction industry greatly affected sales volumes of its product categories and the high

septic tanks was introduced to the market and showed much promise for the future. The Company is closely monitoring demand for its products from the Northern Province and a significant increase has been noted in inquiries for water tanks to cater to the large civilian population now under the care of the Government. The factory in Dambulla is fully geared to cater to the Northern and Eastern markets. PVC Pipes and Fittings Arpitech was involved in the manufacture of a range of pipes and fittings under the brand name of Arpico PVC and providing total water solutions to customers.

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Plastics


The company had received the Sri Lanka Standards (SLS) certification for its range of pipes and had begun test production on gutters. This was Arpitechs second full year of operations and the company performed poorly due to a combination of intense competition and a drastic downturn in the countrys construction industry. The Group has taken a policy decision to exit this industry and is examining options to dispose of the companys assets. Re-Distribution Division The Division operates as the distribution arm of the Plastic Sector. Products are distributed throughout the island through a network of Distributors and over 5,000 Dealer outlets that specialise in hardware and furniture. The Division was affected by the countrys economic downturn, especially in the second half of the year. However, the reduction in Turnover was limited to 5% less than that achieved in the previous year. The Arpitech Water Pump, which was launched in 2006, increased rapidly in popularity among consumers, and is now the market leader in the domestic water pump segment with a market share of 28%. Its sales contributed significantly towards turnover and gross margin. The high level of after-sales service, in which The Division will face the challenge of the trickledown effect of the global economic downturn during the year ahead. However, the reopening of the economy of the Northern Province is expected to bring about a resuscitation of economic activity that will be beneficial to the division as most of its products are necessities for construction and development. The Division has a distinct advantage over competitors through its already established network of dealers in the North and East. Stocks began moving overland along the main A9 road to Jaffna Sales of the Arpilight CFL bulb, which was launched in December 2007, made steady progress during the year and this product is expected to become a household name in the near future. The product is available in both Daylight and Warm Light colours in a full range of wattage for domestic use and is competitively priced. The company plans to expand this range to cater to industrial consumers during the coming year. Special emphasis will be placed on promotional efforts, to create topof-the-mind brand awareness and ensure that Arpico products will sustain their market leadership despite the challenges of a shrinking market. customers are provided doorstep service within 48 hours that is unique in the industry and an islandwide network of service centres, contributed greatly to its success. This product is now certified to international quality standards. Plans are being made to build on this success by entering the industrial water pump market with a new product. The Division focused on reducing overheads and optimising management of working capital to mitigate the impact of the economic downturn. and Kilinochchi at the end of the year under review. Operations in the Eastern Province were encouraging due to the increased level of development there by the Government and NonGovernmental Organisations.

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Richard Pieris and Company PLC Annual Report 2008/2009

Expanding
into new markets
The Rubber Sector experienced a year filled with challenges as it adapted to meet rapidly changing market conditions. The Sector produces a diverse range of rubber products for the local and export markets. It consists of Richard Pieris Exports, Richard Pieris Natural Foams, Arpitalian Compact Soles and Micro Minerals. The Sector witnessed a steep increase in the prices of raw materials during the first and second quarters, due to a doubling of rubber prices and an increase in oil prices which affected imported raw materials. The cost of energy also increased significantly due to a hike in electricity tariffs. However the cost of production reduced in the third and fourth quarters as the prices of rubber and energy decreased. A new Chief Executive Officer with overseas business exposure was Each company in the Sector focused on enhancing the quality of its products in order to obtain a competitive edge among perceptive customer markets. The eco-friendly nature of the sectors latex and jar sealing ring products proved to be a significant positive marketing advantage. In the current year, the Company increased its turnover by 26%. Ring sales volumes increased by more than 100% and the Company intends to invest in this aspect of its business for the future. The Sector is at present receiving low sales orders from markets affected by the global economic crisis, especially the U.S.A., and is limiting its financial exposure by careful screening and monitoring of both new and existing customers. However, the Sector entered new markets in Europe and Asia with aggressive marketing strategies that succeeded in securing business for the future from a significant number of new customers. Richard Pieris Exports PLC Richard Pieris Exports produces and exports rubber mats to the U.S.A., Europe and Asia Pacific from its production facility in Ekala. In addition it also produces jar sealing rings and crutch tips for European markets. The Companys range in mats includes specialised products for industrial use, agriculture, playgrounds, gymnasiums and specialty items such as fire retardant, electricity resistant and anti static mats.

Sector Review - Rubber

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
appointed to lead the rubber sector and its senior management team was also re-structured.

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Rubber


However, the overvalued nature of the Sri Lanka rupee adversely affected the competitiveness of the companys operations. The global financial crisis also caused a significant reduction in activity in the overall market. With intense competition being experienced in the low end product market, the Company is now focusing more on value added products such as flooring. The Companys production returned to normal levels during the year under review following the induction of an almost completely new workforce, after an industrial dispute during the previous financial year which hampered its operations. The Company introduced a number of new products for the agricultural and industrial markets and continuously explored possibilities to introduce new products through innovations. It is developing several international certifications in order to differentiate its products from those of competitors. 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 soles for many of the worlds best known brands of shoes. Its main markets are in Europe and the Asia Pacific region. The Company was adversely affected by high interest rates and depreciation. Despite keeping other overheads under control through various cost reduction measures, the many challenges resulted in an operating loss of Rs. 20 mn for the year under review. However the Company achieved significant sales growth in the Asia Pacific area, and sourced a significant number of new customers during the year under review. With the focus on new product developments, the company is forecasting a growth of 15% in this market for the next financial year. Arpitalian was severely affected by the steep rise in the price of raw materials, of which 70% are imported. This led to the company being obliged to raise its prices several times, which resulted in a decline in demand for its products. In addition, the global recession caused a considerable drop in demand for all types of clothing and accessories, including shoes. The companys main buyer in Europe reported a 50% drop in shoe sales. Arpitalian focused on enhancing the quality of its product range during the year under review especially for high end markets, and also succeeded in building relationships with new clients in the Asia Pacific region which augurs well for the future.

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Richard Pieris and Company PLC Annual Report 2008/2009

Richard Pieris Natural Foams Ltd. Richard Pieris Natural Foams produces natural latex foam products such as latex cores and sheets for export markets, at its factory located in Biyagama. The high prices of latex adversely affected the companys performance during the first half of the year and greatly affected margins. The company continues to work on inefficiencies in its production process which has yet not been satisfactorily addressed, in order to reduce levels of wastage.

consumption where natural latex is preferred for premium quality bedding products in all top brand names. The European market was particularly receptive to the Companys products due to European customers preference for the eco-friendly nature and medicinal properties of 100% natural latex. This market is a significantly lucrative one for products of high quality and consistency, and the company was successful with its range of pillows. The Company is also well-

The Group is planning to financially restructure the company during the next year, in order to make its operations more competitive.

positioned in the diverse and growing markets of the Asia Pacific, with its competitive pricing and quality products. Micro Minerals (Pvt.) Ltd.

The Companys emphasis on research and development resulted in the introduction of new brands of quality mattresses and pillows. The new Arpico latex pillow in particular enhanced the Companys image as one which is in the forefront of the latest trends and innovations in the bedding industry. The Company carried out a wellfocused marketing campaign in key markets in the Asia Pacific, European and U.S. regions. It secured a share of the lost U.S.A. market during the early part of the year - one of the largest single markets in terms of mattress

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.

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Richard Pieris and Company PLC Annual Report 2008/2009

Supporting
Business Growth
Insurance
This sector includes the Groups holding company, Richard Pieris and Company PLC, together with subsidiary companies in various industries outside of the Groups main sectors of Plantations, Rubber, Tyre, Retail and Plastics. These include companies which are involved in Logistics, Insurance, Furniture and Branded Tea. RPCs various Divisions also provide support services to all group companies. The IT Division provides IT support services and maintains the internal communication network of the Group. With its experienced staff 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 (RPC) generates a proportion of its income by way of dividends from its subsidiaries. It also owns and rents real estate to group companies. The Group Human Resource Division is responsible for the overall HR policy of the Group. More details on its activities are to of professionals who specialise in both software development and hardware maintenance, the IT Division has taken continuous steps to upgrade the Groups technology, to stay abreast of modern trends and maintain its competitiveness. The Group Corporate Planning Unit co-ordinates the development of the Groups overall strategic planning process and provides expertise to all SBUs to develop and monitor The Group Treasury supports all businesses in their funding requirements and banking facilities and manages the Groups foreign exchange exposure and interest rate risks. During the year under review, RPC recorded a capital gain of Rs. 213 mn from the sale of a land at Batakattara in Piliyandala. The Central Purchasing Division handles all 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.

Sector Review - Services and Other

The Portfolio: Freight Forwarding, Furniture, Branded Tea and

be found in the report Our People on page 47.

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Richard Pieris and Company PLC Annual Report 2008/2009

Key Performance Indicators. This unit also analyses all new business ventures and develops business plans. R P C Logistics Ltd. R P C Logistics is the key SBU of the Transportation Sector of the Group, and is primarily engaged in international freight forwarding and customs brokering. It has now completed its fourth year of operations. At present, two thirds of the Companys revenue is generated from its freight forwarding activities. The Companys extensive portfolio of services includes airfreight, sea freight, sea freight consolidation, customs brokerage and transhipment. The Company has been successful in providing total logistics support to several infrastructure projects in Sri Lanka. Door-to-door services were provided for project cargo with the support of the Companys overseas agents, including export processing and handling at origin, sea freight from port of origin to Colombo port, import customs clearance at Colombo port and delivery to sites in various parts of Sri Lanka.

and exports in the country had a direct impact on both volumes and revenue. In addition, escalating fuel costs and ever increasing competition severely eroded margins. However, the Company continued strongly marketing its services to import and export industries, despite all these challenges. The Company is planning a conservative strategy for the coming year to tide over the present global crisis with an eye on the future, especially by managing costs, effectively and efficiently and maintaining its current customer base. RPC Logistics is the exclusive member of the prestigious Logistics International Network (LINK). As the sole member for Sri Lanka, the Company has the exclusive rights to business in Sri Lanka from the LINK global network that spans over 60 countries. However, RPC Logistics continued to expand its own independent international network of agents in order to build relationships with strong and reliable partners and further expand and improve its activities. The operations of RPC Global

The general economic slowdown in the Country had an unfavourable effect on the companys operations, especially during the second half of the year under review. A sharp reduction in both imports

Travels Ltd., the sectors travel arm, were discontinued on account of depressed conditions in the global and local travel and tourism industry. The Group will monitor the industry and continuously

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Richard Pieris and Company PLC Annual Report 2008/2009

Sector Review - Services & Other


evaluate opportunities to recommence activities. Asian Alliance Insurance PLC Asian Alliance Insurance is a comprehensive insurer that is rapidly gaining a sound 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 industrial conglomerates in Sri Lanka. The Company completed yet another successful year with a turnover growth of 15% over the previous year. The dynamic approach adopted by its management over the last four years succeeded in erasing the companys accumulated losses and increased its shareholder equity to Rs. 404 mn. The global crisis made it RPC Timberline (Pvt.) Ltd. Timberline is a Board of Investment (BOI) approved company that is capitalising on opportunities for contemporary hardwood furniture, by manufacturing a wide range of items for both the local and international markets. During the year under review, Timberline attracted a joint venture partner with synergies. This strategic alliance is expected to infuse enhanced management and marketing expertise into the Company. In addition, it Despite the challenges, Maskeliya Tea Gardens achieved some growth in turnover, recording Rs. 96 mn considerably difficult to enter new markets in search of other customers. The Company, which has now completed its third year of operations, continued its brand building process. Its strategy of appointing major distributors on a regional basis was slowed somewhat by caution on the part of prospective distributors towards investing in brand building during this time. The Company was greatly challenged by the negative effects of the global financial crisis in key markets, in common with the entire global tea industry. The depreciation of the Rouble by 50% posed an extreme challenge in the companys largest market Russia. The tightening of credit facilities by banks to major buyers was of particular concern. Maskeliya Tea Gardens Ceylon Ltd. Maskeliya Tea Gardens markets the superior quality products of Maskeliya Plantations, both internationally and locally, under the brand name St. Clairs Tea. The Companys popular St. Clairs Tea Centre in Maskeliya successfully overcame a significant increase in competition during the year under review. The superior service, excellent product range, sterling reputation and homely ambience of St. Clairs Tea Centre combined to maintain its popularity among both foreign and local tourists in the Nuwara Eliya region. has increased efficiencies and reduced wastage by improving the production processes. The alliance has also served to significantly broaden the product range on offer. in comparison to the previous years Rs. 82 mn. Total local and export market turnover increased to 130,000 kg from last years 80,000 kg.

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Richard Pieris and Company PLC Annual Report 2008/2009

Financial Review
Group Performance The overall performance of the Group during the year under review was affected by the global economic melt down resulting in a sharp fall in domestic demand for non-essential consumer goods, fall in tea and rubber prices and high interest rates. The first half of the year saw the manufacturing sectors affected by the high prices of raw materials particularly of petroleum based products. The Groups turnover increased marginally by 3% to Rs. 20.8 bn whilst the Groups operating profits declined by 34% to Rs. 1.35 bn when compared to the previous year. Finance cost of Rs. 1.4 bn in the year under review, resulted in an operational loss of Rs. 189 mn from continuing operations, compared to the profit of Rs. 247 mn achieved in the previous year. Losses of Rs. 116 mn, from discontinued operations, further increased the Groups losses to Rs. 305 mn. Consequently, losses attributable to Equity holders of the parent stood at Rs. 329 mn compared to the loss of Rs. 215 mn reported in the previous year. Group assets declined by 5% to Rs. 16.9 bn whilst total liabilities declined by 4% to Rs. 12.3 bn. Turnover The Groups turnover increased marginally from Rs. 20.1 bn in 2007/2008 to 20.8 bn in 2008/2009. The Tyre sector recorded a steady growth of 13% in turnover reaching Rs. 3.1 bn, when Turnover in the Plastic Sector amounted to Rs. 4.5 bn, an increase of 10% compared to the previous year. The Groups export turnover amounted to Rs. 1.78 bn, (approx. US$ 16.2 mn) a decrease of 2% compared to the previous year. The Groups main export markets in Europe and Asian Pacific amounted to 49% and 34% of the total export revenue respectively. The Retail Sector recorded a turnover growth of 8% to reach Rs. 8.8 bn for the year, despite the economic down turn that resulted in slower turnover growth in some non-essential categories, such as household goods including furniture and electronics. The Rubber Sector was affected by the global economic crisis, especially the U.S.A. and Europe which resulted in reduced orders from the U.S. and European markets. Consequently turnover remained at the same level as last year. A sharp decline in commodity prices in the second half of the year resulted in the Plantation Sectors turnover decreasing by 13% to Rs. 5.9 bn when compared to the previous year. compared to 2.7 bn last year. This was mainly a result of increased market share in the retreading business, the increase in the sale of new tyres and periodic price revisions.

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Richard Pieris and Company PLC Annual Report 2008/2009

Financial Review
Profit from Operations The Group recorded a profit from operations of Rs. 1.35 bn in the year 2008/2009, which is a decline of 34% when compared to the previous financial year. This was a result of three of our key sectors namely Plantations, Plastic and Rubber performing below expectations, overshadowing the satisfactory performance of the Retail and Tyre Sectors. The Plantation Sector recorded a 53% decline in operating profit. This was mainly due to the setback in commodity prices in the second half of 2008/2009, rising prices of fertilizer and high cost of energy. Cost of Sales and Operating Expenses In the year 2008/2009 the cost of sales was 81% of revenue, which is 3% higher than in the year 2007/2008. The total operating expenses, inclusive of cost of sales, increased to 93.5% of revenue in the year 2008/2009 as compared to 89.9% of revenue in the year of 2007/2008. Steep increases in the prices of raw materials caused the cost of sales of the Manufacturing and Rubber Sectors to increase in the first part of the year under review. However, the nature of the demand for rubber and plastic products made it very difficult for both sectors to pass the full impact of price increases to their customers. This accounts for a higher increase in cost of sales compared to growth in turnover. The Plastic Sector recorded an operational profit of Rs. 171.9 mn, which is 27% lower than last year. The sharp increase in raw material prices particularly of petroleum based products, during the first two quarters and intense competition especially for the foam products and water tanks resulted in a drop in performance. Satisfactory revenue growth, due to the increased sales at Super Centres saw the Retail Sector increasing its operational profit by 13% to Rs. 472 mn, The Sector was successful in improving its net margin through stringent cost reduction measures adopted to control fixed overheads and improved stock management. The Plantation Sectors contribution to Group operating profit is 35%. Finance Cost Interest rates increased continuously during the period under review compared to the previous financial year and reached its peak in the middle of the current financial year. Hence, the Groups finance cost does not reflect the real impact of the 13% reduction in the Group debt amounting to Rs. 1 bn which occurred in the year under review. Group finance cost decreased marginally from Rs. 1.47 bn to Rs. 1.40 bn, a decrease of only 5%. Interest cover ratio decreased from 1.20 to 0.96 during the financial year. However, as the market interest rates reducing gradually with the relaxation of the monetary policy in the latter part of the year, the Group finance A significant growth was seen in the Tyre Sector, with operational profit increasing to Rs. 235 mn from 156.9 mn in the previous year. The Company increased its competitive advantage through the frequent revision of product prices. The fall in raw material prices during the second half of the year also contributed to the significant growth in profitability in this sector. The Rubber Sector recorded a negative contribution of Rs. 5.5 mn to the Group operational profit. This Sector was badly affected by the global economic crisis leading to a drop in sales volumes and profits.

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Richard Pieris and Company PLC Annual Report 2008/2009

Minority Interest Minority Interest of the RPC Group mainly comprises minority shareholdings of the Groups Plantation Sector. The recent downward trend in commodity prices in the global market lead to significant deterioration in the profitability of plantations. As a result, the Plantations Sector recorded an operational profit of Rs. 555mn during the current financial year, compared to Rs. 1,182 mn in the previous period. Consequently, minority interest of the Group reduced significantly by 91% to Rs. 24 mn in the current year. cost is expected to be lower in the ensuing year. Profit/(loss) for the Year from Continuing Operations The decrease in gross margin and the high finance cost resulted in a loss from continuing operations of 49.9 mn, compared to a profit of Rs. 296.3 mn achieved in the previous year. Profit/ Loss on Discontinued Operations As part of its continued strategy of divesting from businesses with low potential, the Group terminated its operations at Arpitech, the PVC pipe plant, Arpico Homes, the real estate development Company and RPC Global Travels during the year. The losses incurred by these discontinued operations amounted to Rs. 115.6 mn. Investment / Acquisition and Disposals The Group invested Rs. 1.0 bn in acquiring new plant, machinery, buildings and the replanting and development of agricultural crops during the year. The biggest investment by the Group during the year under review was the construction of a factory plant in Horana for the relocation of the manufacturing facilities of Rotational Molding products and Rigifoam. The Company disposed of land in Piliyandala during the year, resulting in a profit of Rs. 213 mn.

Equipment amounted to Rs. 9.51 bn as at 31st March 2009.The value of the Groups Real Estate portfolio is significantly higher than its book value, details of which are given in the Group Real Estate Portfolio statement on page 113. Working Capital During the current financial year, Group current assets decreased by Rs. 951 mn to Rs. 6.13 bn while total current liabilities decreased by Rs. 332 mn to 7.72 bn. This was mainly due to the reduction of Rs. 859 mn in inventories, Rs. 532 mn in Trade and Receivables and Rs. 131 mn in Trade and other payables. Though the reduction in current assets resulted in improving the Groups operational cash flow, the Group Balance Sheet continued to reflect a negative working capital position as at the financial year end. The negative working capital increased from Rs. 976 mn to Rs. 1.6 bn during the year while the current ratio decreased marginally from 0.88 to 0.79. Cash Flow Cash and Cash Equivalents increased by Rs. 396 mn to negative cash of Rs. 3.44 bn as of 31st March 2009. The Group recorded a growth of 300% in operational cash flow amounting to Rs. 1.31bn as compared to Rs. 430 mn in the last financial year. The Retail, Plantation and Tyre Sectors were the main contributors to the positive operational cash. Despite

Group Financial Position and Liquidity


Non Current Assets The total non current assets of the Group increased from Rs. 10.73 bn in 2007/2008 to Rs. 10.80 bn in 2008/2009. Property Plant and

38
Richard Pieris and Company PLC Annual Report 2008/2009

Financial Review
the positive cash flow of Rs 215mn from the disposal of land, the net cash flows from investing activities generated a deficit of Rs. 265 mn, due to investments made in new plant and equipment, building and replanting of agricultural crops. The repayment of loans amounted to Rs. 1,140 mn exceeding the proceeds from new loans to Rs. 551 mn resulting a net cash deficit of Rs. 653 mn from its financing activities. Capital Structure The total assets of the Group as of 31st March 2009 were Rs. 16.92 bn as against Rs. 17.81 bn in the previous year. Assets were funded by Shareholders funds (19%), Minority Interest (8%), Long Term funds (27%) and short term fund (46%). Equity The Companys Stated Capital amounted to Rs. 1.57 bn consisting of 128,251,023 Ordinary shares. Total Shareholders Fund decreased to Rs. 3.21 bn from Rs. 3.53 bn in the previous year due to losses reported in the current year. Debt Group debt stood at Rs. 6.8 bn as of 31st March 2009 as against Rs. 7.8 bn as of 31st March 2008 a decrease of Rs. 1 bn during the year under review. The most significant feature of this reduction is that, apart from Service Sector, all Sectors of the Group showed a significant reduction in the debt. Both the Tyre and Retail Sectors showed a 20% improvement in debt mainly due to operational profitability and significant improvement in working capital management. The Gearing ratio improved from 61% to 60%. Even though the group debt decreased by 13%, the Gearing Ratio shows only slight improvement due to the current year losses. Approximately 50% of total debt has been secured on a long term basis while 50% of the total debt is secured on a short term basis. The repayment profile and security offered on the long term debt is listed out in Note 13 in financial accounts on page 95 - 97 Information pertaining to the short term borrowings is given in Note 19 to the financial statements on page 101.

Shareholders Return /
Return on Equity (ROE) / Earnings Per Share (EPS) The Groups Return on Equity continued to be negative in the year under review. The Groups Return on Equity deteriorated further to negative 10% in the current financial year, compared to negative 6 % in the previous year. Non recurring losses on discontinued operations and non recurring provisions contributed significantly to negative return. The Earnings Per Share in the period under review was negative

39
Richard Pieris and Company PLC Annual Report 2008/2009

Rs. 2.57 as against negative Rs. 1.68 in the previous year. The Groups Earnings yield for the year stood at negative 10% as against negative 4% in the previous year. The Companys share price at the year end was Rs. 25 against Rs. 39 in the previous year. Market Capitalisation The Companys market capitalization as at 31st March 2009 stands at Rs. 3.2 bn as against Rs. 5 bn as of 31st March 2008. During the year under review the share of Richard Pieris and Company PLC traded in the range of Rs. 21.75 to Rs. 50.50. The share market continued to show a downward trend during the period under review. This was mainly due to the shifting interest of local investors to higher yielding Government Securities and continuous liquidation of stock positions by foreign investors due to the global financial crisis. Financial Risks Financial risk associated with the operations of the Group is discussed in detail under the Risk Management Section of this report in page 42 - 46.

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Richard Pieris and Company PLC Annual Report 2008/2009

Corporate Social Responsibility


The Richard Pieris Group, through its activities, has economic, social and environmental responsibilities to its stakeholders. We aim to engage positively with all stakeholders, responding to them swiftly and efficiently while we continue to welcome their views and maintain a dialogue with them. The Group has structured its CSR activities to protect the interests of its stakeholders. The Group has instituted a policy that each of its Sectors should plan and execute a sustainable and wide-ranging CSR programme in every geographical area where it is present. Customers The Group mobilises its competence, energy and resources to build a high performing, customer-oriented company. Group companies that are engaged in the fast moving consumer goods (FMCG) area strive to provide the maximum levels of convenience, comfort, value for money and speed of delivery. All of the Groups companies guarantee the high quality of their products and services. Companies are encouraged to obtain international and national level certifications for their products and services. Community & Country The Richard Pieris Group, through its diverse and wide ranging activities across every province in Sri Lanka, has gained a reputation as a pillar of strength to the country and respective communities, from small villages to urban centres with populations numbering in hundreds of thousands. The Companys attitude towards the relationships it has built with shoppers and suppliers, supporting its community and prioritizing people over short-term profits, ensures the Companys long term sustainability. Further details of the Groups commitment to its employees are to be found in other sections of this Annual Report. Food Safety: An Absolute Requirement As a leading retailer, 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 continue to invest in more local and sustainable sourcing and focus on enabling our customers to eat healthily by ensuring a wide choice of quality, fresh, affordable foods. The companys Super Saver offers essential items which enables the customers to enjoy the lowest prices with absolutely no compromise on quality or freshness. Employees Employee Health and Safety All factories and other workplaces are equipped with necessary equipment to maintain required safety standards. Educational programmes are conducted to enlighten employees of the need to take precautionary measures and to become aware of various issues relating to workplace health and safety. Fair and Competitive Trading Practices Our policy is to be fair and honest, being accessible and straightforward in our dealings; to always deliver what we promise. Richard Pieris Distributors Ltd., which operates the Groups retail chain of supermarkets, was presented an award by the Consumer Affairs Authority for engaging in fair and competitive trading practices.

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Richard Pieris and Company PLC Annual Report 2008/2009

Fundraising for charity

roadways being constructed leading to estates and villages.

success of their respective business ventures. 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 recycling more. Wherever applicable the Group obtains environmental certifications from global and local environmental authorities. These include certifications from the Forest Stewardship Council, the Central Environmental Authority and ISO 2000 certificate. All waste products in our manufacturing and other business processes are treated through modern waste disposal systems, in order to minimise the impact on the environment. The Group encourages individual employees to inculcate environmental-friendly practices in their work habits and their personal lives. This includes energy conservation and recycling of waste and by-products. The Group continued to focus on forestry conservation systems in all its estates and have formulated a five-year forest management plan for the sustainable management of forest plantation blocks and harvestable timber extents.

In an endeavor to inspire generosity towards the less privileged, Arpico Privilege Cardholders could contribute 50 points they wish to redeem, to a charity.

Development of worker housing units continued on several estates. Assistance was provided to construct shrines on estates.

Supporting healthcare

Suppliers Building Lasting Partnerships With Our Suppliers We are committed to working in partnership with our suppliers to ensure an outstanding offer to our customers in terms of quality, value and service. A good, positive relationship with our suppliers is vital to our success and we aim to be a loyal customer to our suppliers. Year after year, the Group strives to develop partnerships with Small and Medium-sized Enterprises (SMEs) in Sri Lanka and relies on more than 5,000 suppliers from different parts of the world. Arpico also undertakes initiatives to support small producers in Sri Lanka by way of guiding them to manufacture products with appropriate technologies. Partners & Financiers The Group continues to focus on building strong long-term relationships with all of its many partners and financiers. We view all our partners and financiers as active companions on a continuous journey and consider it our duty to assist them in the

The Group supported the healthcare system by donating much-needed medicines to several hospitals.

Assisting education

The Group supported childrens education by gifting books and other educational equipment to underprivileged youngsters. Children of the companys factory staff were also presented with books they required to start the new school year.

The Group has launched a University education scholarship programme for the children of estate workers.

Social welfare

Training programmes were conducted on prevention of alcoholism on all the estates through ADIC, which was funded by the Plantation Development Project.

Nutrition programmes were carried out at Estate Child Development Centres.

Building infrastructure

The programme to develop estate roads continued, with

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Richard Pieris and Company PLC Annual Report 2008/2009

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 minimises the risks in areas wherever possible. Towards this end, various strategies are being considered and adopted.

Risk Exposure Financial Risk Management 1. Liquidity and Cash Management

Group Objectives

Risk Minimisation Strategies

To ensure faster response to market opportunities by ensuring instant funding ability.

Funding of long term assets through Equity and Long Term Loans. Availability of short term borrowing facilities to the Group at all times. Funding of inventory by short term creditors. The Group has land and buildings with market values significantly in excess of its book values, which can be offered as collateral for future funding requirements.

To maintain a sufficient liquidity position at all times.

Sourcing of funding requirements through many financial institutions.

2.

Interest Rate Risk

To minimise adverse effects of interest rate volatility. To ensure cost of borrowing is at optimum level.

Structuring the loan portfolio to combine foreign currency and local currency denominated borrowings.

Using fixed and variable rate borrowings to strike a balance. Centralised Treasury that coordinates Group funding requirements thus ensuring more effective borrowing terms.

Practicing effective hedging techniques such as interest rate swaps.

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Richard Pieris and Company PLC Annual Report 2008/2009

Risk Exposure 3. Currency Risk

Group Objectives

Risk Minimisation Strategies

To minimise risk 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 and swaps etc.

Business Risk Management 1. Credit Risk

To minimise risks associated with debtor defaults.

Obtaining insurance cover for export debtors. Obtaining bank guarantees, deposits and collateral for all major local customers.

Following stringent assessment procedures to ensure credit worthiness of the customers prior to the granting of credit.

Demarcating the local areas and appointing new distributors thus increasing the number of customers with the objective of reducing credit exposure on the reliance of a few customers.

2.

Asset Risk

To minimise risk from fire, theft and machinery and equipment breakdown.

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.

3.

Internal Controls

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

Carrying out of system audits and other control mechanisms such as inventory and cash counts throughout the Group by our central Internal Audit Department.

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Richard Pieris and Company PLC Annual Report 2008/2009

Risk Management
Risk Exposure 4. Reputation Risk Group Objectives

Risk Minimisation Strategies

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

Having in place a budgetary process and a budgetary control mechanism on a monthly basis to ensure that the Groups performance is continuously in line with its targets.

Adopting stringent quality assurance policies with regard to goods bought out from third parties as well as the inputs, processes and outputs of own brand and in-house manufactured products.

Ensuring effective communication with various stakeholders includes 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.

5.

Human Capital and Labour Risk

To ensure a smooth flow of operations without any undue disruptions.

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.

To project ourself as a humane employer, successful in motivating, developing, retaining and attracting the best of human capital.

Improving the Human Resource function of the Group with regards to employee recruitment, performance appraisals and in-house as well as external training programmes.

6.

Technological Risk

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

Continuous investment in new machines. Investing in Reasearch and Development activities throughout the year.

Investing in hardware and developing software in-house.

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Richard Pieris and Company PLC Annual Report 2008/2009

Risk Exposure 7. Procurement Risk

Group Objectives

Risk Minimisation Strategies

To minimise 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 over-dependency 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. Centralised purchasing division which has enabled us to create a reliable network of global suppliers.

Entering into forward contracts for raw material purchases.

8.

Inventory

To reduce stock obsolescence and manage stock holding costs.

Adopting a monthly declaration policy. Identifying slow-moving stocks and effectively laying out a channel for these to be sold off.

Reducing the risk associated with theft and shrinkage.

Adopting security systems at the Retail outlets such as security tags with alarm systems, surveillance cameras and deployment of security to manage theft.

9.

Risk of Competition

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

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 Reasearch and Development activities to identify needs.

Further strengthening our Arpico brand through aggressive advertising campaigns and target marketing.

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Richard Pieris and Company PLC Annual Report 2008/2009

Risk Management
Risk Exposure Group Objectives Risk Minimisation Strategies

The introduction of a CRM programme in our retail chain. The provision of various value added services at our key retailing outlets.

10. Intellectual Capital Risk

To protect ourselves against possible violations, fraudulent usage and infringements on the Groups copyrights.

Registering our brands and trade marks. Successfully obtaining patents for manufactured radial tyres. Furthering our Arpico brand image through promotions and advertising.

11. Capital Investments Risk

To minimise risk of not meeting profit expectations.

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.

12. Information Systems Risk

To minimise 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.

13. Environmental, Political and Regulatory Risk

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

Compliance with statutory requirements for all tax and other payments.

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Richard Pieris and Company PLC Annual Report 2008/2009

Our People
The Richard Pieris Group carries great pride in its strength of 29,487 employees and the invaluable contribution they make towards the Groups activities by way of sharing their expertise, innovative thoughts, perspectives and experience. The Group appreciates and values talent. It provides a solid base to attract, retain, train and develop its employees in order to motivate the talent pool. The Group has contributed Rs. 6.1 bn to the national economy. 60% of the value addition has been distributed among its 29,487 employees. This makes the Group one of the largest providers of employment in the corporate sector. The Groups Human Resource activities are focused on each and every aspect of an employees journey within the Group.

includes an intensive system of required qualification, written tests and interviews. On Boarding - Induction The robust On Boarding process that the Group carries out is unique to each employee at each level and overall exposure to Group companies is provided to each individual once he or she is on board. The Corporate HR Department plans and designs the process of On Boarding and ensures that a new arrival to our big family will be inducted in a manner which ensures the elimination of any feelings of unfamiliarity within the Group in order to enhance performance of the highest potential. The employee would feel welcomed, valued and connected to the big family in this process of On Boarding. The process includes: Pre-arrival preparation Structured orientation Formal / semi formal introductions and networking Follow-up evaluations This process also provides them with the opportunity to understand Richard Pieriss goals, leadership vision and their role in achieving expected and anticipated results. Training & Development The Richard Pieris Group possesses a planned, methodical structure in training & developing its staff. It focuses predominantly on delivering training sectorwise, based on the essential and development needs of its employees

at different levels. The training would focus on developing technical skills, soft skills, personal development and leadership qualities of staff. We also have common minimum programmes to which a mixed representation of companies participate together. This is done to enlighten and encourage group interaction within the Companies and Sectors. Training provides a means to foster internal promotions and this is the cornerstone of our human resources policy. The Group supports a number of widely recognized development programmes, both locally and overseas, for its dedicated, longstanding employees. The Corporate HR arm of the Group strives to build an exclusive work environment in which all employees, regardless of race, gender, age, religious affiliations are provided full confidence that they can achieve their professional and personal commitments towards the betterment of the Group. The implementation of training road maps which detail an annual development plan for the staff of the Retail, Tyre and the Re-distribution Sectors were significant high points during the last financial year in the Group. The launch of the Training Academy, especially focused towards the Retail sector, in September 2008 further demonstrated our focus to promote the learning culture at Richard Peiris Group.

Recruitment & Selection On Boarding - Induction Training & Development Career Progress & Performance Based Rewards Welfare & Recreational Activities

Recruitment & Selection The Richard Pieris Group enjoys a longstanding reputation as an employer of choice throughout Sri Lanka. This position is constantly strengthened through the Groups various image-building activities. The Group consistently maintains the highest standards in its recruitment process, which

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Richard Pieris and Company PLC Annual Report 2008/2009

Our People
Career Progress & Performance Based Rewards Richard Pieris believes in valuing employees for their sincere contribution and this is made possible with the transparent, comprehensive Performance Management System (PMS) which is in existence in the Group for all executive staff, together with detailed customized score cards carried out for non-executive staff based on the nature of their work. These objective evaluations will be carried out bi-annually and the outcome is used as a base for employee rewards. The PMS is highly driven across the Group from the top layer of staff to the bottom in the structure and we truly believe that it improves productivity, innovation and the decision-making process, which helps the Richard Pieris Group to succeed in its endeavors on a day to day basis. We as a Group continuously strive towards building and maintaining a highperformance culture in all aspects whilst encouraging a work life balance to employees. This is done through our integrated rewards and recognition schemes applied for different sectors to appreciate and value the employees at different levels. The process begins with a pre-determined set of objective goals at the beginning of each financial year with subsequent surveys measuring improvement. Welfare & Recreational Activities The strong belief we have in the work life balance, has induced us to plan, organize and carry out recreational activities in every possible way to increase employee satisfaction and to delight them with opportunities and benefits whilst extending the same to their immediate families too. Among the wide range of initiatives that the Corporate Human Resource Division of the Group undertakes as ongoing projects to sustain the staff morale and sense of belonging to a balanced culture, some of them are:

In-house medical centre Reimbursement of medical expenses Surgical and hospitalisation schemes Vehicle loans at concessionary rates Monthly movie nights Employees trade exhibitions Employees eye clinics Sports festivals Club memberships Staff health camps

Subsidized lunch Discounts on Arpico Super Centre purchases Holiday bungalow facilities Enrolment in a 24 hour medical service

The launch of the Arpico Anthem in October 2008 was one of the significant milestones in the long Arpico journey, now 77 years since inception.

2008/2009 Rs. 000 Turnover (Gross) Cost of material & services purchased 21,649,635 (15,989,902) 5,659,733 510,290 6,170,023

2007/2008 Rs. 000 20,789,927 (14,831,687) 5,958,240 334,181 6,292,421

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

3,653,443 774,897 1,450,331 24,055 596,380 (329,083) 6,170,023

59% 13% 24%

3,682,693 474,341 1,536,013 258,853 555,598 (215,077) 6,292,421

59% 8% 24% 4%

10% -5%

9% -3%

* Inclusive of continuing & discontinued operations of the Group.

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Richard Pieris and Company PLC Annual Report 2008/2009

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 L N De S Wijeyeratne P D Samarasinghe J H P Ratnayeke S S G Liyanage L C R De C Wijetunge A R De Alwis W J V P Perera Stated Capital Group Holding Chairman/CEO Managing Director Director Director Resigned w e f 30.05.2008 Director Director Director Director appointed w e f 26.05.2008 Director appointed w e f 02.06.2008 Director appointed w e f 02.06.2008 Rs. 111,637,450 80.26% PLAYCRAFT LANKA (PRIVATE) LIMITED Business Activity Cessation of business w. e. f. 31/08/2000 W Abeysirigunawardene Director P D Samarasinghe Director L N De S Wijeyeratne Director resigned w e f 30.06.2008 Stated Capital Group Holding Rs. 5,900,000 65.35%

2. TYRE SECTOR

RICHARD PIERIS TYRE COMPANY LIMITED Business Activity Tyre retreading ,Re-manufacturing & trading Dr Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe P J Janadheera Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Director Rs. 40,000,000 100%

ARPITALIAN COMPACT SOLES (PRIVATE) LIMITED Business Activity Manufacture and export of resin rubber shoe soling sheets Dr Sena Yaddehige L N De S Wijeyeratne P D Samarasinghe Fabio Piccolo Lino Piccolo M S D Galagedara J H P Ratnayeke Stated Capital Group Holding Chairman Director Resigned w e f 30.06.2008 Director Director Director Director Director Rs. 334,248,770 50.43%

ARPIDAG INTERNATIONAL (PRIVATE) LIMITED Business Activity Manufacture of precured tyre retreading material Dr Sena Yaddehige W W Heidbreder M A Tirona L N De S Wijeyeratne J H P Ratnayeke P D Samarasinghe Stated Capital Group Holding Chairman Director resigned w e f 23.04.2008 Director Director resigned w e f 30.06.2008 Director Director Rs. 45,999,800 51%

RICHARD PIERIS NATURAL FOAMS LIMITED Business Activity Manufacture and export of foam rubber products Dr. Sena Yaddehige P D Samarasinghe L N De S Wijeyeratne J H P Ratnayeke Shaminda Yaddehige M S D Galagedara S S Poholiyadde Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Director Director Director Appointed w e f 01.09.2008 Rs. 440,822,600 87.37%

RICHARD PIERIS RUBBER COMPOUNDS LIMITED Business Activity Mixing rubber compounds Dr. Sena Yaddehige W Abeysirigunawardene J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director Director Director resigned w e f 30.06.2008 Director Rs. 17,000,000 100%

ARPICO NATURAL LATEXFOAMS (PRIVATE) LIMITED Business Activity Manufacture and export of foam rubber products Dr. Sena Yaddehige P D Samarasinghe L N De S Wijeyeratne Shaminda Yaddehige M S D Galagedara Stated Capital Group Holding Chairman Director Director Resigned w e f 30.06.2008 Director Director Rs. 90,000,000 84.21%

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 L N De S Wijeyeratne E A Senanayake P D Samarasinghe L Wijeyesinghe Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Director Managing Director Director Resigned w e f 30.06.2008 Director Director Director Director Appointed w e f 15.08.2008 Director Appointed w e f 22.10.2008 Rs. 25,000,020 100%

RICHARD PIERIS RUBBER PRODUCTS LIMITED Business Activity Manufacture of rubber products Dr. Sena Yaddehige S S G Liyanage L N De S Wijeyeratne W Abeysirigunawardene P D Samarasinghe J H P Ratnayeke Stated Capital Group Holding Chairman Director Director resigned w e f 30.05.2008 Director Director Director Rs. 27,000,000 100%

PLASTISHELLS LIMITED Business Activity Manufacture of rotational moulded products Dr. Sena Yaddehige J H P Ratnayeke S S G Liyanage L N De S Wijeyeratne E A Senanayake P D Samarasinghe Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Director Director Managing Director Director resigned w e f .30.06.2008 Director Director Director Appointed w e f 15.08.2008 Director Appointed w e f 22.10.2008 Rs. 34,160,030 98.39%

MICRO MINERALS (PRIVATE) LIMITED Business Activity Manufacture of rubber fillers Dr. Sena Yaddehige Chairman W Abeysirigunawardene Director P D Samarasinghe Director L N De S Wijeyeratne Director resigned w e f 30.06.2008 B L P Jayawardana Director M S D Galagedara Director Stated Capital Group Holding Rs. 9,126,000 55.18%

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Richard Pieris and Company PLC Annual Report 2008/2009

Group Structure
ARPICO PLASTICS LIMITED Business Activity Manufacture of plastic products Dr. Sena Yaddehige S S G Liyanage L N De S Wijeyeratne 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 resigned w e f 30.06.2008 Director Director Director Director Director Appointed w e f 15.08.2008 Director Appointed w e f 22.10.2008 Rs. 29,000,000 100% ARPICO INTERIORS (PRIVATE) LIMITED Business Activity Interior decorating Dr. Sena Yaddehige Chairman F N Vithanage Director J H P Ratnayeke Director M S D Galagedara Director L N De Silva Wijeyeratne Director resigned w e f 30.06.2008 P D Samarasinghe Director Stated Capital Group Holding Rs. 30,000,020 100%

ARPICO FURNITURE LIMITED Business Activity Cessation of business w.e.f 31.03.2004 J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director resigned w e f 30.06.2008 Director Rs. 40,000,000 100%

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 L N De S Wijeyeratne P D Samarasinghe E A Senanayake Stated Capital Group Holding Chairman Managing Director Director Director resigned w e f 30.06.2008 Director Director Rs. 20 100%

ARPIMALLS DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Operates retailing centres Dr. Sena Yaddehige LN De S Wijeyeratne J H P Ratnayeke P D Samarasinghe Company No. of shares Ord. Pref. Stated Capital Group Holding Chairman Director resigned w e f 30.06.2008 Director Director RPD 16,000,001 22,000,000 Rs. 430,000,020 100% RPC 5,000,001

ARPITECH (PRIVATE) LIMITED Business Activity Manufacture of PVC pipes & fittings Dr. Sena Yaddehige S S G Liyanage L N De S Wijeyeratne P D Samarasinghe J H P Ratnayeke Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Director Director Appointed w e f 15.08.2008 Director Appointed w e f 22.10.2008 Rs. 35,000,020 100%

RPC REAL ESTATE DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Property & Real Estate Development Projects Dr. Sena Yaddehige P D Samarasinghe L N De S Wijeyeratne Stated Capital Group Holding Company No. of shares Ord 2 Pref. Chairman Director Director resigned w e f 30.05.2008 Rs.667,000,020 100% RPC RPD 01 01 66,700,000

R P C POLYMERS (PRIVATE) LIMITED Business Activity Manufacturers, exporters and importers of all plastic products Dr Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe S S G Liyanage Dr. K Weerapperuma Dr. U Liyanage Stated Capital Group Holding Chairman appointed w e f 25 09 2008 Director appointed w e f 25 09 2008 Director resigned w e f 30.06.2008 Director Director Director appointed w e f 15.08.2008 Director appointed w e f 22.10.2008 Rs. 20 100%

RPC RETAIL DEVELOPMENTS (PRIVATE) LIMITED Business Activity Construction, Property and Real Estate Development Dr. Sena Yaddehige P D Samarasinghe L N De S Wijeyeratne Stated Capital Group Holding Company No. of shares Ord 2 Pref Chairman Director Director resigned w e f 30.06.2008 Rs. 18,700,020 100% RPC RPD 1 1 187,000,020

4. RETAIL SECTOR

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 L N De S Wijeyeratne M S D Galagedara B S Paul Dr. Harsha Cabral Stated Capital Group Holding Chairman Director Director Director Director resigned w e f 30.06.2008 Director Director resigned w e f 31.05.2008 Director appointed w e f 15.08.2008 Rs. 1,066,760,960 100%

5. PLANTATION SECTOR

RICHARD PIERIS PLANTATIONS (PVT.) LTD Business Activity Managing agents of plantations Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Rs. 70 100%

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Richard Pieris and Company PLC Annual Report 2008/2009

RPC MANAGEMENT SERVICES (PRIVATE) LIMITED Business Activity Investment & management of the plantation companies Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe J M A Ratnayeke R L Kumararatne Prof. K Goonesekera Stated Capital Group Holding Director Deputy Chairman Director resigned w e f 30.06.2008 Director Director Director Director Rs. 75,000,000 100 %

RPC PLANTATION MANAGEMENT SERVICES (PVT) LTD Business Activity Investment & management of plantations Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe R L Kumararatne J M A Ratnayeke Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Director Director Rs.241,062,500 100%

MASKELIYA PLANTATIONS PLC Business Activity Tea Plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe J M A Ratnayeke L N De S Wijeyeratne 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 resigned w e f 26.05.2008 Director resigned w e f 26.05.2008 Director Director Director Appointed w.e.f.26.05.2008 Director Appointed w e f 02.06.2008 Rs. 269,767,450 63.67%

MASKELIYA TEA GARDENS CEYLON LIMITED Business Activity Trading &, marketing of value added tea Dr. Sena Yaddehige L N De S Wijeyeratne P D Samarasinghe R L Kumararatne J H P Ratnayeke Stated Capital Group Holding Director Director resigned w e f 30.06.2008 Director Director Director Rs. 15,000,070 100%

RPC TIMBERLINE (PRIVATE) LIMITED Business Activity Manufacture of wooden products Dr. Sena Yaddehige L N De S Wijeyeratne P D Samarasinghe Ms. M C Pietersz Ms. M Jayasekera S P Gunaratne Stated Capital Group Holding Chairman Director resigned w e f 30.06.2008 Director Director appointed w e f 15.12 2008 Director appointed w e f 05.01.2009 Director appointed w e f 05.01.2009 Rs. 26,500,020 75%

KEGALLE PLANTATIONS PLC Business Activity Rubber, Tea and Coconut Plantations Dr. Sena Yaddehige J H P Ratnayeke J M A Ratnayeke L N De S Wijeyeratne P D Samarasinghe S. S Poholiyadde R L Kumararatne Dr. Nugawela Stated Capital Group Holding Chairman Deputy Chairman Director resigned w e f 26.05.2008 Director Director Director Director Director appointed w e f 26.05.2008 Rs. 250,000,010 68.06%

6. SERVICES

RICHARD PIERIS GROUP SERVICES (PRIVATE) LIMITED Business Activity Provides Company Secretarial Services Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Rs. 20 100%

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 Rs. 10,000,000 100%

ARPICO INDUSTRIAL DEVELOPMENT COMPANY (PRIVATE) LIMITED Business Activity Operates industrial estates Dr. Sena Yaddehige P D Samarasinghe L N De S Wijeyeratne Chairman Director Director resigned w e f 30.06.2008

HAMEFA KEGALLE (PRIVATE) LTD Business Activity Manufacture & Export of furniture Dr. Sena Yaddehige P D Samarasinghe J H P Ratnayeke Stated Capital Group Holding Chairman Director Director Rs. 28,000,020 34.03%

Stated Capital Rs. 106,400,000 Group Holding 100% Company RPC No. of shares Ord 1,500,000 1,499,999 Pref 9,140,000

RPD 1

NAMUNUKULA PLANTATIONS PLC Business Activity Rubber, Tea, Cinnamon & Coconut Plantations Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe L N De S Wijeyeratne R L Kumararatne V K J Thalpawila A Dias N C Pieris Stated Capital Group Holding Chairman Director Director Director resigned w e f 26.05.2008 Director Director Director Director Appointed w e f 26.05.2008 Rs. 237,500,010 58.74%

RPC LOGISTICS LIMITED Business Activity Freight forwarding and allied services Dr. Sena Yaddehige H F C Mendis P D Samarasinghe J H P Ratnayeke L N De S Wijeyeratne Stated Capital Group Holding Chairman Managing Director Director Director Director resigned w e f 30.06.2008 Rs. 5, 000,070 100%

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Richard Pieris and Company PLC Annual Report 2008/2009

Group Structure
ASIAN ALLIANCE INSURANCE COMPANY LTD Business Activity Insurance S H Amarasekera J H P Ratnayeke W D N H Perera K D D Perera L N de S Wijeyeratne Prof. Lakshman R. Watawala A C Seneviratne Chairman Deputy Chairman Director Director Director Director Director 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 L N De S Wijeyeratne P D Samarasinghe M S D Galagedara M M Udeshi Stated Capital Group Holding Director Director Director Director resigned w e f 30.06.2008 Director Director Director Rs.6,000,020 100%

Issued Capital Rs. 250,000,000 Group Holding 25% RPGS are not company secretaries to this company ARPICO EXOTICA ASIANA (PRIVATE) LIMITED Business Activity Leisure Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Rs. 20 100%

SHADYGROVE RESIDENCIES (PRIVATE) LIMITED Business Activity Construction of residential houses & luxury apartments Dr Sena Yaddehige L N De S Wijeyertane P D Samarasinghe W S Kalugala Stated Capital Group Holding Chairman resigned w e f 31.01.2009 Director resigned w e f 30.06.2008 Director resigned w e f 31.01.2009 Appointed w e f 31.01.2009 Rs. 20 100%

RPC SHIPPING (PRIVATE) LIMITED Business Activity Shipping Agency Representation Dr. Sena Yaddehige H F C Mendis L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Rs. 20 100%

R P C PRECISION CRAFT (PRIVATE) LIMITED Business Activity Importers & exporters of timber, steel and wooden furniture Dr. Sena Yaddehige L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director resigned w e f 30.05.2008 Director Rs. 20 100%

RPC CONSTRUCTION (PRIVATE) LIMITED Business Activity Business of construction nationally and internationally Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyertane P D Samarasinghe Stated Capital Group Holding Director Deputy Chairman Director resigned w e f 30.06.2008 Director Rs.20, 000,070 100%

MARKRAY SYSTEMS (PRIVATE) LIMITED Business Activity Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyeratne P D Samarasinghe Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Rs. 20 100%

RPC AIRLINE SERVICES (PRIVATE) LIMITED Business Activity Business of national and international airline travel Dr. Sena Yaddehige J H P Ratnayeke L N De S Wijeyertane P D Samarasinghe H F C Mendis Stated Capital Group Holding Chairman Director Director resigned w e f 30.06.2008 Director Director Rs. 20 100%

HARDYROPES (PRIVATE) LIMITED Business Activity Manufacture and distribution of plastic ropes L N De S Wijeyeratne P D Samarasinghe S S G Liyanage Stated Capital Group Holding Director resigned w e f 30.06.2008 Director Director Rs. 20 100%

ARPICO HOMES LIMITED Business Activity Property & Real Estate Development Dr. Sena Yaddehige J H P Ratnayeke P D Samarasinghe L N De S Wijeyeratne M S D Galagedara Stated Capital Group Holding Director Director Director Director resigned w e f 30.06 2008 Director Rs. 70 100%

FERHAM ORGANICS (PRIVATE) LIMITED Business Activity Engaged in agri-business L N De S Wijeyertane P D Samarasinghe Stated Capital Group Holding Director resigned w e f 30.06.2008 Director Rs. 20/00 100%

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. 20/00 100%

53
Richard Pieris and Company PLC Annual Report 2008/2009

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 Auditors Report Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements

Cut out the

54
Richard Pieris and Company PLC Annual Report 2008/2009

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 2009. The Directors approved the financial statements on 16th June 2009. 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 49 - 52 of the report. A review of the Groups business and its performance during the year, with comments on financial results and future developments, is contained in the Chairman and CEOs 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 42 - 46 of this report. Future Developments The Group intends to continue to pursue a strategy of focusing on its core business activities after a year of many challenges. In order to achieve this, the Group will concentrate on enhancing the performance of its retail, plantation, tyre and plastics business sectors. Further information on future developments is provided in the Chairman and CEOs Review and Sector Review of this report. Group Revenue The turnover of the Group was Rs. 20.8 bn. A detailed analysis of the Groups turnover identifying the contributions from different sectors is given in Note 22 to the Financial Statements. The Groups exports from Sri Lanka were Rs. 1.78 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 Directors do not recommend a dividend for the financial year ended 31 March 2009. 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-inprogress incurred during the year under review amounted to Rs.1.026 bn. Information relating to this is given under 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 32 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 113. Stated Capital The stated capital of the Company as at 31 March 2009 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, 2009 amount to Rs. 1.6 bn. (Rs. 1.93 bn as at 31 March 2008). 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. 0.083 mn and Rs. 0.96 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 28 to the Financial Statements. In computing the Groups tax liability, the maximum relief

55
Richard Pieris and Company PLC Annual Report 2008/2009

available to investors under the provisions of the Inland Revenue Act has been claimed. It is the Groups policy to provide for deferred taxation on all known temporary differences, on the liability method. Details on the Groups exposure to taxation are disclosed in Note 28 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 114 - 115 of this report. Substantial Shareholdings The twenty major shareholders and the percentage held by each one of them as at 31st March, 2009 are given in pages 116 and 117 under Shareholder Information. Directors The names of Directors who served during the year are given on pages 6 and 7 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 81 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. Mr. Paul Ratnayeke retires by rotation in terms of Article 85 of the Articles of Association of the Company and being eligible offers himself for re-election at the Annual General Meeting.

Mr. Lalit N De S Wijeyeratne resigned from the Board with effect from 30th June 2008. 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 in page 56. These interests have been declared at the meetings of directors. The directors have no direct or indirect interest in any other contract 2008/09 Rs.000 2007/08 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 (Loss)/Profit attributable to the equity holders of the parent was To which the retained profit brought forward form the previous year added was Capitalisation of Revenue Reserves to account for Bonus issue of 1 for 12 Leaving a profit available for appropriation of Appropriation The amount available has been appropriated as follows Final Dividend 2006-07 Leaving a retained profit to be carried forward amounting to

(8,935)

324,270

180,411 (189,346) (115,682) (305,028) 24,055 (329,083) 1,625,800 1,296,717

77,278 246,992 (203,216) 43,776 258,853 (215,077) 2,294,689 (394,620) 1,684,993

1,296,717

59,193 1,625,800

56
Richard Pieris and Company PLC Annual Report 2008/2009

Annual Report of the Board of Directors


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 35 (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 2008/2009 Rs.Mn 2007/2008 Rs.Mn

Dr. Sena Yaddehige Mr. J.H.P Ratnayake .

Director Director

Packing Materials Brokerage Store rent Fertilizer Others Loans Interest paid Letter of credit facility Purchase of Motor Vehicle Services Rendered Purchase of goods for resale Rent received Services provided for import clearance Purchase of goods for resale

27.3 26.7 9.2 4.5 1,028.4 209.6 250.0 12.0 12.1 12.8 0.9 16.2

29.7 27.7 5.6 4.6 4.8 983.2 141.7 250.0 9.7 1.1 -

National Development Bank PLC

Dr. Sena Yaddehige

Director

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

Mr. J.H.P Ratnayake . Mr. J.H.P Ratnayake . Mr. P Samarasinghe .D.

Director Chairman Director

Swadeshi Industrial Works Limited

Mr. P Samarasinghe .D.

Director

Mouldex Ltd

Mr. M.M. Udeshi

Director

0.8

0.8

RPC disposed of its entire stake in Rivira Media Corperation (Private) Limited on 31st March 2008. The Chairman of RPC Dr. Sena Yaddehige continued to be chairman of Rivira Media Corperation (Private) Limited. The list of Directors at each of the subsidiary and associate Companies have been disclosed in the group structure on page 49 to 52. Directors Shareholding Directors Shareholding in Richard Pieris and Company PLC is stated in page 117.

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 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 2009 are disclosed in note 35.2 to the Financial Statements. Vision & Long Term Goals The Groups Vision and Long Term Goals are given in page 2 of this report.

Environmental Protection The Company has not engaged in any activities detrimental to the environment. The Groups efforts in relation to environmental protection are set out in the Corporate Social Responsibility Report in pages 40 - 41. Employment Policies Group employment policies are based on recruiting the best people,

57
Richard Pieris and Company PLC Annual Report 2008/2009

providing them training to enhance their skills, recognition of innate skills and 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 29,487. 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 34 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 Groups 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 and 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 31st July 2009. The Notice of the Annual General Meeting is on page 120 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

J H P Ratnayeke Director

Company Secretary Richard Pieris Group Services (Pvt) Limited Secretaries

No. 310, High Level Road, Nawinna, Maharagama. 16th June 2009

58
Richard Pieris and Company PLC Annual Report 2008/2009

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 six Directors, of which three are Non-Executive 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 Groups overall commercial, operational and strategic development and assisted by the Chief Operating Officer and an Executive Management Committee comprising of Executive Directors and Heads of Companies of the Strategic Business Units (SBU). The Finance function devolves on the Group Chief Financial Officer, All Non-Executive Directors are independent with no direct or indirect material relationship with the Company. Their wide range of expertise and significant experience

Directors and three are Executive Directors, ensuring an independent outlook to temper the expediency of the experts. Brief profiles of the Directors are set out on pages 6 and 7. The Board has assessed the independence of the Non-Executive Directors.

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

During the year the Board met on 12 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.

are:

Directing the business and affairs of the company. Formulating short and long term strategies as a basis for the operational plans of the company.

Reporting on their stewardship to shareholders. Identifying the principal risks of the business and periodically reviewing the risk management systems in place.

Approving the annual capital and operating budgets and reviewing performance against budgets. Approving the interim and final financial statements of the group. Determining and recommending interim and final dividends for the approval of shareholders. Sanctioning of all material contracts, acquisitions or disposal of assets and approving capital projects.

59
Richard Pieris and Company PLC Annual Report 2008/2009

in commercial, corporate and financial activities bring an independent view and judgement to the Board.

The Report of the Remuneration Committee on page 61 highlights its main activities. The Company does not have

adopted by the Company to manage its risk are set out in its report on Risk Management on page 42. 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

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 delegated responsibilities to two Board Sub Committees which operate within clearly defined terms of reference. Audit Committee The Audit Committee is composed of two 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 Non-Executive Directors - its Chairman, Prof. Lakshman R. Watawala and Prof. Susantha Pathirana, together with Mr. James Mather, former Senior Partner M/s Ernst & Young.

a Nomination Committee to recommend additions to the Board. The Board as a whole decides on the appointments of new members. Mr. L.N . de S Wijeyeratne resigned from the Board with effect from 30th June 2008. During the year under review no new appointments were made to the Board. 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

60
Richard Pieris and Company PLC Annual Report 2008/2009

Corporate Governance
the quarterly newsletter, emails, memos and circulars. The Board also ensures that the Group policies and practices are in line with the Companys 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 section on page 40. 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 which all significant developments are reported to shareholders quarterly. The Board of Directors, 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. to the best of their knowledge and belief, are satisfied that all statutory payments have been made to date.

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

Executive

Non- Executive

Independent

SEC Rules on Corporate Governance Section 6 Colombo Stock Exchange Non Executive Directors Independent Directors Remuneration Committee Audit Committe Status of Richard Pieris and Company PLC In In In In Compliance Compliance Compliance Compliance

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Richard Pieris and Company PLC Annual Report 2008/2009

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 16th June 2009

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Richard Pieris and Company PLC Annual Report 2008/2009

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 Group Chief Financial Officer, 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. 3. 4. Review the system of internal control and risk management Monitor the effectiveness of the internal audit function Review the Companys 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 during the year are detailed below. 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 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 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. Financial Statements The Committee reviewed the Groups 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. SBU Boards review performance on a quarterly basis. 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. Meetings were held with the external auditors regarding the scope and the conduct of the annual audits. Group Internal Audit Manager and functional heads of the Strategic Business Units (SBUs) were invited if deemed necessary for audit committee meetings. Internal Controls During its meetings, the Committee reviewed the effectiveness of the internal control systems and the Groups 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 Companys SBUs which is reviewed by the Senior Management on a monthly basis. Meetings The Audit Committee held 10 meetings during the year under review. The Committee also had the responsibility to review the loss making SBUs of the Group and strategies for turning round these Companies and recommending suitable corrective action.

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Richard Pieris and Company PLC Annual Report 2008/2009

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. The Committee reviewed the Management Letters issued by the External Auditors and the Management response thereto. It 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, 2009 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.

Prof. Lakshman R Watawala Chairman 16th June 2009

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Richard Pieris and Company PLC Annual Report 2008/2009

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 2009 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 112 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 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 The overall responsibility for the Companys 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. 16th June 2009 310, High Level Road, Nawinna, Maharagama Company Secretary Richard Pieris Group Services (Pvt) Limited Secretaries By Order of the Board, 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 2009, and that of the loss for the year then ended. 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. preparation of these financial statements.

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Richard Pieris and Company PLC Annual Report 2008/2009

Auditors 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 2009, 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. Managements 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 2009 and the financial statements give a true and fair view of the Companys state of affairs as at 31 March 2009 and its loss 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 2009 and the loss 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.

16th June 2009 Colombo

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Richard Pieris and Company PLC Annual Report 2008/2009

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 9 Capital reserves 10 Revenue reserves 11 Foreign currency translation 12 Minority interest Total equity Non-current liabilities Interest bearing borrowings Net liability to the lessor 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 2009 Rs. 000 Group 2008 Rs. 000 2009 Rs. 000 Company 2008 Rs. 000

3 3 3 4 5 5 5 16

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

9,447,194 678,274 498,548 101,007 2,309 10,727,332 3,162,268 3,083,190 194,686 55,546 584,307 7,079,997 17,807,329

76,079 703,076 2,207,584 37,500 120,750 36,953 3,181,942 64,577 6,956 2,119,524 7,974 1,348,037 3,547,068 6,729,010

49,047 710,441 1,677,834 37,500 276,989 36,953 2,788,764 252,382 3,022 2,643,439 55,546 1,917,886 4,872,275 7,661,039

6 7 8

1,578,475 126,901 1,476,160 32,371 3,213,907 1,380,908 4,594,815 2,304,617 697,432 478,147 21,804 1,103,222 4,605,222 2,124,604 1,062,216 24,948 26,704 23,377 4,462,211 7,724,060 12,329,282 16,924,097

1,578,475 126,901 1,805,243 21,599 3,532,218 1,390,232 4,922,450 2,683,162 722,234 386,143 1,037,650 4,829,189 2,255,999 1,251,601 19,791 87,031 19,541 4,421,727 8,055,690 12,884,879 17,807,329

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

1,578,475 10,574 565,019 2,154,068 2,154,068 1,464,624 3,131 39,726 1,507,481 256,755 482,000 1,066 87,031 319,329 2,853,309 3,999,490 5,506,971 7,661,039

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

J H P Ratnayeke Director

The accounting policies and notes from pages 71 to 112 form an integral part of these financial statements. 16th June 2009

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Richard Pieris and Company PLC Annual Report 2008/2009

Income Statement
Group For the year ended March 31 Continuing operations Revenue Cost of sales Gross profit Note 2009 Rs. 000 2008 Rs. 000 Company 2009 2008 Rs. 000 Rs. 000

22

20,818,036 (16,890,607) 3,927,429 509,618 (612,397) (2,429,325) (44,849) 1,350,476 (1,400,426) (49,950) 41,015 (8,935) (180,411) (189,346)

20,142,591 (15,778,872) 4,363,719 330,540 (594,402) (1,966,130) (87,797) 2,045,930 (277,000) (1,472,629) 296,301 27,969 324,270 (77,278) 246,992

433,176 433,176 213,306 (374,644) -

589,360 589,360 (190,123) (117,407) (142,000) 139,830 (113,309) 26,521 26,521 5,270 31,791

Other operating income 23 Distribution costs Administrative expenses Other operating expenses 24 Loss on disposal of subsidiary Allowances for doubtful debts against receivable from discontinued group entity Profit from operations 25 Loss on disposal of investment Finance cost 26 Profit/(loss) from operations after finance cost Share of results of associates 27 Profit/(loss) before tax Income tax (expense)/reversal 28 Profit/(loss) 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 interest

271,838 (319,669) (47,831) (47,831) 3,185 (44,646)

29

(115,682) (305,028)

(203,216) 43,776

(44,646)

31,791

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

(215,077) 258,853 43,776

Earnings/(loss) per share Basic / diluted (Rs.)

30

(2.57)

(1.68)

Earnings/(loss)per share from continuing operations Basic / diluted (Rs.) 30 Figures in brackets indicate deductions.

(1.66)

(0.09)

The accounting policies and notes from pages 71 to 112 form an integral part of these financial statements.

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Richard Pieris and Company PLC Annual Report 2008/2009

Cash Flow Statement


Group For the year ended March 31 Cash flows from / (used in) operating activities Group profit/(loss) before tax and minority interest from continuing operations Loss before tax from discontinued operation Adjustments for Depreciation Impairment of property, plant and equipment Amortisation of leasehold property Interest charges Provision for defined benefit plans (Profit) / loss on sales of property, plant and equipment Provision for fall in value of investment (Profit) / loss on investments (Profit) / loss on disposal of subsidiary Gain on dilution in holding of subsidiary Share of net profit of associates Exchange differences on translation of foreign currency Amortisation of grants and subsidies Allowances for bad debt Allowances for obsolete and slow moving inventories Amortisation of goodwill, licences and technical know-how Allowances for unrealised profit Dividend income Operating profit/ (loss) 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 / (used in) operations Interest paid Income tax paid Defined benefit plan costs paid Net cash from / (used in) operating activities 2009 Rs. 000 2008 Rs. 000 Company 2009 2008 Rs. 000 Rs. 000

(8,935) (115,682)

324,270 (203,216)

(47,831)

26,521

572,242 29,442 24,138 1,400,426 203,845 (215,096) 5,100 (12,051) (35,751) 19,748 (21,128) 132,276 67,386 10,302 3,732 2,059,994 788,111 399,333 (191,699) 3,055,739 (1,400,426) (202,981) (138,273) 1,314,059

530,881 24,717 1,472,629 279,265 (8,651) (21,754) 268,650 (27,676) (9,690) (27,969) 3,283 (15,632) 36,999 54,973 25,051 9,811 (41,006) 2,674,935 (704,328) 79,102 251,552 2,301,261 (1,472,629) (290,855) (107,887) 429,890

24,246 319,669 7,061 (213,306) (6,948) 128,502 (230,652) (19,259) (128,243) 112,470 (35,032) (319,669) (3,466) (1,673) (359,840)

34,617 113,309 10,797 (21,754) (4,079) 117,407 145,285 (280,757) 141,346 201,251 (289,338) 53,259 (113,309) (7,600) (2,408) (70,058)

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Richard Pieris and Company PLC Annual Report 2008/2009

Group For the year ended March 31 Cash flows from / (used in) investing activities Purchase of investment in subsidiary Sale of investment in subsidiary Purchase of investment in associate and other investment Net proceeds from sale / (acquisition) of the investment Purchase and construction of property plant and equipment Intangibe assets acquired Proceeds from sale of property, plant and equipment Grants received Dividend received Net cash flows from/ (used in) investing activities Net cash inflow / (outflow) before financing activities 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 outside shareholders Dividends paid Net cash flows from / (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 Short term borrowings 2009 Rs. 000 2008 Rs. 000

Company 2009 2008 Rs. 000 Rs. 000

54,524 (1,026,521) 594,015 113,132

(44,831) 103,550 (24,403) 1,518,025 (1,441,527) (16,708) 136,176 48,391 41,006 319,679 749,569

(55,000) 265,763 (47,483) 233,391 230,652 627,323 267,483

(826,045) (98,740) 118,279 (37,026) 280,757 (562,775) (632,833)

(264,850) 1,049,209

551,015 (1,140,492) (19,686) (43,970)

1,427,273 (2,277,774) 13,417 (53,021) (59,193) (949,298)

(435,361) (4,197) -

630,000 (334,793) (884) (59,193) 235,130

(653,133)

(439,558)

396,076

(199,729)

(172,075)

(397,703)

(3,837,420) (3,441,344)

(3,637,691) (3,837,420)

(935,423) (1,107,498)

(537,720) (935,423)

21 21

1,020,867 (4,462,211) (3,441,344)

584,307 (4,421,727) (3,837,420)

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

1,917,886 (2,853,309) (935,423)

The accounting policies and notes from pages 71 to 112 form an integral part of these financial statements.

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Richard Pieris and Company PLC Annual Report 2008/2009

Statement of Changes in Equity


Attributable to equity holders of the parent Share capital Group Balance as at 1st April 2007 Transfers Net profit / (loss) for the period Dividends - final paid for 2006/07 - (Rs.0.50 / per share) Bonus issue of shares Subsidiary dividend to minority shareholders Effect of foreign currency translation Adjustments due to changes in holding Balance as at 31st March 2008 Balance as at 31st March 2008 Net profit / (loss) for the period Subsidiary Dividend to Minority Shareholders Effect of foreign currency translation Unclaimed dividends of minorities Balance as at 31st March 2009 Company Balance as at 1st April 2007 Transfers Net profit for the period Dividends - final paid for 2006/07 - 50cents Bonus issue of shares Balance as at 31st March 2008 Balance as at 31st March 2008 Transfers Net profit / (loss) for the period Bonus issue of shares Balance as at 31st March 2009 1,183,856 (1,183,856) 1,183,856 394,619 1,578,475 1,578,475 1,578,475 10,574 10,574 10,574 31,791 (59,193) (394,619) 565,019 565,019 (44,646) 520,373 2,154,068 2,154,068 (44,646) 2,109,422 2,109,422 (44,646) 2,154,068 2,154,068 31,791 (59,193) 31,791 (59,193) 10,574 987,040 2,181,470 2,181,470 1,578,475 1,578,475 1,578,475 126,901 126,901 126,901 179,443 179,443 179,443 1,625,800 1,625,800 (329,083) 1,296,717 21,599 21,599 10,772 32,371 3,532,218 3,532,218 (329,083) 10,772 3,213,907 Rs.000 1,183,856 (1,183,856) Stated capital Rs. 000 1,183,856 394,619 (215,077) (59,193) (394,619) (1,764) (1,764) (53,021) (1,736) (11,527) 1,390,232 1,390,232 24,055 (45,677) 10,591 1,707 1,380,908 (53,021) (3,500) (11,527) 4,922,450 4,922,450 (305,028) (45,677) 21,363 1,707 4,594,815 (215,077) (59,193) 258,853 43,776 (59,193) Capital reserves Rs. 000 126,901 Revenue reserves Rs. 000 179,443 Retained profit Rs. 000 2,294,689 Foreign currency translation Rs. 000 23,363 Total Rs. 000 3,808,252 Rs. 000 1,197,663 Rs. 000 5,005,915 Minority interest Total equity

The accounting policies and notes from pages 71 to 112 form an integral part of these financial statements.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


1. CORPORATE INFORMATION prepared in compliance with the Sri Lanka Accounting Standards (SLAS) issued by the Institute of Chartered Accountants of Sri Lanka. 1.2 CONSOLIDATION POLICY 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 2009 were authorised for issue by the Directors on 16th June 2009.

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 Groups Financial Statements comprise the consolidated financial statements of the company and the group which have been prepared in compliance with the groups accounting policies. All intra group balances, income and expenses and profits and losses resulting from intra group transactions are eliminated in full.

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.

1.2.2 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.

1.1.4 Comparative information


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 The accounting policies applied by the group are consistent with those used in the previous year. Previous years figures and phrases have been re-arranged, wherever necessary, to conform to the current years 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.

1.2.3 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

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

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


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. The Consolidated Cash Flow Statement includes the cash flows of the Company and its subsidiaries. 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 All associates are incorporated in Sri Lanka. The investments in associates are carried in the Balance Sheet at cost specific to the business of associate companies are discussed in note 2.7. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and When the groups 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. Impairment is determined by assessing the recoverable amount of the cash-generating 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. plus post acquisition changes in the groups 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 groups 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. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination. combination is initially measured at cost being the excess of the cost of the business combination over the groups 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.

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.

1.2.5 Goodwill
Goodwill acquired in a business

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Richard Pieris and Company PLC Annual Report 2008/2009

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.

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 29 to the Financial Statements.

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.

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.

1.2.6 Financial year


Results of all subsidiaries and associates (except for Asian Alliance Insurance PLC) are drawn for the twelve months 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

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

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.

Judgments
In the process of applying the Groups 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.

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.

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

Going Concern
When preparing financial statements, management has made assessment of the ability of the constituents of the Group

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


2.2 FOREIGN CURRENCY TRANSLATION 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 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. 2.3 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. 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. 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. 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. 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 carry-forward of unused tax credits and unused tax losses can be utilised. 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. taxation authorities recognise and measure assets and liabilities with rules, that differ from those of the consolidated financial statements.

2.2.1 Foreign currency transactions


The consolidated financial statements are presented in Sri Lanka rupees, which is the companys functional and presentation currency.

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.

2.3.2 Deferred tax


Deferred taxation is the tax attributable to the temporary differences that arise when Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the year when

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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

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.

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 plantations. Infilling costs that are not capitalised have been charged to the Income Statement in the year in which they are incurred. b) Depreciation

2.4.1 Property, plant and equipment


a) Cost and valuation

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 Plant, machinery tools and electrical installations Furniture, fixtures and fittings Office and other equipment Computers 5-10 years 3-10 years 4-40 years 5-40 years 20-100 years

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.

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

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Notes to the Financial Statements


Motor vehicles Land improvements - Tea - Rubber - Coconut 4-10 years 20 years 33 years 20 years 50 years 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. Investment properties are The useful life and residual value of assets are reviewed, and adjusted if required, at the end of each financial year. c) Finance leases 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. After initial recognition the 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 Bare land Mature plantations Leasehold buildings Machinery Land improvements 53 years 30 years 25 years 15 years 30 years Transfers are made to investment property, when there is a change in use, evidenced by ending of owner occupation, commencement of an operating lease to another party or ending of construction or The leasehold rights are being amortised in equal amounts over the following periods: 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.

2.4.3 Investment property


Properties held to earn rental income, and properties held for capital appreciation have been classified as investment property.

Replanting and new planting

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 in shorter. No further revaluations of these leasehold property will be carried out.

company measure all of its investment property 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

development. Transfers are made from investment property, when there is a change in use, evidenced by commencement of owneroccupation or commencement of development with a view to sale.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level.

the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash generating units 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

2.4.5 Investments
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. 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 companys financial statements, investments in subsidiaries and associate companies have been accounted for at cost, net of any impairment 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. 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.

2.4.4 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.

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

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


to the extent of the carrying amount had no impairment losses been recognised previously. e) Produce inventories Actuarial gains and losses are recognised as income or expenses immediately. At since realised price

2.4.8 Trade and other receivables 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 Allowances have been made for bad and doubtful debts. Bad debts are written off when identified. Length of service (years) No. of months salary for each completed year of service 00-04 05-10 11-20 21-30 Over 30 b) Defined contribution plans 2.5 LIABILITIES AND PROVISIONS b) Work-in- progress 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 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 d) Goods in transit group. At actual cost contribute 12% and 3% of gross emoluments of employees to the Arpico Employees Provident Fund / Employees Provident Fund and Employees Trust Fund respectively. 0 1 1 Trade and other receivables are stated at the amounts they are estimated to realise, net of allowances for bad and doubtful receivables. The basis of payment of retiring gratuity as follows: This item is stated under Employee Benefit Liabilities in the Balance Sheet.

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.

At actual cost on first-in first-out basis and weighted average cost

2.5.1 Retirement benefit obligations


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).

At the cost of direct materials, direct 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

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 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.

2.6 INCOME STATEMENT

reliably, revenue is recognised only to the extent of expenses incurred that are recoverable. d) Plantation companies

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: a) Sale of goods

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 Tourism Development Levy. Companies in the group pay such taxes in accordance with the respective statutes.

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

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.

2.6.2 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.

Revenue from rendering of services is recognised in the accounting period in which the services are rendered or performed.

2.6.4 Royalties
c) Construction revenue Royalties are recognised on an accrual basis in accordance with the substance of the relevant agreement. 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

2.6.5 Interest income


Interest income is recognised as and when the interest accrues.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


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. 2.7 SIGNIFICANT ACCOUNTING POLICIES THAT ARE SPECIFIC TO THE BUSINESS OF ASSOCIATE COMPANIES 2.7.1 Asian Alliance Insurance 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 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 22 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.

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 60-40 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.

2.8.2 Segment information


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. Segment information has been prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements of the group.

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Richard Pieris and Company PLC Annual Report 2008/2009

3. A.

Property plant and equipment Group As at 01.04.2008 Rs.000 Additions Impairment Rs.000 Rs.000 Disposals/ transfers Effect of foreign As at currency 31.03.2009 translation Rs.000 Rs.000 Rs.000

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

1,637,712 1,954,200 3,287,678 3,307,210 395,372 369,892 441,397 301,968 356,005 12,051,434

61,174 276,640 270,797 211,336 31,476 19,751 47,646 7,338 100,363 1,026,521

(178) (4,117) (114) (124,258) (578) (1,436) (1,687) (1,647) (296,225) (430,240)

5,356 31,986 690 80 38,112

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

As at 01.04.2008

Charge for the Impairment year Rs.000 Rs.000

On disposals

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

Effect of As at foreign 31.03.2009 currency translation Rs.000 Rs.000 Rs.000

32,838 286,823 317,042 1,463,119 227,393 159,115 369,845 225,486 3,081,661

65,101 87,859 243,294 41,140 37,465 33,182 27,351 535,392 29,442

(95) (50,738) (218) (1,140) (1,581) (842) (54,614)

1,277 16,074 661 80 18,092

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

29,442

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


3. Property plant and equipment contd. 2009 Rs.000 Net book values Land / Land Improvements Buildings/Buildings improvements Immature / mature plantations Plant, machinery, tools and electrical installations Office and other equipment Furniture, fixtures and fittings Motor vehicles Computers Capital work in progress 2008 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

1,604,874 1,667,377 2,970,636 1,844,091 167,979 210,777 71,552 76,482 356,005 8,969,773

Assets acquired on finance leases

As at 01.04.2008

Additions Impairment

Disposals/ transfers

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

Rs.000

Rs.000

Effect of As at foreign 31.03.2009 currency translation Rs.000 Rs.000 Rs.000

758,385 134,286 836 11,707 905,214

(7,077) (7,077)

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

As at 01.04.2008

Charge for the Impairment year Rs.000 Rs.000

On disposals

Rs.000 Depreciation / amortisation Immature / mature plantations Plant and machinery Office and other equipment Motor vehicles

Effect of As at foreign 31.03.2009 currency translation Rs.000 Rs.000 Rs.000

338,718 85,060 239 3,776 427,793

25,482 9,389 15 1,964 36,850

(3,686) (3,686)

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

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Richard Pieris and Company PLC Annual Report 2008/2009

3.

Property plant and equipment contd. 2009 Rs.000 2008 Rs.000

Net book values Immature / mature plantations Plant and machinery Office and other equipment Motor vehicles

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

419,667 49,226 597 7,931 477,421 9,447,194

Total carrying amount of property, plant and equipment

B.

Leasehold Property As at 01.04.2008 Additions Impairment Disposals/ transfers Effect of As at foreign 31.03.2009 currency translation Rs.000 Rs.000 Rs.000

Rs.000 Cost / valuation Land Buildings

Rs.000

Rs.000

828,468 201,280 1,029,748

828,468 201,280 1,029,748

As at 01.04.2008

Charge for the Impairment year Rs.000 Rs.000

On disposals

Rs.000 Amortization Land Buildings

Effect of As at foreign 31.03.2009 currency translation Rs.000 Rs.000 Rs.000

223,011 128,463 351,474

16,542 7,596 24,138

239,553 136,059 375,612

2009 Rs.000 Net book values Land Buildings Total carrying amount of leasedhold property

2008 Rs.000

588,915 65,221 654,136

605,457 72,817 678,274

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


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 have been executed as at the balance sheet date. With regard to Namunukula Plantations PLC, 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 preceeding 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 36 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. 5,835 mn(2008 - Rs. 3,967mn) are pledged as security for loans obtained. Impairment of property, plant and equipment Immediately before the classification of Arpitech (Pvt) Ltd as a discontinued operation,the recoverable amount was estimated for certain items of Plant & Machinery and an impairment loss of Rs 29,442,000 was recognised to reduce the carrying amount.

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Richard Pieris and Company PLC Annual Report 2008/2009

3. Property plant & equipment C. Company As at 01.04.2008 Additions Disposals/ transfers Effect of foreign currency translation Rs.000 As at 31.03.2009

Rs.000 Cost / valuation Plant, machinery, tools and electrical installations Office and other equipment Furniture, fixtures and fittings Motor vehicles Computers Capital work in progress

Rs.000

Rs.000

Rs.000

52,883 24,797 9,726 32,519 24,403 301 144,629

5,368 603 5,329 34,257 1,150 46,707

(301) (301)

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

As at 01.04.2008

Charge for the year Rs.000

On disposals

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

Rs.000

Effect of foreign currency translation Rs.000

As at 31.03.2009

Rs.000

37,968 17,160 6,935 25,139 12,214 99,416

2,946 1,290 642 7,699 2,963 15,540

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

2009 Rs.000 Net book value Plant, machinery, tools & electrical installations Office and other equipment Furniture, fixtures and fittings Motor vehicles Computers Capital work in progress

2008 Rs.000

17,337 6,950 7,478 33,938 10,376 76,079

14,915 7,637 2,791 7,380 12,189 301 45,213

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


3. Property plant & equipment contd. As at 01.04.2008 Additions Disposals/ transfers Effect of foreign currency translation Rs.000 As at 31.03.2009

Assets on finance leases Cost / valuation Motor vehicles

Rs.000

Rs.000

Rs.000

Rs.000

7,077 7,077

(7,077) (7,077)

As at 01.04.2008

Charge for the year Rs.000

On disposals

Rs.000 Depreciation Motor vehicles

Rs.000

Effect of foreign currency translation Rs.000

As at 31.03.2009

Rs.000

3,243 3,243

443 443

(3,686) (3,686)

2009 Rs.000 Net book value Motor vehicles

2008 Rs.000

76,079

3,834 3,834 49,047

Total carrying value of property, plant and equipment

Investment property D. Company As at 01.04.2008 Rs.000 Gross carrying amounts Freehold land Buildings on freehold land Plant and machinery Additions Rs.000 Disposals/ transfers Rs.000 As at 31.03.2009 Rs.000

474,602 255,889 24,307 754,798

1,077 1,077

(179) (179)

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

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Richard Pieris and Company PLC Annual Report 2008/2009

3.

Property plant & equipment contd. As at 01.04.2008 Rs.000 Charge for the Year Rs.000 On Disposals Rs.000 As at 31.03.2009 Rs.000

Depreciation Buildings on freehold land Plant and machinery

31,218 13,139 44,357

6,396 1,867 8,263

2009 Rs 000

37,614 15,006 52,620 2008 Rs 000

Net book values Freehold land Buildings on freehold land Plant and machinery Total carrying amount of investment property

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

474,602 224,671 11,168 710,441

Rental income earned from investment property by the company amounted to Rs.124 mn (Rs.135 mn in 2007/2008). Direct operating expenses incurred by the company amounted to Rs. 7.5 mn (Rs.1 mn in 2007/2008). Fair value of Investment property as at 31 March 2009 amounted to Rs. 4,801 mn.

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

Cost/Carrying value As at 1 April 2008 Acquired / Incurred during the period Retired / Disposed during the period Discontinued Operation As at 31 March 2009 Accumulated amortisation/impairment As at 1 April 2008 Amortisation for the year Exchange traslation difference As at 31 March 2009 Net book value As at 1 April 2008 As at 31 March 2009

445,807

16,708

55,153 98

445,807

16,708

55,251

517,668 98 517,766

8,725

3,342 3,342 6,684

8,725

7,053 6,960 (3,147) 10,866

19,120 10,302 (3,147) 26,275

437,082 437,082

13,366 10,024

48,100 44,385

498,548 491,491

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


4 Intangible Assets contd. (a) Goodwill Goodwill represents the excess of an acquisition over the companys 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 has been allocated to four cash-generating units, for impairment testing as follows: 1. 2. 3. 4. Kegalle Plantations PLC Namunukula Plantations PLC Maskeliya Plantations PLC Arpico Super Center 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 four operating licenses separately acquired, 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 and to evaluate future investment proposals. Discount rates - Discount rates reflect managements 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.

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5 A

Investments Company investments in subsidiaries


% Holding 31.03.2009 31.03.2008 31.03.2009 No of shares Movement 31.03.2008 31.03.2009 Value Rs.000 Movement 31.03.2008

Quoted investments Richard Pieris Exports PLC (Rs. 60.48 mn) * 81 81 8,959,997 8,959,997 200,555 200,555

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 Global Travel (Pvt) Ltd. RPC Construction (Pvt) Ltd. Arpitech Ltd. Arpimall Development Co (Pvt) Ltd Arpico Interiors (Pvt) Ltd 100 100 100 100 100 100 100 100 100 100 100 24 83 50 100 100 100 100 100 100 100 100 100 100 16 16 4,000,000 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 3,750,000 5,000,000 2,500,000 4,000,000 6,404,500 3,750,000 2 2 500,002 7 2 2 2 600,000 2,000,000 3,500,000 40,000 64,045 550,250 5,000 6,000 20,000 35,000 50,000 25,000 2,308,584 50,000 25,000 590,750 6,000 20,000 35,000 1,717,834 465,750 5,000 40,000 64,045 84,500 98 31 100 98 31 100 100 100 1,500,000 9,140,000 3,361,000 14,022,253 2,500,000 1,500,000 9,140,000 3,361,000 14,022,253 2,500,000 15,000 91,400 35,615 143,479 25,000 15,000 91,400 35,615 143,479 25,000 100 100 100 100 100 100 100 100 100 100 4,000,000 2,700,000 1,700,000 4,000,000 2,900,000 4,000,000 2,700,000 1,700,000 4,000,000 2,900,000 50,000 27,000 17,000 40,000 29,000 50,000 27,000 17,000 40,000 29,000 100 51 92 51 106,673,960 234,598 8,000,000 98,673,960 234,598 812,130 27,110 50,000 762,130 27,110

Provision for fall in value of the investment in Arpico Furniture Ltd. RPC Globel Travel (Pvt) Ltd RPC Construction (Pvt) Ltd Arpitech Ltd Company investments in subsidiaries (40,000) (6,000) (20,000) (35,000) 2,207,584 (6,000) (20,000) (35,000) 529,750 1,677,834 (40,000)

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Notes to the Financial Statements


B Group investments in subsidiaries
% Holding 31.03.2009 31.03.2008 31.03.2009 No of shares movement 31.03.2008 31.03.2009 Value Rs.000 movement 31.03.2008

Investor Richard Pieris Distributors Ltd. Investee Playcraft Lanka (Pvt) Ltd. Arpimall 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 1,870,000 1,870,000 187,000 187,000 66,700,000 66,700,000 667,000 667,000 100 100 76 76 16,000,000 2,200,000 500,000 16,000,000 2,200,000 500,000 160,000 220,000 5,000 160,000 220,000 5,000 36 36 213,756 213,756 2,138 2,138

Investor Richard Pieris Exports PLC Investee Richard Pieris Natural Foams Ltd Playcraft Lanka (Pvt) Ltd. Micro Minerals (Pvt) Ltd. Arpitalian Compact Soles (Pvt) Ltd. Ordinary shares 10% Redeemable Cumulative Preference Shares Arpico USA Arpico Natural Latex Foams (Pvt) Ltd. 44 100 44 44 100 44 11,995,001 4,000,000 11,995,001 4,000,000 119,950 40,000 40,000 119,950 51 36 69 51 36 69 22,560,000 217,750 627,400 22,560,000 217,750 627,400 234,820 2,138 6,274 234,820 2,138 6,274

Investor Richard Pieris Natural Foams Ltd. Investee Arpico Natural Latex Foams (Pvt) Ltd. 56 56 5,000,000 5,000,000 50,000 50,000

Investor Arpico Flexifoam Ltd. Investee Richard Pieirs Distributors Ltd. Arpimall Development Co (Pvt)Ltd 4 12 (4,000,000) (2,500,000) 4,000,000 2,500,000 (25,000) (25,000) 25,000 25,000

Investor Plastishells Ltd. Investee Richard Pieirs Distributors Ltd. Arpimall Development Co (Pvt) Ltd. 4 12 (4,000,000) (2,500,000) 4,000,000 2,500,000 (25,000) (25,000) 25,000 25,000

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Group investments in subsidiaries contd.


% Holding 31.03.2009 31.03.2008 31.03.2009 No of shares Movement 31.03.2008 31.03.2009 Value Rs.000 Movement 31.03.2008

Investor Richard Pieris Plantations (Pvt) Ltd. Investee RPC Management Services (Pvt) Ltd. Exotic Horticulture (Pvt) Ltd. Maskeliya Tea Garden Ltd. RPC Timberline (Pvt) Ltd. Precision Craft (Pvt) Ltd. RPC Plantation Management Services (Pvt) Ltd. 100 100 75 100 100 50 1,000,000 499 2,000 1 24,106,249 (3,750,000) 1,000,000 499 2,000 1 24,106,249 3,750,000 10,000 14,999 20,000 330,000 (465,750) 10,000 14,999 20,000 330,000 465,750

Investor RPC Management Services (Pvt) Ltd. Investee Maskeliya Plantations PLC (Rs. 236 mn) * Kegalle Plantations PLC (Rs.323 mn) * Exotic Horticulture (Pvt) Ltd. RPC Plantation Mangement (Pvt) Ltd. Maskeliya Tea Garden Ltd. RPC Timberline (Pvt) Ltd. Precision Craft (Pvt) Ltd. 64 64 68 100 100 100 100 100 1 17,176,744 (17,015,000) (1,000,000) (24,106,249) (499) (2,000) (1) 17,176,744 17,015,000 1,000,000 24,106,249 499 2,000 1 400,549 (190,974) (10,000) (330,000) (4,999) (20,000) 400,549 190,974 10,000 330,000 4,999 20,000

Investor RPC Plantation Management Services (Pvt) Ltd. Investee Namunukula Plantations PLC (Rs. 209 mn) * Kegalle Plantations PLC (Rs. 323 mn) * 59 68 59 13,950,000 17,015,000 17,015,000 13,950,000 397,163 190,974 190,974 397,163

Investor Kegalle Plantations PLC Investee Richard Pieris Natural Foams Ltd. Hamefa Kegalle (Pvt) Ltd. 17 100 17 100 7,500,000 2,800,000 7,500,000 2,800,000 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) 3,063,562 (555,750) (4,276) (29,167) (50,000) 3,619,312 (555,750) 75,000 14,000 3,702,755

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Notes to the Financial Statements


C Company / Group investments in associates
% Holding 31.03.2009 Company Quoted investments Asian Alliance Insurance PLC (Rs. 184 mn) * Company investments in associates (at cost) Group investments in associates Quoted Investments Investor Richard Pieris Distributors Ltd. Investee Asian Alliance Insurance PLC (Rs. 123 mn)* Unquoted Investments Investor Numunukula 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) 37,407 6,884 136,757 31,039 4,711 35,750 6,368 2,173 101,007 33 33 2,996 2,996 29,960 92,466 29,960 92,466 10 10 2,500,600 2,500,600 25,006 25,006 15 15 3,750,000 3,750,000 37,500 37,500 37,500 37,500 31.03.2008 31.03.2009

No of shares movement 31.03.2008 31.03.2009 Value Rs.000 movement 31.03.2008

Other investements
Investment 31.03.2009 Value Rs.000 movement 31.03.2008

Investor

Richard Pieris and Company PLC

Quoted investments Unquoted investments RPC Management Services (Pvt) Ltd. - Debentures RPC Management Services (Pvt) Ltd. - Debentures RPC Management Services (Pvt) Ltd. - Debentures Richard Pieris Plantations (Pvt.) Ltd . - Debentures Richard Pieris Plantations (Pvt.) Ltd . - Debentures RPC Timber;ine LTD Unquoted investments 65,750 55,000 120,750 (51,912) 55,000 (156,239) (45,000) 120,750 (201,239) 201,239 (120,750) 276,989 45,000 321,989 (321,989) (67,500) (45,000) (46,827) 67,500 45,000 46,827 65,750 51,912

Richard Pieris Plantations (Pvt.) Ltd. Reversal of intra group debentures / adjustments

RPC Management Services (Pvt.) Ltd . - Debentures

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 2009. The value of unquoted investments based on net assets amounted to Rs. 3,521 mn (Rs. 3,825 mn in 2007/2008)

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Richard Pieris and Company PLC Annual Report 2008/2009

Inventories 2008/2009 Rs. 000 Group 2007/2008 Rs. 000 638,403 13,510 162,869 1,613,500 666,259 61,157 18,881 3,174,579 (12,311) 3,162,268 Company 2008/2009 2007/2008 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

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.89.5mn which is recognised under administration expenses. Inventory carried at net realisable value as at 31st March 2009 amounted Rs. 1.46 mn. Inventory with a carrying amount of Rs. 653.3 mn (2008 Rs.527.9mn) are pledged as security for loans obtained, details of which are disclosed in Note 13 to the financial statements. 7 Trade and other receivables 2008/2009 Rs. 000 Trade debtors Less: Allowances for bad and doubtful debts Advances, deposits and prepayments Loans to employees Other debtors 2,062,458 (277,030) 1,785,428 286,023 7,071 473,072 2,551,594 Group 2007/2008 Rs. 000 1,994,475 (144,753) 1,849,722 473,053 8,855 751,560 3,083,190 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 11,614 2,034 50,929 64,577 29,357 2,817 220,208 252,382

Short term investments


Group / Company 2008/2009 No. of shares 54 319,700 10,100 2007/2008 No. of shares 100,000 54 319,700 10,100 2008/2009 Market value Rs. 000 4 7,915 55 7,974 Cost Rs. 000 6 17,720 192 17,918 (9,944) 7,974 2007/2008 Market value Cost Rs. 000 Rs. 000 42,474 8 12,632 432 55,546 38,919 6 17,720 192 56,837 (1,291) 55,546

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

7,974

55,546

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


9 Stated capital 2008/2009 Number of Value of shares shares in 000 Rs. 000 Fully paid ordinary shares at the beginning of the year Bonus issue of 1 for 12 at Rs.40 Balance at the end of the year 2007/2008 Number of Value of shares shares in 000 Rs. 000

128,251 128,251

1,578,475 1,578,475

118,385 9,866 128,251

1,183,856 394,619 1,578,475

10 Capital reserves 2008/2009 Rs. 000 Capital reserve Revaluation reserve Capital redemption reserve fund 122,713 2,375 1,813 126,901 Group 2007/2008 Rs. 000 122,713 2,375 1,813 126,901 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 6,386 2,375 1,813 10,574 6,386 2,375 1,813 10,574

11 Revenue reserves 2008/2009 Rs. 000 A. General reserve 179,443 179,443 1,296,717 1,476,160 Group 2007/2008 Rs. 000 179,443 179,443 1,625,800 1,805,243 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 520,373 520,373 565,019 565,019

B.

Retained profit

12 Foreign currency translation 2008/2009 Rs. 000 At the beginning of the year Exchange translation difference for the year At the end of the year 21,599 10,772 32,371 Group 2007/2008 Rs. 000 23,363 (1,764) 21,599 Company 2008/2009 2007/2008 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

13 Interest bearing loans and borrowing 13.1 Summary 2008/2009 Rs000 At 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 within one year Repayable after one year (13.2) 3,934,763 21,547 551,015 4,507,325 (1,140,492) 3,366,833 (1,062,216) 2,304,617 Group 2007/2008 Rs000 4,783,521 1,743 1,427,273 6,212,537 (2,277,774) 3,934,763 (1,251,601) 2,683,162 Company 2008/2009 2007/2008 Rs000 Rs000 1,946,624 1,651,417 630,000 2,281,417 (334,793) 1,946,624 (482,000) 1,464,624

1,946,624 (435,361) 1,511,263 (437,794) 1,073,469

1,062,216 2,304,617 3,366,833

1,251,601 2,683,162 3,934,763

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

482,000 1,464,624 1,946,624

13.2
Company

Interest bearing loans and borrowings repayable after one year


Lender 2008/2009 Rs000 2007/2008 Rs000 790,000 94,390 120,000 90,000 94,906 157,330 300,000 300,000 200,000 102,890 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 from Sep08 Rs 100 mn per annum Rs. 2.86 mn per month Mortgage over land and building in Knady and Battaramulla. Mortgage over Namunukula Plantations PLC Shares owned by RPC Plantations Management Services (Pvt) Ltd Shares of RPC Plantations Management Services (Pvt) Ltd owned by Richard Pieris & Co., PLC Shares of Kegalle Plantations PLC held by RPC Plantations Management Services (Pvt.) Ltd. Commercial paper Mortgage over Rubber Compounds Mixer owned by Richard Pieris Rubber Compounds Ltd. Mortgage over land and building at Dehiwala Mortgage over land and building at Mattegoda Promissory note for Rs.200mn Corporate Guarantee by Richard Pieris & Co., PLC and Namunukula Plantations PLC Shares owned by RPC Plantations Management Services (Pvt) Ltd Mortgage over machinery and land at Mattegoda Land and building in Negambo Repayment Security

Richard Pieris and Company PLC

Commercial Bank PLC Commercial Bank PLC HSBC HSBC DFCC Bank DFCC Bank NSB Indian Bank Peoples Bank Commercial Bank PLC

580,000 64,385 80,000 45,000 47,794 125,333 300,000 268,750 77,150

Richard Pieris Distributors Ltd.

Arpitech Pvt Ltd. RPC Retail Development Co. Ltd. RPC Timberline (Pvt) Ltd Arpitalian Compact Soles (Pvt) Ltd. Richard Pieris Exports PLC

PABC Bank LOLC Papoose Int. (Pvt) Ltd Hatton National Bank Sampath Bank Hatton National Bank Hatton National Bank Peoples Bank

58,613 253,561 1,585 35,420 195,921 37,089 215,000

69,018 270,000 2,841 11,130 65,943 71,546 8,442 -

Rs. 1.25 mn per month Rs 3.75 mn per month from Dec 08 Rs.41,500 per month US $ 2,500 per month

RPC Management Services (Pvt) Ltd

DFCC Bank DFCC Bank

Mortgage over leasehold land and building, plant amd machinery and stocks at Biyagama. US $ 11,700 per month Primary mortagae over land and buildings at Ekala US $ 306,000 per annum from 2005 - 2009 Mortgage over land and buildings at No.406, Union Place Colombo 02 owned by Richard Pieris & Co., PLC US $ 125,000 per quarter Mortgage over land and buildings at No.406, Union Place Colombo 02 owned by Richard Pieris & Co., PLC US $ 83,333 per quarter Promissory note for US $ 1 mn & Corporate Guarantee by Richard Pieris & Co., PLC Rs.1,406 per month from September - 04 10.2 mn Shares of Maskeliya Plantations PLC owned by RPC Management Services (Pvt) Ltd. Rs.3.772 per month from 2009 March 10.2 mn Shares of Maskeliya Plantations PLC owned by RPC Management Services (Pvt) Ltd.

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Notes to the Financial Statements


13.2
Company

Interest bearing loans and borrowings repayable after one year contd.
Lender 2008/2009 Rs000 2007/2008 Rs000 Repayment Security

Maskeliya Plantations PLC

ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ National Development Bank ADB/ Seylan Bank ADB/ Seylan Bank ADB/ Seylan Bank National Development Bank DFCC Bank Hatton National Bank NDB Investment Bank NDB Bank 7,967 27,790 26,085 4,841 17,358 11,813 45,900 24,396 15,155 26,361 9,644 32,121 30,151 5,542 209 21,441 15,563 198,000 20,665 32,186 Rs. 0.46 mn per month Rs. 0.49 mn per month Primary and secondary mortgage over leasehold rights of 5 estates ADB/ National Development Bank ADB/ Seylan Bank Ltd Hatton National BankADB / NDB ADB / NDB ADB / NDB LOLC 30,317 35,820 42,735 56,313 25,701 99,129 10,221 36,651 41,390 67,021 56,313 25,701 10,600 Pledge over 01 No NANTA 7192T Series Colour Sorter with Bucket Elevator, Feed Hopper, Though Conveyor, Vibrating Conveyor and Standard Assessories of Luckland Estate Rs. 0.53 mn per month Rs 0.46 mn per month $19,930 per month Rs. 0.63 mn monthly Primary mortgage over leasedhold rights of four estates Atale, Etana, Doteloya, Kirklees and further mortgage over Pallegama, Parambe, Weniwella and Yataderiya. Primary mortgage over leasehold rights of 5 estates Rs. 0.14 mn per month Rs. 0.36 mn per month Rs. 0.34 mn per month Rs. 0.06 mn per month Rs. 0.04 mn per month Corporate guarantee by RPC Rs. 0.34 mn per month Rs. 0.31 mn per month Rs. 15 mn per month Securitization of Produce Sales Management Services (Pvt) Ltd. Primary mortgage over leasehold rights of 2 estates 24,353 29,481 Rs. 0.43 mn per month 28,374 34,347 Rs. 0.50 mn per month Tertiary mortgage over leasehold rights of 4 estates and secondary mortgage over lease hold rights of 1 estate 7,209 8,781 Rs. 0.13 mn per month 24,125 29,294 Rs. 0.43 mn per month 18,606 22,741 Rs. 0.35 mn per month Secondary mortgage over leasehold rights of 4 estates and primary mortgage over 1 estate 4,520 5,910 Rs. 0.16 mn per month 7,235 9,352 Rs. 0.18 mn per month Primary mortgage over leasehold rights of 4 estates 8,598 11,926 Rs. 0.28 mn per month

Kegalle Plantations PLC

ADB/ National Development Bank ADB/ National Development Bank

Exotic Horticulture (Pvt) Ltd. Namunukula Plantations PLC

DFCC DFCC Bank ADB/LOLC

104,740 20,532

586 129,078 22,399

Rs. 0.15 mn per month Rs. 2 mn per month Mortgage of 4 estates and undertaking from RPC Plantations Management Services (Pvt.) Ltd.

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13.2
Company

Interest bearing loans and borrowings repayable after one year contd.
Lender 2008/2009 Rs000 2007/2008 Rs000 Repayment Security

ADB/LOLC ADB/LOLC ADB/LOLC Sampath Bank Hatton National Bank NDB Investment Bank Total Term Loans Transferred to Current Liabilities

10,369 8,614 20,430 65,625 120,000 3,366,833 (1,062,216) 2,304,617

11,639 9,659 103,125 4,811 150,000 3,934,763 (1,251,601) 2,683,162

Corporate Guarantee by RPC Plantation Management Services (Pvt) Ltd.

Corporate Guarantee by Richard Pieris and Co., PLC / Mortgage over Stocks and Debtors Absolute ownership of leased assets Securitization of produce sales

14 Net liability to the lessor of SLSPC / JEDB estates and others


Repayable within 1 year Rs.000 Group Gross liability (14.1) Less: finance charges Net liability Transferred to current liabilities Net liability to the lessor of SLSPC/JEDB Gross liability - other lease Less: finance charges Net liability to the other lessors Transferred to current liabilities Total net liability to the lessor Company Gross liability Less: finance charges Net liability Transferred to current liabilities 1,774 (708) 1,066 3,844 (713) 3,131 5,618 (1,421) 4,197 (1,066) 3,131 24,948 23,219 (6,885) 16,334 36,713 (5,483) 31,230 666,202 59,932 (12,368) 47,564 (16,334) 31,230 697,432 19,791 21,908 (10,401) 11,507 59,925 (12,508) 47,417 674,817 81,833 (22,909) 58,924 (11,507) 47,417 722,234 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) 35,674 (27,390) 8,284 142,696 (106,115) 36,581 1,150,298 (512,062) 638,236 1,328,668 (645,567) 683,101 (8,284) Repayable less than 5 years Rs.000 Rs.000 Rs.000 Rs.000 Repayable Total as at 31.03.2009 Repayable within 1 year Repayable less than 5 years Rs.000 Rs.000 Rs.000 Repayable Total as at 31.03.2008 after 1 year after 5 years after 1 year after 5 years

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


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 by Maskeliya Plantations PLC during the year was Rs. 13.9 million based on a GDP deflator of 10.3%. 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 (GDP of 8.5% ) which is determined on the extent of the Rubber. The above agreements were valid for the period from 22nd June 2002 to 21st June 2008. As the above agreements have expired on 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 previous agreement.

15 Deferred income 2008/2009 Rs. 000 Deferred grants and subsidies At beginning of the year Acquision of Hamefa Kegalle (Pvt) Ltd. Grants received during the year Amortised during the year At end of the year Group 2007/2008 Rs. 000

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

317,481 35,903 48,391 (15,632) 386,143

Deferred grants and subsidies Grants and subsidies mainly consists of fundings received by the Plantation sector from the Plantation Housing and Social Welfare Trust and Asian Development Bank for the development of workers facilities such as roofing of line rooms, latrines, water supply and sanitation etc. Further this includes a C.T.C. Machinery subsidy which represents the funds received from Sri Lanka Tea Board in relation to C.T.C. project at Poonagalla Estate and also a rebate received from Ceylon Electricity Board on procurement of generators. The Grants and subsidies are recognised in the income statement as disclosed under note 2.5.2.

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16 Deferred tax liability / (assets) 2008/2009 Rs. 000 At beginning of the year Transfer from / (to) income statement At end of the year (2,309) 24,113 21,804 Group 2007/2008 Rs. 000 36,270 (38,579) (2,309) Company 2008/2009 2007/2008 Rs. 000 Rs. 000 (36,953) (36,953) (31,683) (5,270) (36,953)

Deferred tax assets, liabilities related to the following: Group 2008/2009 2007/2008 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) Company 2008/2009 2007/2008 Rs. 000 Rs. 000

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

288,760 288,760 (100,516) (172,068) (18,485) (291,069) (2,309)

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

21,122 21,122 (12,700) (45,375) (58,075) (36,953)

17 Employee benefit liabilities 2008/2009 Rs. 000 At beginning of the year Provision for the year Payments Transfers At end of the year 1,037,650 203,845 (138,273) 1,103,222 Group 2007/2008 Rs. 000 871,716 279,265 (107,887) (5,444) 1,037,650 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 39,726 7,061 (1,673) 45,114 31,337 10,797 (2,408) 39,726

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Notes to the Financial Statements


17 Employee benefit liabilities contd. Actuarial valuation of the defined benefit plan / gratuity was carried out on 31st March 2009 by Messrs. Actuarial & Management Consultants (Pvt) Ltd, Actuaries. In respect of plantation companies last such valuation was carried out by the same party as at 31st March 2008. Appropriate and compatible assumptions were used in determining the cost of retirement benefits. The principal assumptions used are as follows: Assumptions 2008/2009 Rs. 000 2007/2008 Rs. 000

a) Demographic assumptions 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 Rate of interest net of tax per annum Rate of salary increment Rate of discount

60 years 55 years

60 years 55 years

60 years 60 years

60 years 60 years

12% 8.5% 12%

10% 10% 10%

In respect of plantation companies, Rate of salary increment: Workers Staff employees

11% every two years 20% every three years

18 Trade and other payables 2008/2009 Rs. 000 Trade payables Accrued expenses Others 1,289,600 538,479 296,525 2,124,604 Group 2007/2008 Rs. 000 1,370,909 667,527 217,563 2,255,999 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 208,940 208,940 256,157 598 256,755

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19 Short term borrowings 2008/2009 Rs. 000 Commercial papers (a) Import loans (b) Other short term borrowings ( c) Bank overdrafts (d) 500,000 69,940 2,269,597 1,622,674 4,462,211 Group 2007/2008 Rs. 000 599,869 100,321 2,426,768 1,294,769 4,421,727 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 450,000 1,790,000 215,535 2,455,535 499,869 2,042,401 311,039 2,853,309

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

20 Dividends Company 2008/2009 2007/2008 Rs. 000 Rs. 000 Final dividend - 2006/2007 - Rs.0.5 per share paid during 2007/2008 59,193 59,193

Above dividends were satisfied out of dividends received from subsidiaries and associates and will be free of income tax in the hands of the shareholders.

21 Cash and cash equivalents 2008/2009 Rs. 000 Cash at bank and in hand Treasury bills Short term borrowings (Note 19) 430,777 590,090 1,020,867 (4,462,211) (3,441,344) Group 2007/2008 Rs. 000 386,142 198,165 584,307 (4,421,727) (3,837,420) Company 2008/2009 2007/2008 Rs. 000 Rs. 000 1,348,037 1,348,037 (2,455,535) (1,107,498) 1,917,886 1,917,886 (2,853,309) (935,423)

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Notes to the Financial Statements


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

Year ended March 31 2009 Turnover External sales Inter segment sales Intra segment sales Net turnover Results Segment results

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

2,699,769 275,442 1,592,617 4,567,828

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

101,839 601,866 434 704,139

5,220,152 540,530 178,333 5,939,015

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

20,818,036 20,818,036

(5,589)

235,217

171,904

472,554

146,952

555,233

(225,794)

1,350,476 1,350,476 (1,400,426) 41,015 (8,935) (180,411) (189,346) (115,682) (305,028) (24,055) (329,083)

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 interest 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

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

(9,592,666) (139,703)

16,787,339 136,758 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 Segmental cash flow Operating Investing Financing Geographical segment

19,317 88,091

4,723 45,641

89,449 43,835

67,171 115,537

54,113 45,374

495,528 257,902

730,301 596,380

(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

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

Rs. 000 Net turnover 21,893,529

Rs. 000 313,555

Rs. 000 870,538

Rs. 000 -

Inter/Intra segment eliminations Rs. 000 Rs. 000 601,171 (2,860,757)

Rs. 000 20,818,036

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Richard Pieris and Company PLC Annual Report 2008/2009

Business segment

Rubber

Tyre

Plastics

Retail

Services

Plantations

Year ended March 31 2008 Turnover External sales Inter segment sales Intra segment sales Net turnover Results Segment results

Rs. 000

Rs. 000

Rs. 000

Rs. 000

Rs. 000

Inter/Intra segment eliminations Rs. 000 Rs. 000

Group

Rs. 000

1,984,122 145,745 42,801 2,172,668

1,811,770 178,812 758,019 2,748,601

2,052,991 230,769 1,884,750 4,168,510

8,071,760 662 99,495 8,171,917

220,950 974,536 1,195,486

6,000,998 533,734 299,630 6,834,362

(2,064,258) (3,084,695) (5,148,953)

20,142,591 20,142,591

4,263

156,985

234,170

418,035

328,072

1,182,053

(277,648)

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 interest 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

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

2,442,930 119,950

1,602,924

2,230,886

5,652,165 25,006

6,444,958 101,545

9,377,375 29,960

(10,044,916) (175,454)

17,706,322 101,007 17,807,329

234,658 45,562 768,387

39,948 85,392 695,387

712,967 (12,315) 49,798 789,399

306,212 85,525 (49,798) 1,629,795

386,550 40,551 3,101,653

1,317,402 1,225,954 1,458,901

286 (27,335) -

2,998,023 1,443,334 8,443,522 12,884,879

Other information Capital expenditure Depreciation Amortisation / impairment of intangible assets Segmental cash flow Operating Investing Financing Geographical segment

33,322 83,724 6,942

5,158 47,690 -

293,384 24,378 -

413,485 104,655 12,067

199,319 61,749 -

568,515 233,402 -

1,513,183 555,598 19,009

173,352 (118,285) 183,209

(50,241) (5,107) (37,210) Sri Lanka

28,907 (276,868) 104,019 USA

(372,315) 952,062 (455,345) Europe

(254,308) (133,603) 448,774 Japan

940,336 (573,196) (326,108) Other

(35,841) 474,676 (866,637)

429,890 319,679 (949,298) Group

Rs. 000 Turnover 21,407,867

Rs. 000 243,065

Rs. 000 889,166

Rs. 000 16,186

Inter/Intra segment eliminations Rs. 000 Rs. 000 671,002 (3,084,695)

Rs. 000 20,142,591

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


23 Other operating income Group 2008/2009 2007/2008 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 Dividends from third parties Gain on government acquisition of estate land Other gain 215,096 21,128 17,479 38,451 11,572 82,104 117,288 6,500 509,618 8,651 15,632 10,038 27,444 80,218 132,815 41,006 5,046 9,690 330,540 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 213,306 213,306

24 Other operating expenses 2008/2009 Rs. 000 Impairment losses on goodwill VAT on management fees of plantation companies Others 29,007 15,842 44,849 Group 2007/2008 Rs. 000 14,767 40,364 32,666 87,797 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 -

25 Profits from operations is stated after charging / (crediting) Group 2008/2009 2007/2008 Rs. 000 Rs. 000 Directors fees Directors emoluments Auditors remuneration Depreciation Amortisation of leasedhold property Provision for retiring gratuity Staff costs including EPF/ETF contributions Legal fees Donations Amortisation of intangible assets Impairment losses (included in Administrative expenses) Provision for bad and doubtful debts and bad debts written off 5,663 50,386 14,159 572,242 24,138 203,845 3,393,549 5,419 961 6,863 29,442 132,276 2,697 46,771 13,707 530,881 24,717 279,265 3,353,960 4,947 1,449 10,284 36,999

Company 2008/2009 2007/2008 Rs. 000 Rs. 000 2,325 23,090 600 24,247 7,061 54,650 499 83 2,697 22,552 600 34,617 10,797 30,330 308 287 -

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Richard Pieris and Company PLC Annual Report 2008/2009

26 Finance cost 2008/2009 Rs. 000 Interest on long term loans Interest on short term loans 540,209 860,217 1,400,426 Group 2007/2008 Rs. 000 778,338 694,291 1,472,629 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 143,851 175,818 319,669 33,993 79,316 113,309

27 Share of results of associates Group 2008/2009 2007/2008 Rs. 000 Rs. 000 Turnover Profit before tax Groups share of profit before tax 2,108,163 173,178 41,015 1,885,773 119,535 27,969

Total assets and total liabilities of the associates amounts to Rs.2,467mn (2007/2008 Rs.2,256mn) and Rs.1,925mn (2007/2008 Rs.1,889mn) respectively. The Group can influence upto 33.33% of the voting rights of the AEN Palm Oil with the effective control of 19.58%.

28 Income tax expense 28.1 Taxation on current year profit 2008/2009 Rs. 000 Richard Pieris and Company PLC Subsidiaries ESC unrecoverable Associates Dividend tax Deferred taxation (Note 28.3) (3,185) 137,269 134,084 (6,949) (1,065) 30,228 24,113 180,411 Group 2007/2008 Rs. 000 80,790 80,790 285 34,782 (38,579) 77,278 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 (3,185) (3,185) (3,185) (5,270) (5,270)

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


28.2 Reconciliation of accounting profit to income tax expense of the company and its subsidiaries Group Company 2008/2009 2007/2008 2008/2009 2007/2008 Rs. 000 Rs. 000 Rs. 000 Rs. 000 (8,935) (115,682) 41,015 (83,602) 1,437,427 (1,517,565) (331,358) 282,039 (213,059) (2,256,283) 2,862,716 393,375 119,920 9,355 3,094 1,671 1,881 135,921 (1,837) 134,084 (6,949) (1,065) 30,228 24,113 180,411 324,270 (201,425) (27,969) 94,876 1,481,877 (1,181,460) (630,987) 299,833 64,139 (1,061,924) 1,374,637 376,852 54,853 18,448 15,884 1,418 681 91,284 (10,494) 80,790 285 34,782 (38,579) 77,278 (47,831) (47,831) 197,351 (482,146) (332,626) (135,738) 468,364 (3,185) (3,185) (3,185) 26,521 26,521 336,266 (364,316) (1,529) 1,529 (5,270) (5,270)

Profit/(loss) before tax from continuing operations Profit before tax from discontinued operations Profit from associate companies Disallowed items Allowable expenses Tax exempt income Losses of tax exempt companies

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 Responiblity Levy (1.5%) (Over) / under provision in the previous year ESC unrecoverable Associates Dividend tax Deferred tax Total income tax expense/(reversal)

28.3

Deferred tax expenses / (reversal) 2008/2009 Rs. 000 Group 2007/2008 Rs. 000 29,442 (7,961) (54,135) (5,925) (38,579) Company 2008/2009 2007/2008 Rs. 000 Rs. 000 11,238 (3,090) (8,148) (2,936) (1,733) (601) (5,270)

Accelerated depreciation for tax purpose Retirement benefit obligations Benefit arising from tax losses Others Total deferred tax (reversal) / charge

22,531 (5,498) 19,089 (12,009) 24,113

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.

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Richard Pieris and Company PLC Annual Report 2008/2009

28.4 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%. 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 and income is liable to tax at 35%. Further 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.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 assesment 2009/10.The Company will be liable to tax at 10% for a period of 2 years immediatly succeeding the last day of said exemption period and thereafter it will be laible 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 comencing from the year of assesment 2009/10. In terms of an agreement entered in to with the Board of Investments of Sri Lanka under th BOI Law NO.04 OF 1978, the export profit of Arpico Natural Latex Foams (Private) Limited will be exempt from tax for a period of five years commencing from the year of assessment 2004/2005. After the expiry of the tax holiday the company will be liable to income tax at 10% for two years and at 15% 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. Arpimalls Development Company (Pvt) Ltd, which was liable to income tax at 15% up to the Year of Assessment 2007/08, is liable at 35% from the Year of Assessment 2008/09. Kegalle Plantations Limited, Maskeliya Plantations Limited and Namunukula Plantations Limited 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. 28.5 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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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


29 Discontinued operation During the year the group continued to focus on its core business operations and restructure or exist from marginal businesses with limited potential. Accordingly operations of three businesses with incurring hevy losses were discontinued during the year namely, Arpico Homes Limited,Arpitech (Private) Limited,R P C Global Travels (Private) Limited. The results of discontinued operations are given below. 2008/2009 Rs. 000 Revenue Cost of sales Gross Profit Other Income Expenses Loss from discontinued operations Finance cost Loss before tax from discontinued operations Gain on disposal of subsidiaries Loss adjustment of fire claim Taxation Loss for the year from discontinued operations Earnings per share - Basic / diluted 452,254 (470,187) (17,933) 672 (48,516) (65,777) (49,905) (115,682) (115,682) (0.90) 2007/2008 Rs. 000 512,486 (392,984) 119,502 2,398 (218,111) (96,211) (63,384) (159,595) 27,676 (69,506) (1,791) (203,216) (1.58)

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: 2008/2009 Rs. 000 Net cash flows from operating activities Net cash flows from investing activities (34,607) (15,265) 2007/2008 Rs. 000 222,947 (141,609)

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 operations. The aggregated amount of assets and liabilities of such companies as at 31March 2009 are as follows. Total assets Rs. 374 mn Total liabilities Rs. 693 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

30 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 oustanding 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 2007/2008 (11,861) (203,216) (215,077)

2008/2009 Profit / (loss) attributable to equity holders of the parent from continuing operations Loss attributable to equity holders of the parent from a discontinued operation Net profit / (loss) attributable to equity holders of the parent Weighted average number of ordinary shares (adjusted for bonus issue) applicable to basic / diluted earnings / (loss) per share Earnings / (Loss) per share - basic / diluted (Rs.) Earnings / (Loss) per share from continuing operations - basic / diluted (Rs.) 213,402 (115,681) (329,083)

128,251,023 (2.57) (1.66)

128,251,023 (1.68) (0.09)

31 Contingent liabilities The contingent liabilities as at 31st March 2009 on corporate gurantee issued by the Company on loans obtained by subsidiary Companies has been inreased from Rs. 163 mn to Rs. 441 mn. Guarantees given by subsidiaries on loans obtained amounted to Rs. 281 mn. Following a strike at Richard Pieris Exports PLC a subsidiary of the group,which was considered as unjustifiable, the services of 160 workers were terminated on 28th December 2007.Since negotiations failed, the matter has been referred to arbitration by Minister of Labour. The maximun amount demanded by the union on behalf of the workers is Rs. 136 Mn, which demand the Company has opposed. Namunukula Plantations PLC, a subsidiary of the Group sub leased six (6) estates to Tusker Bottling Ltd. 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 sub-lessee; Tusker Bottling Ltd failed to pay which is estimated at Rs. 72 mn.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


31 Contingent liabilities contd. There are more than 29 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 correct party.

32 Capital commitments The capital commitments for property, plant and equipment incidental to the ordinary course of business as at 31st March 2009, approved by the Board were as follows: Group 2007/2008 Rs. 000 41,596 165,771 207,367 Company 2008/2009 2007/2008 Rs. 000 Rs. 000 4,557 4,557

2008/2009 Rs. 000 Contracted but not provided for Approved but not contracted for 159,052 159,052

33 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 this scheme 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.

34 Post Balance Sheet Events There have been no material events occurring after the Balance Sheet date that require adjustments or disclosure in the Financial Statements other than that the liquidator of the Tusker Bottling Co. (Pvt) Ltd, to which 06 estates in the Uva region had been subleased by Namunukula Plantations PLC, which is a subsidiary of the Group, has sought leave of the court to disclaim the said assets of the said Company on the basis that these are onerous property under the section 377 of the Companies Act No. 07 of 2007.

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Richard Pieris and Company PLC Annual Report 2008/2009

35 Related party disclosures 35.1 Transaction with related entities 2008/2009 Rs.000 Group 2007/2008 Rs.000 Company 2009/2008 2007/2008 Rs.000 Rs.000

Nature of transactions

35.1.1 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 35.1.2 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 Loan received Loans paid Interest and settlement for rubber logs Project expenses received Others 35.1.3 Significant investors Dividends paid

2,119,524 372,032 123,720 21,186 434,511 225,794 124,157 617,310 16,289 108,858

2,643,439 319,329 152,401 20,858 987,672 277,648 135,153 747,689 82,844 145,285

53,655 16,482 81,344 258,517 2,536

56,656 2,050 79,501 216,392 544 8,000 6,125 5,264 1,181

24,494 -

21,554 -

15,890

15,890

35.1.4 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. 35.1.5 Off balance sheet items Guarantees given by the Company to banks on behalf of related parties are disclosed in Note 05 to the financial statements.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes to the Financial Statements


35.2 Transactions with key management personnel of the company or its parent The Key Management Personnel are the members of the Board of Directors of Richard Pieris and Company PLC and its subsidiary companies.
a) Key management personnel compensation 2008/2009 Rs.000 Short-term employee benefits 56,049 Group 2007/2008 Rs.000 49,468 Company 2008/2009 2007/2008 Rs.000 Rs.000 25,415 25,249

b)

Other transactions with key management personnel

Richard Pieris and Company carries out transactions with Key Management Personnel and thier close family members on an arms length basis except any concessions which have been availed under concessionery 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: 2008/2009 2007/2008 No. of Shares No. of Shares Options granted and obtained under ESOP-1 Cumulative options granted and obtained under ESOP-2 2,645,501 6,235,042 2,645,501 6,235,042

35.3 Other related party disclosures: (a) Legal fees amounting to Rs. 0.268 mn (2008 Rs. 1.1 mn) by the company and Rs. 2.5 mn (2008 Rs. 2.1 mn) by the group was paid to an entity in which a Key Management personnel was a partner.

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Richard Pieris and Company PLC Annual Report 2008/2009

Group Real Estate Portfolio


Freehold Land and Buildings Location Land Perches Building in (Sq.Ft) Market Value in Rsmn Richard Pieris and Co. PLC RPC Real Estate Co. Ltd Arpico Industrial Dev Co (Pvt) Ltd. Richard Pieris Distributors Ltd. Hyde Park Corner Maharagama Kandy Mattegoda Maharagama. Moratuwa. Mulleriyawa. RPC Retail Development (Pvt) Ltd. Negombo Kelaniya Wattala 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 Leasehold Land and Buildings Owning Company (A) Leasehold Land of Plantations Maskeliya Plantations PLC Kegalle Plantations PLC Namunukula Plantations PLC (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 1,392 851 750 758 252 432 540 2,980 2,980 60,000 23,660 80,980 4,917 27,530 28,347 30,690 10,561 9,773 11,775 7,112,890 3,507,810 3,026,546 Location Land in Hec Dehiwala. Battaramulla. Mattegoda Dambulla Mattegoda Ja-Ela Bandaragama Kurunagala Maharagama 714 1,498 152 1,482 194 85 192 226 102 100 163 112 342 284 1,136 640 320 450 80 59,352 317,958 33,170 224,972 42,374 45,000 54,000 45,000 29,534 7,520 36,300 16,500 26,015 9,800 3,501 1,300 633 432 212 102 10 396 88 122 626 395 104 15 284 120 15 40 86 8,481 Building in (Sq.Ft)

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Richard Pieris and Company PLC Annual Report 2008/2009

Ten Year Summary


2008/2009 Rs. 000 TRADING RESULTS Net Turnover Profit from operations Loss on disposal of investment Finance cost Profit/(loss) from operations after finance cost Provision for doubtful debt Income from associates before tax Profit/(loss) before tax from continuing operations Income tax expense Profit/(loss) for the year from continuing operations Profit/(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 10,167,170 491,491 136,757 6,128,679 16,924,097 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 1,380,908 2,304,617 499,951 1,103,222 697,432 7,724,060 16,924,097 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 (%) 0.96 0.79 59.80 1.20 0.88 61.49 25.06 (10.24) 27.54 (6.09) (2.57) 25.00 (1.68) 39.00 2.39 65.00 27.20 32.17 8.05 0.50 4.78 1.86 0.77 63.03 1,578,475 1,603,061 32,371 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 1,183,856 2,601,033 23,363 1,197,663 2,968,288 353,751 871,716 713,741 7,769,670 17,683,081 10,125,468 500,857 101,007 7,079,997 17,807,329 9,433,193 500,816 1,765,956 5,983,116 17,683,081 41,015 (8,935) (180,411) (189,346) (115,682) (305,028) 24,055 (329,083) 27,969 324,270 (77,278) 246,992 (203,216) 43,776 (258,853) (215,077) 11,646 772,333 (92,231) 680,102 (165,527) 514,575 (208,180) 306,395 59,193 (1,400,426) (49,950) 20,818,036 1,350,476 20,142,591 2,045,930 (277,000) (1,472,629) 296,301 (879,601) 760,687 15,627,638 1,640,288 2007/2008 Rs. 000 2006/2007 Rs. 000

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Richard Pieris and Company PLC Annual Report 2008/2009

2005/2006 Rs. 000

2004/2005 Rs. 000

2003/2004 Rs. 000

2002/2003 Rs. 000

2001/2002 Rs. 000

2000/2001 Rs. 000

1999/2000 Rs. 000

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) 377,949 193,647 571,596 (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)

2,540,268 302,549 (134,086) 168,463 93,471 261,934 (28,873)

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

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

499,858 (19,194) 480,664 177,403

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

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

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

233,061 (2,552) 230,509 53,760

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 1,045,532 1,338,614 4,379,519

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

1,518,119 104,829 886,348 1,139,932 3,649,228

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 2,714,784 8,940,524

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 10,416 196,476 564,626 116,284 123,719 1,308,757 4,379,519

232,295 1,776,006 2,561 (38,793) 292,438 441,642 71,666 90,992 1,233,518 4,102,325

199,110 1,692,025 (52,097) 284,957 476,417 63,376 69,347 916,093 3,649,228

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

1.96 55.00 5.54 31.31 13.17 2.70 4.29 2.95 1.24 28.18

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Richard Pieris and Company PLC Annual Report 2008/2009

Shareholder Information
The ordinay shares of the Company are listed in the Colombo Stock Exchange. The audited Income Statement for the year ended March 31, 2009 and the audited Balance Sheet of the Company as at date will be submitted to the Colombo Stock Exchange within three months of the Balance Sheet Date. As at the finacial year ended 31st March Distribution of Shareholders
Range of shareholding No of share holders as at 31/03/2009 1 500 501 5,000 5,001 10,000 10,001 20,000 20,001 30,000 30,001 40,000 40,001 50,000 50,001 100,000 100,001 1,000,000 1,000,001 & above 1,470 1,088 149 96 39 21 20 49 30 12 2,974 210,913 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% No of shares % of Shareholding No of share holders as at 31/03/2008 1,369 1,116 147 85 39 23 15 47 32 12 2,885 210,248 1,759,668 1,026,779 1,174,319 945,011 788,155 657,706 3,140,318 9,701,704 108,847,115 128,251,023 0.16% 1.37% 0.80% 0.92% 0.74% 0.61% 0.51% 2.45% 7.56% 84.87% 100.00% No of shares % of Shareholding

As at the finacial year ended 31st March Composition of Shareholders


Category No of share holders as at 31/03/2009 Institutional Investors Individual Investors Total Resident shareholders Non-resident shareholders Total 230 2,744 2,974 2,884 90 2,974 107,888,659 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% No of shares % of Shareholding No of share holders as at 31/03/2008 235 2,650 2,885 2,797 88 2,885 107,486,945 20,764,078 128,251,023 34,817,774 93,433,249 128,251,023 83.81% 16.19% 100.00% 27.15% 72.85% 100.00% No of shares % of Shareholding

Public share holding as at March 31,2009 is 44.86% (31.03.2008 Restated - 44.34%)

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Richard Pieris and Company PLC Annual Report 2008/2009

Market Activity Highest Price (Rs) Lowest Price (Rs) Year End Price (Rs) No of Transactions No of shares traded Share turnover (Rs)

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-08

2007/08 70.00 35.50 39.00 3,953 3,968,100 170,362,975

Date 5-Apr-07 13-Nov-07 31-Mar-08

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 Asia Capital PLC Rockport Limited National Savings Bank Mr. H. A. Pieris Mr M.D. Rutnam The Executor of the Estate of Mrs L.B. S. Pieris Miss L. A. Pieris Bank of New York- Bear Stearns Securities Corporation Mr. R.J.D Ferdinands Kalday (Pvt) Ltd. Mrs E De Mel Mrs. S. Wambeek Mr R. C. Pieris Mr. C. M. Fernando Employees Trust Fund Board Mrs.I. Issadeen

31/03/2009 34,425,906 21,129,008 15,025,038 11,629,800 7,602,328 6,633,791 4,933,825 1,841,701 1,717,300 1,518,803 1,463,778 976,900 893,826 841,867 818,202 726,275 518,752 448,638 408,633 342,944 113,897,315

% 26.84% 16.47% 11.72% 9.07% 5.93% 5.17% 3.85% 1.44% 1.34% 1.18% 1.14% 0.76% 0.70% 0.66% 0.64% 0.57% 0.40% 0.35% 0.32% 0.27% 88.81%

31/03/2008 34,425,906 21,129,008 11,629,800 7,559,328 6,633,791 4,933,825 1,841,701 1,717,300 1,518,803 1,823,078 929,826 841,867 818,202 518,752 470,638 408,633 97,200,458

% 26.84% 16.47% 9.07% 5.89% 5.17% 3.85% 1.44% 1.34% 1.18% 1.42% 0.73% 0.66% 0.64% 0.40% 0.37% 0.32% 75.79%

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

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

No. of shares as at 31st March 2008 86,064 24,500

1 2 3 4 5 6

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

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Richard Pieris and Company PLC Annual Report 2008/2009

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. Earnings Yield Current Ratio Current Assets divided by Current Liabilities. A measure of short term liquidity. Effective Tax Rate Debt to Equity Ratio Long term Interest Bearing Borrowings divided by Net Assets. Gearing Ratio 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. Market Capitalization Number of shares in issue multiplied by the market value of a share at the reported date. Revenue Reserves Reserves considered as being available for distributions. Interest Cover Profit Before Tax (PBT) plus net finance cost divided by net finance cost. Measure of entitys 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. Return on Equity Profit after Tax less preference share dividend if any, expressed as a percentage of Ordinary shareholders fund. Return on Total Capital Employed Profit before Tax plus net finance cost divided by average total capital employed. Gross Dividend Portion of profits inclusive of tax withheld, distributed to shareholders during the year. Related Parties Parties who could control or significantly influence the financial and operating policies of the business. Proportion of total interest bearing liabilities to total capital employed. Price to Book Value Market price of a share divided by Net Assts per share. Income Tax expenses divided by profit before tax. Price Earnings Ratio Market Price of a share divided by Earnings per share as reported at that date. Earnings per Share as a percentage of the year end market price per share. Net Assets per Share Shareholders fund divided by weighted average number of Ordinary shares in issue. A basis of relative share valuation. Earnings Per Share (EPS) Profits attributable to ordinary shareholders divided by the weighted average number of Ordinary shares in issue. Minority Interest An outside ownership interest in a subsidiary that is consolidated with the parent for financial reporting purposes.

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Richard Pieris and Company PLC Annual Report 2008/2009

Recession Reduction of a countrys 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. Toxic Assets Assets that are worth much less than their stated value on the Balance Sheet and in which there is no reliable able method to value the assets in order to write them down to fair market value.

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 day-to-day operations computed as the excess of current assets over current liabilities.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notice of Meeting
NOTICE IS HEREBY GIVEN that the Seventieth 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 Friday, 31st July 2009 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 2009 with the Report of the Auditors thereon. 2. 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 To consider any other business of 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 81 years of age be and is hereby appointed a Director of the Company in terms of section 211 of the Companies Act No. 16th June 2009 No. 310, High Level Road, Nawinna, Maharagama Richard Pieris Group Services (Private) Limited Secretaries By Order of the Board which due notice has been given. 5. To authorize the Directors to determine contributions to charities 4. To re -appoint M/s. Ernst & Young, Chartered Accountants as Auditors of the Company and to authorize the Directors to determine their remuneration. 3. To re-elect Mr. James Henry Paul Ratnayeke who retires by rotation in terms of Article 85 at the Annual General Meeting, a Director c) 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. 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 b) A proxy need not be a member of the Company. The form of proxy will be found inserted in the Annual Report 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.

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes

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Richard Pieris and Company PLC Annual Report 2008/2009

Notes

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Richard Pieris and Company PLC Annual Report 2008/2009

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 DR. SUSANTHA DEDDUWA PATHIRANA whom failing MORARJI MEGHJI UDESHI* as my/our proxy to represent me/us and to vote on my/our behalf at the SEVENTIETH ANNUAL GENERAL MEETING of the Company to be held on 31st July 2009 and any adjournment thereof, and at every poll which may be taken in consequence thereof to vote:-

In favour 1. To consider the Report of the Directors and the Statement of Accounts for the year ended 31st March 2009 with the Report of the Auditors thereon. 2. To approve under and in terms of Section 211 of the Companies Act N0. 07 of 2007, the appointment of Mr. Morarji Meghji Udeshi at this Annual General Meeting, a Director 3. To re-elect Mr. Paul Ratnayeke, who retires by rotation in terms of Article 85 at the Annual General Meeting, a Director 4. To re-appoint M/s Ernst & Young, Chartered Accountants as Auditors of the Company and to authorise the Directors to determine their remuneration. 5. 6. To authorize the Directors to determine contributions to charities To consider any other business of which due notice has been given

Against

Dated this . day of 2009

. Signature of shareholder Notes: (i) (ii) (iii) Please delete the inappropriate words A proxy need not be a member of the Company. Instructions as to completion appear on the reverse of this form.

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Richard Pieris and Company PLC Annual Report 2008/2009

Form of Proxy

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 Wednesday, 29th July 2009. 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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