Cargills (Ceylon) PLC

The year 2010/11 was a year of unprecedented investment for Cargills (Ceylon) PLC. We accelerated the expansion of our flagship supermarket chain while continuing to build on our strength in the food manufacturing sector. We entered new product categories and invested in people and in technology to harness this expansion. We redefined our place in the dairy sector acquiring a brand with a distinct identity that is synonymous with the industry. Through these investments we will connect our brands with millions of consumers to improve quality of life. Our investments will continue to help farmers and communities succeed, and our stakeholders enjoy sustainable returns. In the year 2011/12 and beyond our commitment towards Investing for Growth remains steadfast.

Contents

Our businesses 2 - 3 Financial highlights 4 - 5 Profile of Directors 6 Chairman’s statement 7 - 11 Corporate governance 12 - 16 Audit & Remuneration Committee reports 17 Risk management 18-19 Sustainability report 20 - 26 Financial information 27 - 66 Statement of value added 67 Five year financial summary 68 Group real estate portfolio 69 Investor relations supplement 70 - 71 Notice of Annual General Meeting 72 The proxy form is on page 73 2 Annual Report 2011

Our businesses

Cargills (Ceylon) PLC

Cargills is Sri Lanka’s largest modern retailer with more than 50% of the modern trade market share. Its pioneer venture into modern trade was an innovation of the Company’s trading legacy. Thereafter Cargills Food City continued to challenge the norm by taking to the masses what was traditionally an affluent focused business and offering ‘higher value for the lowest price’.

Today the Cargills retail operation has grown to 163 outlets spread across the 25 districts, as ‘Cargills Food City’ supermarkets, ‘Cargills Express’ convenience stores and Cargills ‘Big City’ hypermarket. In its short span of operation of 28 years, Cargills Food City has been consistently rated among the most valuable brands in Sri Lanka as per the Brand Finance Index rating.

The Company is also in the business of food manufacturing, restaurant and distribution through its subsidiaries given below.

Cargills Quality Dairies (Private) Limited

Magic is the number one dairy ice cream in Sri Lanka and is a strong number two player in the overall ice cream market. Cargills Quality Dairies which produces Cargills Magic ice cream, Milk and Milk Shakes is the first and only dairy product manufacturing Company in Sri Lanka to be accredited with all three ISO certifications; ISO 9001: 2000 Quality Management System certification, ISO 22000: 2005 Food Safety Management System certification and ISO 14001: 2004 Environment Management System certification. Cargills Magic was the first to introduce fresh fruits and local flavours to its portfolio of ice creams creating a new trend in the overall ice cream industry. Through its innovation driven focus Cargills Magic has expanded its market share exponentially and is now the fastest growing ice cream brand in Sri Lanka.

Cargills Agrifoods Limited

Kist is one of the most trusted brand names in Sri Lanka known by generations for its true Sri Lankan flavours and high standards of quality. Cargills Kist which is traditionally renowned for its delectable selection of jams, sauces and cordials has expanded its 100% fruit based product range introducing fruit based nectars to the market. Today the nutritious and delicious Kist nectar range has revolutionized the industry and is popular for its genuine fruity taste.

Cargills Quality Foods Limited

The processed meats range consists of Cargills Supremo catering to mass market demand, Cargillls Finest a premium deli range and traditional favorites ‘Goldi’ and ‘Sams’. Cargills is rapidly gaining market share in this category through its product innovation, quality and unique taste. Cargills Quality Foods is the only meat processing plant in Sri Lanka that has secured the ISO 9001: 2000 Quality Annual Report 2011 3

Our businesses contd...

Management System certification, ISO 22000: 2005 Food Safety Management System certification and ISO 14001: 2004 Environment Management System certification. The Company has also engaged international expertise to develop new and innovative products which offer a novel variety of taste whilst catering to the nutritional needs of the consumer.

Cargills Food Processors (Private) Limited

The Company holds the franchise for the internationally acclaimed KFC chain which is the largest and most popular international restaurant chain in the country. The success of KFC was in the fusion of an international brand with well - loved Sri Lankan recipes. The locally inspired additions to the KFC menu have now been included into the regional product portfolio.

Kotmale Holdings PLC

Kotmale is a leading brand in the dairy sector known for highest quality products at a reasonable price having entered the market three decades ago. The Brand is synonymous with locally produced cheese and has won mass appeal for its delicious range of dairy ice cream as well as pasteurized milk, yoghurt, fresh cream, ghee, curd and fruit drinks. Established in 1967 as Lambretta (Ceylon) Ltd, its beginnings are traced back to the cool surroundings of Bogahawatte, Patana (Upper Kotmale). Kotmale Holdings PLC was acquired by the Cargills Group in 2010.

Diana Biscuits Manufactures (Private) Limited

Diana Biscuits Manufactures (Private) Limited is engaged in the manufacturing, distribution and marketing of biscuits and confectionaries under the Brand name ‘Helan’. The Company was a family owned business established in 2006 and acquired by Cargills in 2010 and manufactures soft & hard dough biscuits & wafers. The factory is located at the Nalanda Industrial Estate in Matale. The Company has now been renamed as Cargills Quality Confectionaries (Private) Limited. The biscuits would be relaunched shortly under a new Brand name and would be an altogether new and improved range.

Millers Brewery Limited

Millers Brewery Limited is the brewer of the finest beers in the THREE COINS country such as ‘Three Coins’ ‘Irish Dark’, ‘Sando Stout’ and T H E A L L M A L T B E E R ‘Grand blonde’ that have also won international appeal. The Company which came into the Cargills fold in 2011 is presently expanding its capacity and upgrading its infrastructure. MILLERS BREWERY LIMITED, SRI LANKA

Millers Limited

The Group’s marketing and distribution arm Millers, is one of the largest distribution and logistic operations in the country geared with a network spread across the 25 districts of Sri Lanka. Millers is the island wide distributor for international brands such as Kodak, Kraft, Cadbury, Bonlac, Nabisco, Tang, Toblerone etc and is also the mass market distributor for own brands. 4 Annual Report 2011

Financial highlights

Rs. Bn

Group 2011 2010 change Rs. ‘ 000 Rs. ‘ 000 %

Operations Turnover 37,128,661 30,874,797 20.26 Profit from operation 1,825,442 1,429,545 27.69

Rs. Mn Profit before taxation 1,406,703 1,000,726 40.57 Profit after taxation 1,094,173 712,392 53.59

Balance sheet Non current assets 13,568,878 9,251,241 46.67 Current assets 5,736,722 4,697,601 22.12 Current liabilities 11,348,392 7,085,476 60.16 Non current liabilities 907,775 722,211 25.69 Capital and reserves 7,049,433 6,141,155 14.79

Per share data (Rs.) Earnings per share 4.86 3.18 52.83 Rs. Mn Dividend per share 1.50 1.10 36.36 Net assets per share 31.07 27.42 13.31 Market value per share 228.30 70.50 223.83

Cash Flow Net cash generated from / (used in) - Operating activities 2,088,275 1,374,544 - Investing activities (4,844,610) (1,040,320) - Financing activities 1,488,868 (156,951)

Rs. Bn Annual Report 2011 5

Financial highlights

Rs. Bn

Company 2011 2010 change Rs. ‘ 000 Rs. ‘ 000 %

Operations Turnover 29,669,660 17,328,142 71.22 Profit from operation 1,050,355 642,721 63.42

Profit before taxation 756,107 345,487 118.85 Rs. Mn Profit after taxation 555,285 315,443 76.03

Balance sheet Non current assets 9,355,826 8,400,290 11.38 Current assets 6,501,560 2,730,386 138.12 Current liabilities 10,599,605 6,134,818 72.78 Non current liabilities 452,215 474,465 (4.69) Capital and reserves 4,805,566 4,521,393 6.29

Per share data (Rs.) Earnings per share 2.48 1.41 75.89 Rs. Mn Dividend per share 1.50 1.10 36.36 Net assets per share 21.45 20.18 6.29 Market value per share 228.30 70.50 223.83

Cash Flow Net cash generated from / (used in) - Operating activities (253,515) 805,110 - Investing activities (2,566,322) (751,156) - Financing activities 1,702,310 (87,697)

Rs. Bn 6 Annual Report 2011

Profile of Directors

Mr. L R Page Mr. A T P Edirisinghe **Chairman *Director Mr. Louis R Page is a Fellow Member of the Institute of Mr. Priya Edirisinghe is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and a Fellow Member of Chartered Accountants of Sri Lanka and a Fellow Member of the Chartered Institute of Management Accountants (UK). He the Chartered Institute of Management Accountants (UK) and has been involved in the operations of the C T Holdings group holds a Diploma in Commercial Arbitration. He was the Senior in a non - executive capacity and in the setting and review of Partner of HLB Edirsinghe & Co., Chartered Accountants and policy framework, and in key investment decision-making. currently serves as Consultant / Advisor. He counts over 41 He has also held a number of senior management and board years of experience in both public practice and in the private positions in overseas companies. sector. He serves on the Boards of a number of other listed and non-listed companies. Mr. V R Page Deputy Chairman / CEO Mr. Sanjeev Gardiner Mr. Ranjit Page possesses over 28 years of management experience with expertise in food retailing, food service, **Director and manufacturing, having introduced the concept of Mr. Sanjeev Gardiner is the Chairman and Chief Executive supermarketing to the Sri Lankan masses. He also serves on Officer of the Gardiner group, comprising the Galle Face Hotel the boards of several other companies. He is also a Founder- Co. Limited, the Ceylon Hotels Corporation PLC, Kandy Hotels Director of the Mawbima Lanka Foundation, set up to promote Company (1938) PLC (which owns the Queen’s and Suisse local industry and produce. He was appointed Managing Hotels in Kandy), and The Surf, Bentota. He is also a Director Director of C T Holdings PLC on 1 January 2011. of several public and private companies and counts over 22 years of management experience. He holds a Bachelor of Mr. M I Abdul Wahid Business Degree from Royal Melbourne Institute of Technology Managing Director / Deputy CEO and Bachelor of Business Degree (Banking and Finance) from Mr. M. Imtiaz Abdul Wahid is an Associate Member of the Monash University, Australia. He has been a Council Member Institute of Chartered Accountants of Sri Lanka and a Fellow of HelpAge International, Sri Lanka branch for several years. Member of the Chartered Institute of Management Accountants (UK). He has been involved in the operations of the Company Mr. Sunil Mendis in an executive capacity at different intervals progressively at *Director higher levels (appointed Director 1997 and Deputy Managing Desamanya Sunil Mendis was formerly the Chairman of Director in 2001) spanning a period of 24 years, leaving the Hayleys group, and the immediate former Governor of the services of the Company for employment abroad on two Central Bank of Sri Lanka. He possesses around 44 years of occasions in between whereby he also gained valuable exposure wide and varied commercial experience most of which has been holding a number of senior management positions in overseas in very senior positions. companies. He was appointed Managing Director/Deputy CEO in May 2010. Mr. Anthony A Page Mr. S V Kodikara **Director Executive Director Mr. Anthony Page is the Chairman of C T Holdings group of Mr. Sidath Kodikara is the Chief Operating Officer for Retail companies and counts 42 years of management experience in and Restaurant operations. He is a Member of the Institute of a diverse array of businesses. He serves on the Boards of many Hospitality of United Kingdom. He counts over 26 years of group as well as other companies. He is a Fellow Member of the managerial experience in the hospitality and retail sector. Institute of Chartered Accountants of Sri Lanka. He was on the Board of the Colombo Stock Exchange and also was a former Mr. P S Mathavan Council Member of the Employers Federation of Ceylon. Executive Director Mr. Prabhu Mathavan is the Chief Financial Officer. He is an Mr. J C Page Associate Member of the Chartered Institute of Management **Director Accountants (UK) and the Institute of Chartered Accountants of Mr. Joseph Page is the Deputy Chairman/Managing Director Sri Lanka. He also holds a Bachelors Degree in Commerce. He of C T Land Development PLC. He is also Executive Director of possesses over 18 years of experience in the fields of Finance, C T Properties Limited. Prior to joining C T Land Development Auditing, Accounting and Taxation. PLC he was Executive Director of Millers Limited. He has over 28 years of management experience in the private sector. Mr. Jayantha Dhanapala *Director Mr. E A D Perera Mr. Jayantha Dhanapala is a former United Nations Under- *Director Secretary-General for Disarmament Affairs (1998-2003) and a Mr. Errol Perera has held Senior Management positions in former Ambassador of Sri Lanka to the USA (1995-1997) and England and Malaysia. On his return to Sri Lanka he focused on to the UN Office in Geneva (1984-1987). He was Director of the UN Institute for Disarmament Research (UNIDIR) from promoting joint venture projects with foreign investment and 1987-1992. As a Sri Lankan diplomat Mr. Dhanapala served technology transfer. He was successful in obtaining Board of in London, Beijing, Washington D.C., New Delhi and Geneva Investment approval with pioneer status for projects in the field and represented Sri Lanka at many international conferences of telecommunications and financial services. He is at present a chairing several of them. He is currently the President of the Director of several other listed and non-listed companies in Sri Pugwash Conferences on Science and World Affairs ; a member Lanka and overseas. of the Governing Board of the Stockholm International Peace Research Institute (SIPRI) and several other advisory boards of * Independent Non Executive international bodies. ** Non Independent Non Executive Annual Report 2011 7

Chairman’s statement

Rs. 37,129 Mn (2010 - Rs. 30,875 Mn) Group Turnover Dear Shareholders, 20.26 % Growth It gives me great pleasure to present, on behalf of the Board of Directors, the Annual Report and the Audited Financial Statements for the year ended 31 March 2011.

In 2010 the Sri Lankan economy maintained a steady growth of 8% whilst most developed economies continued to grapple with the implications of the 2008 financial meltdown. State investments in infrastructure development and progressive policy changes proposed through the 2010 budget have laid the foundation for the private sector to fast track investment. Considering this promising economic and policy environment, your Company has continued to invest and expand with the long term vision of evolving into a globally competitive enterprise. The year saw the highest ever annual investment The year concluded saw your Company made by your Company in its 167 year history. Strategic investments were made towards developing business models excelling its performance in all areas of that are led by professional management teams, supported by business with both Retail and FMCG advanced technology delivering quality products and services. With all of the above we aim to transform your Company into reporting appreciable growth in revenue an enterprise that can compete with multinational corporations in our industry. and profits.

The year concluded, saw your Company excelling its performance in all areas of business with both Retail and Fast Moving Consumer Goods (FMCG) reporting appreciable growth in revenue and profits.

Retail ‘Cargills Food City’ your flagship brand continues to lead the modern trade category with the chain now reaching 163 locations island wide. This sector’s success has been achieved Turnover through a constant focus on what matters to our customers. Rs. Bn 40 “Cargills Food City Express” is a new store concept that is now 35 being established to meet consumer needs even in the remotest locations of each district. This smaller store model is stylized 30 to meet the unique needs of its immediate neighborhood while 25 offering the same comfort and convenience of the larger format. 20 Our infrastructure and leadership is in place to maintain the 15 current pace of expansion and the focus on a smaller and leaner format would certainly see healthier returns in the long term. 10 5 Cargills Food City has also remained consistent in offering - the most competitive prices in every department for identified 2007 2008 2009 2010 2011 products that impact everyday living. We believe our initiatives in reducing the cost of living whilst engaging with rural youth and farmer communities to create sustainable value, is aligned with the needs of our core customer base. Training farmers on best practices in crop and animal agriculture, facilitating credit, providing inputs, transport and infrastructure along with fair 8 Annual Report 2011

Chairman’s statement contd...

Rs. 1,407 Mn (2010 - Rs. 1,001 Mn) Group Profit before tax 40.57 % Growth

and transparent pricing policies has elevated the dignity of farming to that of a profitable and attractive enterprise. The approach has helped retain a new generation of young rural farmers within the industry reducing regional unemployment and under-employment. This commitment reinforces our position as a responsible retailer and makes us the preferred choice for consumers.

The success enjoyed by the FMCG sector FMCG The success enjoyed by the FMCG sector of your Company stems of your Company stems from years from years of strategic planning and dynamic management of strategic planning and a dynamic complemented by a vibrant team. Our national brands have emerged key players in their categories through an innovation management style complemented by a driven focus.

vibrant team. Cargills Magic continues to set the benchmark in the ice cream industry growing market share and churning out new product variations both in take-home and impulse categories. The investments made in the latest technology have elevated Cargills Magic to a new tier of taste, variety and quality. Magic is now well positioned as the No 1 dairy ice cream in Sri Lanka and stands as a strong brand in its own right. In the year concluded the Company expanded its distribution network establishing a strong presence in the Northern region. Investments made in strengthening its cold-chain have yielded results with Magic gaining popularity and market share. Profit before tax Rs. Mn The Company’s agri-processing business Cargills Kist has enhanced its product portfolio by introducing two-fruit 1,600 variations to its popular nectar and jam ranges. The culinary 1,400 range was also expanded to provide consumers exciting new 1,200 accompaniments to their meals and snacks. Kist has now matured into a truly household brand closely linked with the 1,000 daily lives and eating habits of Sri Lankans.The brand will soon 800 increase this presence in the near future with the entry into new 600 product segments and categories. 400 Cargills processed meats continues to enjoy a steady progress. 200 The Company’s approach towards catering to varied market - 2007 2008 2009 2010 2011 segments has proven successful. Cargills Finest, the unique European deli range has now taken leadership in the premium product segment and enjoys a good demand from the institutional market. Traditional favourites ‘Goldi’ and ‘Sams’ too have been re-introduced to the market. The continued delivery of exciting and innovative products would see the brands consolidating the Company’s presence in the processed meat category. The year ended saw Cargills meats enhancing market presence in Maldives and India. Annual Report 2011 9

Chairman’s statement contd...

Rs. 6,960 Mn (2010 - Rs. 6,141Mn) Shareholders’ funds 13.33 % Growth

The KFC chain of restaurants enjoyed a vibrant year with some popular products being re- launched and growing transactions. The increased tendency for urban clientele to seek modern yet affordable ‘eating-out’ facilities is reflected in the exceptional performance of the restaurant sector. The Company is bullish about this sector and looks forward to playing a greater role in the hospitality arena as the country welcomes an increased number of travellers and economic activity stimulates demand from a growing segment of middle income families. Rs. Mn Profit after tax Millers Limited is now being nurtured to take on the responsibility of driving the FMCG business through its strong 1,200 sales force and advanced logistics operation that reaches 40,000 retailers islandwide. The distribution and marketing operation 1,000 is being further strengthened in terms of personnel and infrastructure to support the Company’s increased interests in 800 the sector. The Company’s international agency lines are also performing to expectation and would be further enhanced in 600 tandem with the demand for branded consumer goods. 400 FMCG Expansion Your Company has identified the expansion and diversification 200 of the FMCG sector to be a thrust in its overall growth plans. The - year ended saw your Company making strategic investments to 2007 2008 2009 2010 2011 strengthen its position as a lead player in the FMCG industry. These investments reflect our strong commitment to growth and would enable us to connect our brands with millions of consumers to improve quality of life, help farmers and communities succeed, and our stakeholders enjoy sustainable returns.

In November 2010 Cargills expanded its interests in the dairy sector with the acquisition of Kotmale Holdings PLC. The Company now holds an 81.72% stake in Kotmale. With the Your Company has identified the change in ownership, the Kotmale Board of Directors was expansion and diversification of the reconstituted on 5 January 2011 and Mr. Stuart Young was appointed Chairman to consolidates Cargills’s interests in the FMCG sector to be a thrust in its overall dairy sector and expand its product range from its present leadership in the dairy ice cream category through Cargills growth plans. Magic. This also offers Cargills the opportunity to build on its successful out-grower model that directly impacts rural economies island wide. Kotmale and Cargills Magic together collect 22 million litres of fresh milk from an over 20,000 strong dairy farmer network, making Cargills the 3rd largest milk collector in the island.

Cargills entered the confectionary industry in November 2010 when Cargills Quality Foods Limited acquired Diana Biscuits Manufactures (Pvt) Ltd. The production plant located 10 Annual Report 2011

Chairman’s statement contd...

Rs. 19,306 Mn (2010 - Rs. 13,949 Mn)

Total assets (Group) in Nalanda, Matale is now being modified to develop a wider product range than what was hitherto marketed under the 38.40 % Growth ‘Helan’ brand. The first range of biscuits made to new recipes is to be launched shortly under a new brand name and would without doubt excite customers and the industry with its sensational new selection of biscuit varieties. The Company has since been renamed Cargills Quality Confectionaries (Pvt) Ltd.

In the fourth quarter of 2010/11 the newly incorporated subsidiary Millers Brewery Limited (MBL) entered into an agreement for the purchase of the business and business assets, including the brands of McCallum Breweries (Ceylon) Limited, McCallum Brewing Company (Private) Limited and Three Coins Over the years Cargills has practiced Company (Private) Limited . In relation to this transaction, MBL a multi-stakeholder value creation has obtained the relevant licenses dated 7 February 2011 from the Excise Commissioner (Revenue) of the Excise Department approach through which your Company of Sri Lanka. The acquisition included renowned brands such as ‘Three Coins’, ‘Sando Stout’, ‘Three Coins Riva’, ‘Irish Dark’ has impacted the development of our and ‘Grand Blonde’. Mr. Stuart Young was also entrusted with Country. the responsibility of driving the success of MBL. The upbeat forecasts from the tourism sector and the change in lifestyle stemming from economic growth augurs well for our investments in the soft alcohol industry. MBL has now commenced production and distribution while a sales strategy is being implemented to revive the ‘Three Coins’ brand. The management team of MBL would be developing a range of high quality beverages with local roots but with an international Turnover vs profit after tax outlook with a view to catering to both the mass market and niche clientele. The ready access the MBL brands would have to distribution channels including linkages with institutional Rs. Mn Rs. Bn customers provides a strong platform from which MBL should 40 certainly develop into a formidable player in the medium term. 1,200 35 1,000 The Company is optimistic that said investments would yield 30 above average returns in the medium to long term and is also 800 25 aware of the initial impact on the bottom line in terms of higher interest costs and turnaround time of the two loss making 20 600 biscuit and brewery operations. We are confident of minimising 15 this turnaround time based on our previous experience in 400 10 purchasing loss making business entities and transforming them into formidable industry leaders in the medium term. 5 200 - - My Country. My Company 2007 2008 2009 2010 2011 Over the years Cargills has practiced a multi-stakeholder value creation approach through which your Company has impacted Turnover the development of our Country. Cargills has remained closely Profit after tax engaged with our community in our sustainable business practices by supporting the reduction of cost of living, enhancing youth skills and bridging regional disparity. Our continued confidence in our Country and the resilience of our people coupled with our commitment to play an increasingly Annual Report 2011 11

Chairman’s statement contd...

nurturing role in uplifting our community now warrants taking this platform to an even higher level. The year ahead would see your Company playing an even more significant role in building on its core strength of food and nutrition whilst investing into key growth sectors of our Country. Your Company believes in a bright and prosperous future for Sri Lanka and is now well positioned as a trusted partner of Sri Lanka to spearhead that journey of success.

Summary of Performance Your Company recorded an excellent performance in the year concluded with Profit after tax crossing the Rs. 1 Bn milestone. Rs. 4.86 This is a growth of 54% from Rs. 712 Mn reported last year. The Group consolidated turnover exceeded Rs. 37 Bn having (2010 - Rs. 3.18) achieved a growth of 20%. Profit before tax has recorded a 41% Earnings per share (Group) increase to Rs. 1.4 Bn. The Group after tax profit attributable to share holders was Rs. 1.1 Bn a growth of 53% over the previous 52.83 % Growth year’s profit of Rs. 712 Mn. Appropriation A dividend of 50 cents per share was paid on 7 February 2011 as interim dividend and a dividend of Rs. 1 per share will be proposed at the forthcoming annual general meeting. The Company maintains a consistent dividend policy being aware of its capital commitments towards investment aimed Rs. 31.07 at long-term growth. The performance of the share bears ample testimony to shareholder appreciation of the increasing value (2010 - Rs. 27.42) of the Company. We are confident that the Company would Net assets per share (Group) continue to create substantial and sustainable capital wealth in the future.

13.31 % Growth Acknowledgement In conclusion I take this opportunity to commend our team of 6,790 persons who have worked with enduring commitment and loyalty to engage every opportunity that has come our way. The quality of our performance is attributed to this remarkably competent team, their knowledge, skills and professionalism. I extend my sincere thanks to the Board of Directors whose leadership and foresight has steered the Company to success. I thank our business partners in the farming communities and small and medium enterprises as well as our principals, suppliers and financial institutions for their continued support. I express my thanks to our shareholders for their continued confidence in us. I am sure you will stay with us as we strive to create greater value in our enterprise and contribute towards the progress and prosperity of our country.

Signed L R Page Chairman

17 August 2011 12 Annual Report 2011

Corporate governance

The disclosures below demonstrate the extent to which the principles of good corporate governance are complied with within the Group. Further to the above, the Board of Directors to the best of knowledge and belief is also satisfied that all statutory payments due to the Government, other regulatory institutions, and related to the employees, have been made on time. Company’s adherence to the Corporate Governance Rules as required by Section 7.10 of the Listing Rules of the Colombo Stock Exchange:

Compliance Corporate Governance Rule Details Status 7.10.1 Non-Executive Directors a) The board of directors of a Listed Entity shall include at Complied with Company has eight non executive directors least, and four executive directors on its board. (i) Two non-executive directors; or (ii) Such number of non-executive directors equivalent to one third of the total number of directors whichever is higher.

b) The total number of directors is to be calculated based on the Complied with The composition of the Board remain number as at the conclusion of the immediately preceding unchanged all throughout. Annual General Meeting.

c) Any change occurring to this ratio shall be rectified within Not applicable During the year no changes occurred to this ninety (90) days from the date of the change. (N/A) ratio.

7.10.2 Independent Directors a) Where the constitution of the board of directors includes only Complied with One half of non executive directors determined two non-executive directors as mentioned above, both such to be independent. non-executive directors shall be ‘independent’. In all other instances two or 1/3 of non-executive directors appointed to the board of directors, whichever is higher shall be ‘independent’

b) The board shall require each non-executive director to Complied with Each non executive director has provided submit a signed and dated declaration annually of his/her a signed and dated declaration of his/ her independence or non-independence against the specified independence or non independence against criteria. the criteria laid down in the listing rules.

7.10.3 Disclosures Relating to Directors a) The board shall make a determination annually as to the Complied with One non executive director is an independent independence or non-independence of each non-executive director as per the criteria set. director based on such declaration and other information available to the board and shall set out in the annual report the names of directors determined to be ‘independent.’

b) In the event a director does not qualify as ‘independent’ Complied with Three other non executive directors are against any of the criteria set out below but if the board, deemed independent by the Board and taking account all the circumstances, is of the opinion that the criteria not met and the basis for such the director is nevertheless ‘independent’, The board shall determination is set out in Note on page 16. specify the criteria not met and the basis for its determination in the annual report.

c) In addition to the disclosures relating to the Independence of Complied with Please refer profile of directors on page 6. a director set out above, the board shall publish in its annual report a brief resume of each director on its board which Includes information on the nature of his/her expertise in relevant functional areas.

d) Upon appointment of a new director to its board, the Entity Complied with Mr. M I Abdul Wahid was appointed to shall forthwith provide to the exchange a brief resume of such the Board on 21 May 2010 and the required director for dissemination to the public. Such resume shall details were submitted to the exchange the include information on the matters itemized in paragraphs same day. (a), (b) and (c) above. Annual Report 2011 13

Corporate governance contd...

Compliance Details Corporate Governance Rule Status 7.10.5 Remuneration Committee A Listed Entity shall have a remuneration committee in conformity with the following: (a) Composition The remuneration committee shall comprise; (i) a minimum of two independent non-executive directors Complied with The remuneration committee comprise three (in instances where an Entity has only two directors of on independent non executive directors and the its board); or details are given on the inner back cover. (ii) non-executive directors a majority of whom shall be independent, whichever shall be higher.

In a situation where both the parent company and the subsidiary Complied with Kotmale Holdings PLC is a subsidiary of are ‘Listed Entities’, the remuneration committee of the parent the Company and has its own remuneration company may be permitted to function as the remuneration committee. committee of the subsidiary.

However, if the parent company is not a Listed Entity, then the N/A N/A remuneration committee of the parent company is not permitted to act as the remuneration committee of the subsidiary. The subsidiary shall have a separate remuneration committee.

One non-executive director shall be appointed as Chairman of Complied with Please refer inner back cover. the committee by the board of directors.

(b)Functions The remuneration committee shall recommend the remuneration Complied with The Committee recommends to the payable to the executive directors and Chief Executive Officer of Board the remuneration payable to the the Listed Entity and/or equivalent position thereof, to the board Executive Directors and the Chief Executive of the Listed Entity which will make the final determination Officer. In recommending an appropriate upon consideration of such recommendations. remuneration package the primary objective of the Committee is to attract and retain the services of highly qualified and experienced personnel.

(c) Disclosures The annual report should set out the names of directors (or Complied with Please refer inner back cover for the names of persons in the parent company’s committee in the case of a group directors of the remuneration committee. company) comprising the remuneration committee, contain a statement of the remuneration policy and set out the aggregate Please refer the remuneration committee remuneration paid to executive and non-executive directors. report on page 17 for a statement of the remuneration policy. The term “remuneration” shall make reference to cash and all non-cash benefits whatsoever received in consideration Please refer Note 7 to the financial statements of employment with the Listed Entity (excluding statutory for the aggregate remuneration paid to the entitlements such as Employees Provident Fund and Employees directors. Trust Fund).

7.10.6 Audit Committee A Listed Entity shall have an audit committee in conformity with the following:

(a) Composition The audit committee shall comprise; (i) a minimum of two independent non-executive directors Complied with The audit committee comprise three (in instances where an Entity has only two directors on its independent non executive directors. board); or (ii) non-executive directors a majority of whom shall be independent, whichever shall be higher. 14 Annual Report 2011

Corporate governance contd.

Corporate Governance Rule Compliance Details Status

In a situation where both the parent company and the subsidiary Complied with Kotmale Holdings PLC is a subsidiary of the are ‘Listed Entities’, the audit committee of the parent company Company and has its own audit committee. may function as the audit committee of the subsidiary.

However, if the parent company is not a Listed Entity, then the N/A N/A audit committee of the parent company is not permitted to act as the audit committee of the subsidiary. The subsidiary should have a separate audit committee.

One non-executive director shall be appointed as Chairman of Complied with Please refer inner back cover. the committee by the board of directors.

Unless otherwise determined by the audit committee, the Chief Complied with Please refer audit committee report on page 17. Executive Officer and the Chief Financial Officer of the Listed Entity shall attend audit committee meetings.

The Chairman or one member of the committee should be a Complied with The Chairman of the committee is a member member of a recognized professional accounting body. of ICASL and CIMA (UK).

(b) Functions Shall include, (i) Overseeing of the preparation, presentation and adequacy Complied with Please refer audit committee report on page 17. of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.

(ii) Overseeing of the Entity’s compliance with financial Complied with reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.

(iii) Overseeing the processes to ensure that the Entity’s Complied with internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards.

(iv) Assessment of the independence and performance of the Complied with Entity’s external auditors.

(v) To make recommendation to the board pertaining to Complied with appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the external auditors.

(c) Disclosures The names of the directors (or persons in the parent company’s Complied with Please refer inner back cover. committee in the case of a group company) comprising the audit committee should be disclosed in the annual report.

The committee shall make a determination of the independence Complied with Please refer audit committee report on page 17. of the auditors and shall disclose the basis for such determination in the annual report.

The annual report shall contain a report by the audit committee, Complied with Please refer audit committee report on page 17. setting out the manner of compliance by the Entity in relation to the above, during the period to which the annual report relates. Annual Report 2011 15

Corporate governance contd...

Company’s adherence to the Provisions of Rule 7.6 as required by the Listing Rules of the Colombo Stock Exchange on disclosure in Annual Reports of Listed Entities:

Compliance Corporate Governance Rule Details Status A Listed Entity must include in its annual reports and accounts, inter alia; i) Names of persons who were Directors of the Entity Complied with Please refer inner back cover for the names of during the financial year. directors of the Company. ii) Principal activities of the Entity and its subsidiaries Complied with Please refer Note 1.1 to the financial during the year and any changes therein. statements. iii) The names and the number of shares held by the 20 Complied with Please refer Investor relations supplement on largest holders of voting and nonvoting shares and the page 71. percentage of such shares held. iv) The public holding percentage. Complied with Please refer Investor relations supplement on page 71. v) A statement of each director’s holding and Chief Executive Complied with Please refer page 31. Officer’s holding in shares of the Entity at the beginning and end of each financial year. vi) Information pertaining to material foreseeable risk factors Complied with Please refer report on Risk management on of the Entity. page 18 to 19. vii) Details of material issues pertaining to employees and N/A No material issues pertaining to employees industrial relations of the Entity. and industrial relations viii)Extents, locations, valuations and the number of buildings Complied with Please refer page 69 Group real estate of the Entity’s land holding and investment properties. portfolio. ix) Number of shares representing the Entity’s stated Complied with Please refer page 70 Investor relations capital. supplement. x) A distribution schedule of the number of holders in each Complied with Please refer page 70 Investor relations class of equity securities and the percentage of their total supplement. holdings in the specified categories. xi) The following ratios and market price information.

EQUITY 1. Dividend per share Complied with Please refer page 68 Five year summary. 2. Dividend pay out 3. Net asset value per share 4. Market value per share Complied with Please refer page 71 Investor relations Highest and lowest value recorded supplement. Value as at the end of financial year.

DEBT (Only if listed) xii) Significant changes in the Entity’s or its subsidiaries’ N/A N/A fixed asset and the market value of land, if the value differs substantially from the book value.

xiii) If during the year the Entity has raised funds either N/A N/A through a public issue, Right issue, and private placement;

a. A statement as to the manner in which the proceeds of such issue has been utilized. b. If any shares or debentures have been issued, the number, class and consideration received and the reason for the issue; and, c. Any material change in the use of funds raised through an issue of securities. 16 Annual Report 2011

Corporate governance contd.

Compliance Corporate Governance Rule Details Status xiv) The following information should be disclosed in respect N/A N/A of each employees share ownership or stock option scheme.

- Total number of shares allotted during the financial year - Price at which shares were allotted - Highest, lowest and closing price of the share recorded during the financial year - Details of funding granted to employees (if any)

xv) Disclosures pertaining to Corporate Governance practices Complied with Please refer page 12 to 14 for the disclosures in in terms of Rules 7.10.3, 7.10.5 c. and 7.10.6 c. of section 7 terms of Section 7.10. of the Rules.

xvi) Related Party transactions exceeding 10% of the Equity Complied with Please refer Note 20 and 35. or 5% of the total assets of the Entity as per Audited Financial Statements, whichever is lower.

Details of investments in a Related Party and/or amounts due from a Related Party to be set out separately.

The details shall include, as a minimum: a. The date of transaction; b. The name of the Related Party; c. The relationship between the Entity and the Related Party; d. The amount of the transaction and terms of the transaction; e. The rationale for entering into the transaction.

Note : Based on the declarations provided by the non executive directors, the Board has decided the following directors as independent:

Mr. Jayantha Dhanapala, and

Mr. E A D Perera - who has served on the Company’s Board now for a period in excess of nine years and

Mr. A T P Edirisinghe - who has served on the Company’s Board for a period in excess of nine years and - is also a Director of C T Holdings PLC which has a significant shareholding in the Company, and

Mr. Sunil Mendis - who is also a Director of C T Holdings PLC

who, in spite of their service on the Company’s Board for over nine years and / or being Directors in another company which has a significant shareholding in the Company, the Board has nevertheless determined as in the previous years to be independent considering their credentials and integrity. Annual Report 2011 17

Audit & Remuneration Committee reports

Audit Committee Report minimize the impact of such risks, (b) the internal audit plan and monitoring the performance of the internal auditor and The Audit Committee is appointed by the Board of Directors adherence to the internal audit plan and (c) the internal audit of the Company and reports directly to the Board. The Audit reports and monitoring follow up action by the management. Committee comprise three members who are non-executive Based on the recommendations of the Audit Committee, the Directors who are deemed independent. The Chairman of Company has engaged a third party Audit Firm to obtain an the Audit Committee is a Fellow Member of the Institute of independent verification, of stock and cash counts at all its Chartered Accountants of Sri Lanka and a Fellow Member outlets and the factories and other facilities of its own and of the Chartered Institute of Management Accountants (UK). The composition of the members of the Audit Committee subsidiary companies, and also adherence to standard systems satisfies the criteria as specified in the Standards on Corporate and procedures as laid down by the Company, commencing Governance for listed companies. in the new Financial Year. The Audit Committee assessed the independence and performance of the Company’s external The Members of the Audit Committee: auditors and made recommendations to the Board pertaining to appointment/ re-appointment. The Audit Committee also Name / Independence Mr. A T P Edirisinghe FCMA, FCA - Chairman Independent reviewed the audit fees for the Company and approved the Mr. Sunil Mendis - Independent remuneration and terms of engagement of the external auditors Mr. E A D Perera - Independent and made recommendations to the Board. When doing so, the Audit Committee reviewed the type and quantum of non- The Chief Financial Officer (CFO) and the Chief Internal Auditor audit services (if any) provided by the external auditors to the attend all meetings and the Chief Executive Officer (CEO) and Company to ensure that their independence as Auditors has the Managing Director attend audit committee meetings as not been impaired. The Audit Committee obtains an ‘Auditor’s and when requested to do so by the Audit Committee. The Statement ‘ from Messrs KPMG Ford, Rhodes, Thornton and Company Secretary acts as the Secretary to the Committee. Company confirming independence as required by Section 163 (3) of the Companies Act No. 7 of 2007 on the audit of the The oversight function of (a) the preparation, presentation and balance sheet and the related statements of income, changes in adequacy of disclosures in the quarterly and annual financial equity, and cash flows of the Company and the Cargills Group. statements of the Company, in accordance with Sri Lanka Accounting Standards and (b) the Company’s compliance with The Audit Committee has recommended to the Board that financial reporting requirements, information requirements Messrs KPMG Ford, Rhodes, Thornton and Company, of the Companies Act and other relevant financial reporting Chartered Accountants, be continued as external auditors of related regulations and requirements, was duly performed and the Company for the financial year ending 31 March 2012. the Audit Committee reviewed and discussed the year-end A T P Edirisinghe - FCMA, FCA financial statements and recommended their adoption to the Chairman – Audit Committee Board, whilst this was done on circulation at quarter-ends. In all instances, the Audit Committee obtained a declaration from 17 August 2011 the CFO stating that the respective financial statements are in conformity with the applicable accounting standards, Company law and other statues including corporate governance rules Remuneration Committee Report and that the presentation of such financial statements are The Remuneration Committee of Cargills (Ceylon) PLC consists consistent with those of the previous quarter or year as the of three Non – Executive Directors – Messrs. Sunil Mendis case may be, and further states any departures from financial (Chairman), Jayantha Dhanapala and A T P Edirisinghe. The reporting, statutory requirements and Group policies, (if any). Deputy Chairman & CEO and the Managing Director may also Quarterly Compliance Certificates are also obtained from the be invited to join in the deliberations as required. Finance, Legal, and Secretarial divisions of the Company on an updated standardized exception reporting format perfected by The Committee studies and recommends the remuneration the Audit Committee, stating any instances (where applicable) and perquisites applicable to the Executive Directors of the of, and reasons for, non-compliance. Company and makes appropriate recommendations to the Board of Directors of the Company for approval. The oversight function over the processes to ensure that the Company’s internal controls and risk management, are The Committee also carries out periodic reviews to ensure that adequate, to meet the requirements of the Sri Lanka Auditing the remunerations are in line with market conditions. Standards was duly performed and the Audit Committee reviewed and discussed (a) the business risk management Sunil Mendis Chairman – Remuneration Committee processes and procedures adopted by the company, to manage and mitigate the effects of such risks and measures taken to 17 August 2011 18 Annual Report 2011

Risk management

Introduction agreements are thoroughly scrutinized by competent legal officers while the Company Secretary ensures compliance with Risk management is of paramount importance to Cargills the Companies Act. (Ceylon) PLC to safeguard the interest of all stakeholders. To keep risk management at the centre of the executive agenda, Corporate Financial Reporting Function continuous awareness is created and it is embedded in everyday business management. Documentation and reporting also plays a key role in managing risk. The corporate financial reporting division has been set up The expansion drive of the Cargills Food City operation and to ensure all financial reporting aspects are addressed. The manufacturing subsidiaries together with latest business division coordinates with relevant authorities and institutions. acquisitions has meant that the Group’s operation has become The audit committee reviews all financial and related more complex with an increased risk profile. In an improving information that is reported and disseminated. economic environment the Group also anticipates a higher business risk in terms of increased competition. Internal Controls and Internal Audit Function

The Company has put in place a system of internal control to The management considers each business risk in the context of assist in achieving the management’s objective of ensuring the Group’s strategy by identifying the potential upside and orderly and efficient conduct of business, safeguarding of downside to the Group business. Any identified downside is assets, the prevention and detection of fraud and error, timely subject to mitigation and any upside is fully made use of to preparation of reliable financial information, and compliance strengthen the competitive position of the Group. Risks and with relevant laws and regulations. methodology of mitigation are presented here in the areas of business (operation), financial reporting and compliance with At Cargills, we believe that an effective internal audit function applicable laws and regulations. would enhance the Company’s performance in every aspect of Administrative support for risk management business. This function would primarily involve monitoring of internal control, examination of financial and operating Corporate Management Committee (CMC) information, review of the efficiency and effectiveness of the operation, and review compliance with legal and regulatory The Board as the focal point in managing the business has been requirements. It also continuously verifies and audits the vested with the final responsibility of managing the risks the systems and promptly escalates any problems or potential risks Group faces. A Corporate Management Committee (CMC) has to the management. Evaluation of the existing risk management been set up to assist the Board in meeting this responsibility. setup is also a task assigned to the internal audit function. The CMC with the help of senior management decides the risk Internal audit reports are reviewed by the audit committee and profile of the Group. It also evaluates the business proposals any material findings are inquired into in detail. in view of the existing risk appetite and keeps the Board informed of the suitability of the business proposals. The CMC Overview of Risks Affecting the Business reviews the operational issues tabled in the monthly meetings to identify the key risks faced by the Group including their Business Risk impact, likelihood and controls and procedures implemented to mitigate these risks. The Board is required to take decisions The business risk management is a dynamic process due to the that would increase the intrinsic value of the Company in terms constant change and complexity in the operating environment of investing in capital assets which would enhance the future of the Group. The different business operations of the Group and earnings capacity. In this perspective, tolerable risk levels their performances are subject to a variety of risk factors which are defined by the CMC provided those investments show are constantly monitored and evaluated by the management commercial justification striking a balance between risk and in order to respond effectively. All manufacturing facilities are return. In addition, the management letter issued by external maintained according to best international food manufacturing auditors of the Company is reviewed by the audit committee. standards to mitigate business risk arising from production Any material findings adversely affecting the smooth operation processes. of the business are addressed in detail and corrective actions are taken. Competitive Environment

The retail industry in Sri Lanka is highly competitive. To Centralised Legal Function remain competitive the Group is focused on areas such as The Group obtains the service of a centralized legal department price, product range, quality and service. We monitor our to ensure that the Group complies with applicable laws and performance against a range of measures including customer regulations. The department reports on a monthly basis to the satisfaction, perception and experience while also evaluating Board verifying compliance with laws and regulations. All legal the performance of competitors. Annual Report 2011 19

Risk management contd.

People capabilities across our operations in enabling us to operate efficiently. We have extensive controls in place to maintain the integrity and Our greatest asset is our employees. It is critical to our success efficiency of our IT infrastructure and to ensure consistency of to attract, retain, develop and motivate the best people with the right capabilities at all levels of operations. We review delivery. All relevant staff is effectively engaged to mitigate IT our people policies regularly and are committed to investing related risks through effective policy and procedures as well as in training and development. We also carry out succession increased awareness. planning to ensure that the future needs of the business are considered and provided for. There are clear processes for Regulatory and Political Environment understanding and responding to employees’ needs through Due to the diverse nature of our businesses we are subject to HR initiatives, staff surveys, and regular communication of a wide variety of regulations prevailing in the country. We business developments. consider these uncertainties in the external environment when developing strategy and reviewing performance. We remain Reputational Risk vigilant to future changes. As part of our day-to-day operations Failure to protect the Group’s reputation and brands could lead we engage with governmental and non-governmental to a loss of trust and confidence. This could result in a decline organizations to ensure the views of our customers and in the customer base and affect the ability to recruit and retain employees are represented and try to anticipate and contribute high-calibre people. Emotional loyalty to the Cargills brand to important changes in public policy whenever possible. has helped us diversify into new areas of businesses through integration and diversification strategies. We recognise the Funding and Liquidity commercial imperative to safeguard the interests of all our stakeholders and avoid the loss of such loyalty. The ‘Cargills The Group finances its operations by a combination of retained Values’ are embedded in the way we do business at every level. earnings, long term and short term loans. The objective is to Our Code of Ethics guides our relationships with customers, ensure the continuity of funding and to arrange funding ahead employees and suppliers. We engage with stakeholders in of requirements and to maintain sufficient undrawn committed every sphere, take into account their views and endeavor to bank facilities. We as a Group maintain a portfolio of banking develop strategy that reflects their interests. institutions to cater to the funding requirements and to obtain them on favorable terms. Healthy relationships with bankers Product safety allow us to have borrowing arrangement within a shorter The safety and quality of our products is of paramount period of time. importance to Cargills as well as being essential for maintaining customer trust and confidence. A breach in confidence could Interest rate risk affect the size of our customer base and hence financial results. We have detailed and established procedures for ensuring It is the Company’s objective to limit its exposure to increases product integrity at all times. There are strict product safety in interest rates while retaining the opportunity to benefit processes in place and regular management reports. We work from interest rate reductions. Accordingly the Group manages in partnership with suppliers to ensure mutual understanding interest rate fluctuations with an appropriate mix of fixed and of the standards required. We also monitor developments variable rate debts through a centralized treasury management in areas such as health, safety and nutrition in order to function. respond appropriately to changing customer trends and new legislation. Credit risk

Health and Safety risks The Company aims to reduce the risk of loss arising from default by parties to financial transactions. Risk of default is routinely Provision of adequate safety to our staff and customers is of monitored and required actions are taken. Our manufacturing the utmost importance to us. Injury or loss of life cannot be subsidiaries are more exposed to credit risk by the very nature measured in financial terms. We operate stringent health of their business and this risk is neutralised through a rigorous and safety processes in line with best practice in our outlets, process of credit management. manufacturing facilities and offices, which are monitored and audited regularly. Foreign Exchange Rate Risk

IT Systems and Infrastructure The Group’s exposure to this risk is minimal as exports

The business is dependent on efficient Information Technology are negligible. Risk on imports of plant, machineries and (IT) systems. We recognise the essential role that IT plays equipments are managed adequately. 20 Annual Report 2011

Sustainability report

01. Our approach to Sustainability capabilities and respected for who they are. We strive to create a happy and focused work atmosphere that celebrates the team 1.1 Introduction and encourages innovation.

From a single seed in a farmer’s field to homes and hearths Our goal is to provide a workplace where all employees halfway across Sri Lanka Cargills brings ideas together to help can thrive and grow - A workplace where employees feel satisfy our nation’s needs. To get there, we collaborate with included, safe and are given the opportunities to make valuable customers to create better products and services, streamline contributions to Cargills and thereby partner the progress of supply chains, save energy, reduce costs and move goods to Sri Lanka. every corner of Sri Lanka. We help farmers get higher yields from fewer acres, and store crops so they have greater flexibility 2.1 Nurturing an exceptional team in marketing their harvest. We give back to the communities where we do business through continuous efforts to improve We are committed to attracting, developing, and retaining a nutrition, health and education, and protect natural resources. group of talented Team Members and to creating a workplace Every day, Cargills nourishes people and ideas-in both expected that allows each Team Member to contribute to the collective and unexpected ways. success of our Company. Our programs and initiatives related to employment practices, compensation and benefits, talent Our sustainability strategy is to make social responsibility management, diversity and inclusion, and Team Member an integral part of everything we do. It is a Company-wide relations are important to fulfilling this commitment, especially commitment that channels our expertise and knowledge in today’s challenging economic climate. To be an inspiration to to create sustainable value for every direct and indirect our Team Members about their work, their contributions, and stakeholder we touch. their company is our pledge.

02 Responsible to our People 2.1.1 Our Team Members

Treating our team with dignity and respect and striving to create Cargills employs 6,790 employees as at 31 March 2011. We are a safe work environment. committed to providing a good working environment and to retaining our Team Members through competitive wages, fair At the heart of the Cargills culture is the desire to embrace treatment, training, benefits, and safe working conditions. We our differences and make connections across business units, at recognize that the nature of our industry and the changing every location in every district across the island - so that each external environment means that retention of our team is employee can reach their full potential. foremost challenge. This is a challenge that we seek to address by providing inspiration and motivation to our Team Members Our multi-cultural work environment is warm and equitable about their work, their contributions, and their company’s role ensuring that each member of our team is valued for their in partnering the development of Sri Lanka and its people.

Total No. of Employees as at 31 March 2011 6,790 Executive cadre 1,186 Non- Executive cadre 5,604

Permanent cadre 6,613 Male 3,884 Contract Staff 177 Female 2,906

Non Executive 83%

Executive 17%

Permanent Non-Executive Male Contract Executive Female Annual Report 2011 21

Sustainability report contd...

2.2 Health and Safety of Our Team implemented procedures and controls regarding health and safety 2.2.1 Management System Approach 2.3 Training & Development All Cargills manufacturing facilities have implemented Environmental, Health, and Safety Management Systems AAPI provides training and development opportunities for youth in line with statutory and ISO requirements. The health and from rural Sri Lanka as a non profit initiative. AAPI collaborates with safety aspect of this system fulfills the requirements set forth civil society partners to identify and train young men and women in international occupational health and safety management who lack the necessary skills-sets to gain employment in the private system specifications. As such, each facility has developed and sector. Many go on to be a part of Team Cargills.

ALBERT A. PAGE INSTITUTE OF FOOD BUSINESS

The Albert A. Page Institute (AAPI) of Food Business was established in 2006 in response to the needs of young Sri Lankans from rural areas. As Cargills expanded its presence in regional Sri Lanka it understood the true potential of rural youth who were either under-employed or unemployed due to the lack of professional skills. On the other hand the value derived to our economy from unskilled labor employed overseas is significant. Unskilled migrant labor sourced largely from rural Sri Lanka draws the highest foreign exchange earnings to the country. This further encouraged Cargills to work towards the capacity-building of rural youth.

AAPI has developed series of certificate and diploma programmes aimed at creating opportunity for career advancement in the food and manufacturing sector. The Certificate programs develop the various basic skills required to become an effective and efficient executives. The courses are designed to cater to all sectors of Food Marketing encompassing Operations, Manufacturing, Support Services, Sales and Distribution and Central Warehouse, Agri – Business. The advanced certificate courses for Managerial Skills Development have been designed considering all the aspects of Organizational needs of Technical, Human and Conceptual skills which are crucial elements of becoming an effective and efficient Executive aligned with today’s competitive and dynamic business environment. Once students acquire the Advanced Certificate they have the option of enhancing the certification to a Diploma. Currently Cargills is exploring the possibility of offering the Diploma’s in affiliation with Sri Lanka’s premier post- graduate education college.

Accelerated Skills Acquisition Programme (ASAP)

ASAP is a programme which has been developed by the USAID is endorsed by the Ceylon Chamber of Commerce as study material that is suitable for potential employees in the private sector. The programme which is focused on attitude development consists of five-day, 10-day and 20-day study programmes on IT, English proficiency, career guidance and entrepreneurial skills. The objective of the programme is to endow recipients with the essential skills required for competitive employment.

AAPI has been certified as a trainer of the ASAP programme and is currently carrying out training for identified target groups in collaboration with non-profit partners such as the Gemi Diriya project funded by the World Bank.

Independent Grocers Alliance Online Training

The IGA Institute is a non-profit educational foundation developed by IGA (Independent Grocers Alliance), to provide on-line training materials, web based job certification courses, class room training to support the career development needs of its retail food associated around the globe. The IGA Institute functions as the Alliance’s Learning & development department by bringing competitive skills to independent retailers world wide. AAPI is currently registered with the IGA Institute and is able to offer these courses online for students. Cargills utilizes these online learning opportunity to empower youth in rural areas using ICT as a tool for development.

3. Responsible to our Planet is to reduce, re-use and recycle energy, plastics, water and all other natural resources that we use in our day to day business Fulfilling our purpose of nourishing people requires clean water, soil practice. and air. As a food Company, we are focused on a sustainable future that reduces demands on the environment as populations continue to Through the ‘Green Business’ programme Cargills is committed grow. to minimizing its environmental impacts throughout our entire supply chain, from the farm to the trolley. Cargills is also Green Business committed to a role of environmental leadership in all facets The primary objectives that drive the Cargills Green Business of our business. 22 Annual Report 2011

Sustainability report contd...

Initiatives eligible for Carbon Credit

SBU Initiatives taken

Cargills Quality Dairies - Best use of treated effluent water to create humus matter in the rocky barren land. Its enrichment has enabled the utilization of the land to produce agriculture crops (papaya, pineapple, passion fruit, forest trees). - Used polythene/ cardboard recycled. - Separate the fat from ETP and used in biogas plant; Ammonia is used as a refrigerant. - Coconut cultivation and in-house garden.

Cargills Quality Foods - Rainwater harvesting. - Pork Fat used in ‘Pig Power’ project to operate incinerator as substitute for diesel in delivery vehicles. Part of the pork fat is to be used for conversion to Bio diesel. - Bones disposed for fertilizer manufacture reduces incineration load. - In house garden- enrichment of garden excellent landscaping and use of spare/surplus land for improving the quality of rocky land generating agriculture products.

Cargills Agrifoods - Wormiculture/ hormone digestion project - Worms/ hormones are being tested to hasten the decomposition process of elements that are slow to decompose. - Coconut cultivation in previously barren land. - In house garden project.

Cargills Food - Cargills has sealed a Memorandum of Understanding with the University of Moratuwa to operate Processors a Food Process Development Incubator which carries out scientific research especially towards making Cargills a leaner and greener operation. As part of the project the University of Moratuwa has provided Cargills the technology to convert used oil discarded as waste by KFC into bio-diesel. This bio-diesel is now used to run a diesel three-wheeler for KFC logistical support services. - It is notable that in an economic sense KFC incurs a significant cost to convert oil into bio diesel however in line with the corporate strategy of creating sustainable value for the community KFC has opted to take the economically expenses yet environmentally and socially responsible route.

Energy Saving measures and renewable energy use

SBU Energy Saving measures and renewable energy use

Cargills Quality Dairies - Phased out and controlled operation of the compressors in refrigeration plant. - Energy saving CFL bulbs and controlled use of all machinery, air-conditioning and lightings. - Computers kept on standby mode. - Insulation of boiler and all steam pipe lines. - Minimizing steam leakages. - Maintenance of condensate recovery pumps in working order. - Solar heaters for hot water generation.

Cargills Quality Foods - Solar heaters for hot water generation. - Hot water generated from incinerators. - Capacitor Bank to reduce the maximum demand. - Energy saving blasters for fluorescent lights. - Control of air condition temperature according to atmospheric conditions. - Training of staff on energy savings, especially in cold rooms and smoke chamber operations. - Automated switching system for outdoor lights.

Cargills Agrifoods - Capacitor Bank to reduce the maximum demand. - Production plan scheduled to reduce the maximum demand. - Oversized motors replaced by smaller sized motors according to application. - Routine monitoring and cleaning of air filters in ventilation fans. - Cooling water re-cycling. - Solar heaters. Annual Report 2011 23

Sustainability report contd...

4. Responsible to our Customers extends beyond regulatory requirements to address such issues as facility sanitation, team member training, personal Fostering a Companywide culture that drives continuous hygiene, product handling, food protection, foreign material improvement towards the safety and wellbeing of our Customers. prevention, product quality, storage, and transportation. All our manufacturing plants are accredited with ISO 9001:2000 As the leader in Retail and Consumer Goods in Sri Lanka our for Quality Management, ISO 14001:2004 for Environment goal is to ensure that our customers enjoy the best possible Management and ISO 22000: 2005 for Food Safety Management products and services at the best possible price with minimum as well as SLS standards. implications on the wellbeing of all our stakeholders. Cargills uses it widespread retail and mass market distribution 4.2 Research, Development and Innovation operation to provide essential commodities to consumers at a consistently affordable price. Cargills applies effort at every Cargills is dedicated to developing a best-in-class, value-added step in the process from where food is produced through product portfolio that meets the needs of today’s changing where it is purchased to ensure we provide the safest and market. By applying in-depth understanding of consumer most high quality products and services to our customers. and customer needs, analytical skills, and strategic thinking, Our food processing plants are equipped with comprehensive we are positioned at the forefront of product innovation. ISO and SLS certification to ensure that our superior taste is We will continue to demonstrate our commitment to research complemented by superior safety and quality. and development by creating new and relevant food solutions for years to come.

4.1 Managing Food Safety and Quality 4.2.1 Food Process Development Incubator

Cargills approach to food safety and quality is comprehensive, Sri Lanka is clearly in need of a new national approach to preventive, and proactive. We implement controls and research and development. This new approach must bring measures at every level to make sure our products are second- together the country’s best minds, working in the best facilities, to-none in food safety and quality. We assess our products and focused on the challenges and opportunities that lie ahead for improvement during product research and development, for Sri Lanka’s Food and Agribusiness sector working in manufacturing and production, marketing and promotion, partnership with industry. It is in the hope of filling this void storage and distribution, and use. We believe this approach that the Food Process Development Incubator was established helps guarantee the safety and quality of our products from the by Cargills together with the University of Moratuwa. This farm all the way to the point of purchase. institution will endeavor to develop a more competitive innovation led Food and Agriculture sector which creates 4.1.1 At the Farm value for consumers, farmers and the industry in manner that is sustainable to the community and the environment. Cargills is engaged in every aspect of its supply chain to ensure only the best products of highest nutrition and quality reach The incubator conducts R & D in the following areas: our retail outlets and manufacturing units. Our advanced post harvest technologies ensure that all fresh produce reach To enhance human health and wellness through food, customers at optimum levels of freshness with minimal nutrition and innovative products. wastage. The waste within our supply chain is as little as 3-4% To enhance the quality of food and the safety of the while national post harvest losses are as much as 40%. This food system. helps Cargills give customers the best choice in quality and To enhance security and protection of the food supply nutrition and affordability. by improving scientific capacity and knowledge to detect, monitor and control various food production 4.1.2 Systematic Management Approach and distribution systems. To seek opportunities to enhance the profitability and In addition to governmental regulatory requirements, we have competitiveness of farmers, the Agri-food system, rural developed our own highly integrated policies, procedures, communities, and local industry. controls, and good manufacturing practices designed to ensure To enhance the environmental performance of the Food the safety and quality of our food products. Our system often and Agriculture industry. 24 Annual Report 2011

Sustainability report contd...

4.3 Promoting National Nutrition and Wellness farmer base island wide to help improve efficiencies and increase incomes. As Sri Lanka’s largest food retailing and manufacturing business house Cargills is conscious of its role in facilitating Agribusiness Projects - Activities during the Year 2010/11 affordable nutrition for all Sri Lankans. While our research and development initiatives help us develop more nutritious 1. Project : Nutritious Snacks/Food Manufacturing products our sustainable supply chain ensures these products Project’ reach every part of Sri Lanka safely and at an affordable price. Location : Dehiattakandiya Our direct links with farming communities and entrepreneurs Partners : USAID/CORE. provide us the strength to bring essential commodities to Objective : To raise productivity, profitability and consumers minus the intermediary costs. This is why our stability farmers engaged in minor products at our retail outlets and from our manufacturing highland crops by strengthening input facilities are of better quality and are easier to afford. support, knowledge and know-how base of farmers and establishing strong buyback 5. Responsible to our Partners arrangements. Project Cost : SLR. 35 Million Working directly with our partners to overcome challenges, providing No. of farmers : 500 farmers (stage 1) knowledge and resources to help them succeed. 2. Project : Northern Horticultural Alliance (NHA) Our focus on rural development involves our direct Project investment in and engagement with the agriculture sector. Our Locations : Jaffna & Killinochchi investments have improved livelihoods for rural Sri Lankans Partner : USAID in economically meaningful, environmentally sustainable and Objective : Sustainable Livelihoods through Processing socially responsible ways. Today we are a global role model in and Value addition. corporate driven rural development. Each year, Cargills works Aim to resuscitate economic and directly with thousands of farmers and small scale entrepreneurs employment security of fruit and vegetable to help increase their productivity, thereby helping to raise farmers of Northern Province by improving their standard of living and increase our access to quality raw cultivation and infusing value adding materials. processes Project Cost : SLR. 135 Million 5.1 Sustainable Agribusiness 3. Project : Vegetable Processing Unit for Boralanda Promoting and practicing sustainable agribusiness is an Location : Boralanda important part of our commitment to conduct business with Partner : IFAD integrity and responsibility, treat people with dignity and Objective : Vegetable Collection Center respect, and help protect and conserve the environment. We A new vegetable collection center established work with business partners, governments, nongovernmental at Boralanda. Land for building has been organizations and communities to foster sustainable economic allotted by the Divisional Secretariat development and promote responsible practices throughout Walimada. our agribusiness supply chains. Together, our activities are Project Cost : SLR. 3.5 Million improving agricultural and labor practices, as well as helping to No. of farmers : 300 farmers (Stage 1) conserve the environment. 4. Project : Passion Fruit Cultivation 5.1.1 Farmer Training and Development Locations : Monaragala & Galgamuwa Partner : IFAD Our team works directly with farmers to overcome challenges, Objective : Provide passion fruit seeds/seedlings, providing knowledge and resources to help farmers succeed. technical support in terms of professional Across Sri Lanka thousands of farmers have participated in guidance to farmers on scientific methods Cargills productivity and product quality enhancing programs. of cultivation and management of passion We have committed to expanding this program to a larger fruit crop. Annual Report 2011 25

Sustainability report contd...

Expected Annual we have with the fields they sow, the families they nurture, the Crop yield : To surpass 1250 MT and cater to both local communities they live in and the schools where their children market and international markets learn. Cargills has therefore initiated farmer community No. of farmers : 250 farmers from Monaragala & Uva development funds where 50 cents is given back to the village Provinces against each kilogram of vegetables purchased from our farmers. This fund is used to provide scholarships for needy 5. Project : Cashew Processing Project children from the community, to provide resources for learning Location : Anamaduwa and advancement, to meet basic community infrastructure Partners : Green Vision / World Vision needs such as utility connections, community centres, libraries Objective : To revive the livelihoods of cashew etc. Our focus is to engage the communities that work with us cultivators in the area who are facing sever to charter their own course of development. economic hardships due to inability to face increasing competition 6. Responsible to Our Community Workforce : 200 strong workforce (mostly women). Would have over arching impact on the life Our continued success depends on the growth and health of the and living of rural poor in the region communities we work with.

6. Project : Seed Testing Project One Trust Sri Lanka Locations : Island wide Partner : Department of Agriculture One Trust came into being from the very heart of Cargills out Objective : In order to improve productivity and of compassion and empathy for our fellow Sri Lankans whose profitability of vegetable cultivation good lives were devastated in the Boxing Day Tsunami of 2004. quality high yielding seed is the most One Trust targeted the children who survived the mental and crucial intervention. As per the statutory physical trauma of the Tsunami disaster and helped rebuild requirements, systematic testing of the identified schools from Southern and Eastern coastal areas. imported seed would be conducted either at the farm of the Horticulture Research and Today One Trust has expanded its vision to heal the spirits and Development Institute (HORDI) or in the hearts of children affected by war and restore their ability to farmers’ fields. hope and dream.

7. Project : Yal Utpaththi One Trust in Vavuniya Location : Jaffna Peninsula Partners : Central Bank of Sri Lanka & Bank of The project is being supported by the Department of Probation Ceylon and Child Care Services which is coordinating the process Objective : Cargills and the Central of Bank of Sri of identifying beneficiaries’ currently in institutional care or Lanka have launched a joint programme to in the care of immediate family. The Department would also create markets for farmers from the Jaffna facilitate the process of channeling funds to the identified peninsula who specialize in Palmyrah based children in supporting and monitoring their educational needs. products. This follows the Central Bank’s This is done as a bi-annual event, where Cargills sponsor their Poverty Alleviation Microfinance Project educational needs through the One Trust Fund. These includes, funded by the Bank of Ceylon. Under the school text books, Uniforms, stationery items, cupboards, project farmers received micro-credit as mosquito nets, bedding, medicines, vaccines and other needs means of reinvigorating the traditional identified at the time of distribution. These identified children livelihoods. Cargills came forward to are given an opportunity to re-build their lives by re-opening provide a market for products made by the doors for education through ongoing school based projects. beneficiary farmers. An Inspired Swan Lake & Nut Cracker by Center Stage 5.2 Investing in regional economies Production

At Cargills a relationship we establish with farmers is a bond The One Trust partnership with Center-stage production is 26 Annual Report 2011

Sustainability report contd...

especially noteworthy where “An Inspired Swan Lake” and communities it works with across Sri Lanka. Accordingly One most recently ‘Nutcracker’ directed and choreographed by Trust complements the efforts of community development Jehan Aloysius brought together the cause of One Trust with initiated by Cargills by providing scholarships for higher the complementary and commendable efforts of ‘Center-Stage education as well as educational material including laptops for Productions. The participants of these production consisted tertiary level students. of an inspiring physically-challenged cast of soldiers from Ranaviru Sevana who were injured in the line of duty and One Trust in association with Deutsche Bank Colombo organized hearing impaired performers from the Sunera Foundation. One a one day programme that involved an educational tour of Trust will undoubtedly sponsor such events in the future as Colombo for 50 children in the Cargills farming community, means of promoting theater and art as a form of expression for many of whom who have never visited the commercial capital. those who are facing different forms of challenges. This would in turn inspire many others to transcend beyond their own This program was initiated with a broader aim to include challenges to re-discover their inner strength. children from communities that Cargills works with in the ‘Children of Change’ initiative carried out by Deutsche Bank, to One Trust in our Community igniting a spark, to embrace change, in the hearts of Sri Lankan

One Trust partners Cargills Agribusiness efforts to uplift the children in this new environment of peace.

7. Cargills compliance with global sustainability benchmarks

UNGC Principles Description of Principle Compliance

Human Rights

Principle 1 Businesses should support and respect the protection of internationally proclaimed human Comply rights.

Principle 2 Make sure that they are not complicit in human rights abuses. Comply

Labor

Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right Comply to collective bargaining.

Principle 4 The elimination of all forms of forced and compulsory labor. Comply

Principle 5 The effective abolition of child labor. Comply

Principle 6 Elimination of discrimination in respect of employment and occupation. Comply

Environment

Principle 7 Businesses should support a precautionary approach to environmental challenges. Comply

Principle 8 Undertake initiatives to promote greater environmental responsibility. Comply

Principle 9 Encourage the development and diffusion of environmentally friendly technologies. Comply

Anti- Corruption

Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery. Comply Annual Report 2011 27 28 Annual Report 2011

Financial information

Annual Report of the Directors on the affairs of the Company ...... 29 - 31 ...... Statement of Directors’ responsibilities 32 ...... Independent Auditors’ report 33 ...... Income statements 34 ...... Balance sheets 35 ...... Statements of changes in equity 36 ...... Cash flow statements 37 ...... Notes to the financial statements 38 - 66 ...... Annual Report 2011 29

Annual Report of the Directors on the affairs of the Company

The Directors are pleased to submit the Annual Report together with the audited financial statements of Cargills (Ceylon) PLC and consolidated audited financial statements of the Group for the year ended 31 March 2011.

Review of the year The chairman’s statement describes in brief the Group’s affairs, performance and important events of the year.

Activities Manufacturing of and trading in Food and Beverage and Distribution are the principal activities. The Group: a) Operates a chain of supermarkets, convenience stores and a hyper market. b) Distributes world renowned brands of beverages and other FMCG products. c) Manufactures / produces / processes and markets processed meats, dairy ice creams, milk, jams, cordials, sauces, biscuits and beverages. d) Operates the ‘Kentucky Fried Chicken’ franchise restaurants in Sri Lanka, by processing of agricultural produce. e) Operates a Hotel in hill - country. f) Operates a chain of photo processing outlets.

Financial statements The audited financial statements include the income statements, balance sheets, statements of changes in equity and notes to the financial statements of the Company and the Group for the financial year ended 31 March 2011 are given on page 34 to 66 form an integral part of the Annual Report of the Board.

Auditors’ report The auditors’ report is set out on page 33.

Accounting policies The accounting policies adopted in the preparation of the financial statements are given on the pages 38 to 43. There were no signifi- cant changes to the accounting policies of the Group during the year. Results and dividends Group Company

For the year ended 31 March 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Profit for the year after taxation amounted to 1,094,173 712,392 555,285 315,443 After deducting the amount attributable to minority interest of 5,623 - - - The profit attributable to shareholders was 1,088,550 712,392 555,285 315,443 To which profit brought forward from previous year is added 1,522,745 989,553 407,152 270,909 Transfer to General reserve 100,000 - 100,000 - Leaving an amount available to the Company for appropriation of 2,511,295 1,701,945 862,437 586,352 From which your Directors have made appropriations as follows : Dividend paid for the year ended 31 March 2010 Interim 20 Cents per share - 44,800 - 44,800 Final 30 Cents per share - 67,200 - 67,200 Interim 30 Cents per share - 67,200 - 67,200 Dividend paid for the year ended 31 March 2011 Final 80 Cents per share 179,200 - 179,200 - Interim 50 Cents per share 112,000 - 112,000 - Leaving an unappropriated balance to be carried forward of 2,220,095 1,522,745 571,237 407,152 2,511,295 1,701,945 862,437 586,352

An interim dividend of 50 Cents per share (Rs. 112,000,000) was paid on 7 February 2011 for the year ended 31 March 2011. A final dividend of Rs. 1 per share (Rs. 224,000,000) is proposed for the year ended 31 March 2011. These will be reflected in the subsequent year’s financial statements. (refer note 11 to the financial statements on page 47).

Reserves After the above mentioned appropriations, the total reserves of the Group stands at Rs. 6,829 Mn (2010 - Rs. 6,010 Mn), while the total reserves of the Company stand at Rs. 4,675 Mn (2010 - Rs. 4,391 Mn).

Stated capital Stated capital of the Company as at 31 March 2011 was Rs. 131 Mn. The details of the stated capital is given in note 21 to the financial statements on page 55. 30 Annual Report 2011

Annual Report of the Directors on the affairs of the Company contd...

Capital expenditure The Group’s capital outlay on property, plant and equipment amounted to Rs. 1,408.9 Mn (2010 - 602.7 Mn) while the capital outlay of the Company on property, plant and equipment amounted to Rs. 877.2 Mn (2010 - Rs. 458.4 Mn). Details are given in note 12 to the financial statements on pages 48 and 49.

The movement of property, plant and equipment during the year is given in note 12 to the financial statements on pages 48 and 49.

Market value of properties The Group land and buildings were revalued as at 31 March 2010. Details are given in note 12 to the financial statements on pages 48 and 49. The portfolio of the revalued land and buildings are given on page 69 to the financial statements.

Shareholdings The Company is a subsidiary of C T Holdings PLC and there were 2,243 of registered share holders as at 31 March 2011 (2010 - 1,922). An analysis of shareholdings according to the size of holding and the names of the 20 largest shareholders is given on pages 70 and 71.

Directorate The Directors listed on the inner back cover have been Directors of the Company throughout the year under review except for Mr. M I Abdul wahid who was appointed on 21 May 2010.

Messrs A T P Edirisinghe, E A D Perera and S E C Gardiner retire by rotation in terms of the Company’s Articles of Association and being eligible offer themselves for re - election.

Mrs. S R Thambiayah tendered her resignation on 21 May 2010 in keeping with the newly established Company policy with regard to Directors over 70 years of age which reads thus:

“Group Policy on Retirement Age of Directors A Director to retire on reaching the age of 70 years provided such Director has completed five years as a Director of such Company. Such Director may continue up to the said 5 years at his/her request unless the Company decides otherwise.”

With the resignation of Mrs. S R Thambiayah Mr. M I Abdul Wahid was appointed to the Board in the capacity of Managing Director & Deputy CEO on 21 May 2010.

Consequent to the appointment of Mr. M I Abdul Wahid as Managing Director, Mr. V R Page’s designation was changed from ‘Deputy Chairman and Managing Director’ to ‘Deputy Chairman and CEO’.

Mr. Jayantha Dhanapala (72) is due to retire in terms of Section 210 (2) (b) of the Companies Act No. 7 of 2007, and offers himself for re-election in terms of Section 211 (1) and (2) of the Companies Act No. 7 of 2007.

The newly established Company policy with regard to Directors over 70 years of age does not apply to Mr. Jayantha Dhanapala as he has not completed 5 years as a Director of the Company being first appointed a Director on 1 June 2008. The re - election of the retiring Directors has the unanimous support of the other Directors.

Directors’ remuneration The remuneration of the directors is given in note 35 on page 63 to the consolidated financial statements.

Directors’ interests in contracts Directors’ interest in transactions of the Company are disclosed in note 35 to the financial statements and have been declared at meetings of the directors. The directors have had no direct or indirect interest in any other contracts in relation to the business of the Company.

Interest register The Company maintains an Interest Register conforming to the Provisions of the Companies Act No. 7 of 2007.

Directors’ shareholding The Directors’ shareholdings in the Company were as follows: Annual Report 2011 31

Annual Report of the Directors on the affairs of the Company contd...

As at As at 31 March 2011 31 March 2010

Mr. L R Page 36,760 36,760 Mr. V R Page 14,380,200 14,285,000 Mr. M I Abdul Wahid (w.e.f. 21 May 2010) 4,000 - Mr. S V Kodikara 124,000 124,000 Mr. P S Mathavan 500 20,000 Mr. Jayantha Dhanapala - - Mr. A T P Edirisinghe 50,000 50,000 Mr. S E C Gardiner 20,000 20,000 Mr. Sunil Mendis 20,000 20,000 Mr. Anthony A Page 5,050,000 4,838,500 Mr. J C Page 1,705,500 1,705,500 Mr. E A D Perera 10,000 20,000 Mrs. S R Thambiayah (resigned w.e.f. 21 May 2010) - 40,000

Donations During the year Rs. 8,765 (2010 - Rs. 71,696) had been made by the Company.

Auditors Messrs KPMG Ford, Rhodes, Thornton & Co. are deemed reappointed as Auditors at the Annual General Meeting of the Company in terms of Section 158 of the Companies Act No. 7 of 2007. The Directors have been authorised to determine the remuneration of the Auditors and the fee paid to auditors are disclosed in note 7 to the financial statements. As far as the Directors are aware, the auditors do not have any relationship (other than that of an auditor) with the Company or any of its Subsidiaries other than those disclosed in the above note.

Post balance sheet events Post balance sheet events of the Company are given in note 34 to the financial statements on page 63.

Statutory payments All statutory payments due to the Government of Sri Lanka and on behalf of employees have been made or accrued for the balance sheet date.

Future developments The chairman’s statement describes the future developments of the Group.

Environmental protection After making adequate enquiries from the management, the Directors are satisfied that the Company and its subsidiaries operate in a manner that minimizes the detrimental effect on the environment and provide products and services that have a beneficial effect on the customers and the communities within which the Group operates.

Going concern The directors have adopted the Going concern basis in preparing these financial statements. After making enquiries from the man- agement, the Directors are satisfied that the Group has adequate resources to continue its operations in the foreseeable future.

For and on behalf of the Board

Signed M I Abdul Wahid (Managing Director / Deputy CEO) Signed P S Mathavan (Executive Director / CFO)

Signed S L W Dissanayake (Company Secretary)

17 August 2011 32 Annual Report 2011

Statement of Directors’ responsibilities

The Companies Act No. 7 of 2007 places the responsibility on and the Group and for ensuring that the financial statements the Directors to prepare and present financial statements for are prepared and presented in accordance with the Sri Lanka each year comprising a balance sheet as at year end date and Accounting Standards and provide the information required by statements of income, cash flows and changes in equity for the the Companies Act. year together with the accounting policies and explanatory notes. The responsibility of the auditors with regard to these The Directors are responsible for the proper management of financial statements, which differ from that of the Directors, is the resources of the Company. The internal control system has set out in the Auditors’ report (page 33). been designed and implemented to obtain reasonable but not absolute assurance that the Company is protected from undue Considering the present financial position of the Company risks, frauds and other irregularities. The Directors are satisfied and the forecasts for the next year, the Directors have adopted that the control procedures operated effectively during the the going concern basis for the preparation of these financial year. statements. The Directors, to the best of their knowledge and belief, are The Directors confirm that the financial statements have been satisfied that all statutory payments have been made up to date prepared and presented in accordance with the Sri Lanka or have been provided for in these financial statements. Accounting Standards, which have been consistently applied and supported, by reasonable and prudent judgments and By order of the Board estimates. S L W Dissanayake The Directors are responsible for ensuring that the Company Company Secretary maintains adequate accounting records to be able to disclose with reasonable accuracy, the financial position of the Company 17 August 2011 Annual Report 2011 33

Independent Auditors’ report

KPMG Ford, Rhodes, Thornton & Co Tel : +94 - 11 242 6426 (Chartered Accountants) +94 - 11 542 6426 32A, Sir Mohamed Macan Markar Mawatha Fax : +94 - 11 244 5872 P. O. Box 186, +94 - 11 244 6058 Colombo 00300 +94 - 11 254 1249 Sri Lanka +94 - 11 230 7345 Internet : www.lk.kpmg.com

TO THE SHAREHOLDERS OF CARGILLS (CEYLON) PLC

Report on the Financial Statements We have audited the accompanying financial statements of We have obtained all the information and explanations which Cargills (Ceylon) PLC (the “Company”), the consolidated to the best of our knowledge and belief were necessary for financial statements of the Company and its subsidiaries as at the purposes of our audit. We therefore believe that our audit 31 March 2011 which comprise the balance sheet as at 31 March provides a reasonable basis for our opinion. 2011, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary Opinion of significant accounting policies and other explanatory notes In our opinion, so far as appears from our examination, the as set out on pages 34 to 66 of this Annual Report. Company maintained proper accounting records for the year ended 31 March 2011 and the financial statements give a true Management’s Responsibility for the Financial Statements and fair view of the Company’s state of affairs as at 31 March Management is responsible for the preparation and fair 2011 and its profit and cash flows for the year then ended in presentation of these financial statements in accordance with accordance with Sri Lanka Accounting Standards. Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control In our opinion, the consolidated financial statements give a relevant to the preparation and fair presentation of financial true and fair view of the state of affairs as at 31 March 2011 and statements that are free from material misstatement, whether the profit and cash flows for the year then ended, in accordance due to fraud or error; selecting and applying appropriate with Sri Lanka Accounting Standards, of the Company and accounting policies; and making accounting estimates that are its subsidiaries dealt with thereby, so far as concerns the reasonable in the circumstances. shareholders of the Company.

Scope of Audit and Basis of Opinion Report on Other Legal and Regulatory Requirements Our responsibility is to express an opinion on these financial These financial statements also comply with the requirements statements based on our audit. We conducted our audit of Sections 153 (2) to 153 (7) as appropriate of the Companies in accordance with Sri Lanka Auditing Standards. Those Act No. 7 of 2007. standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. Signed KPMG Ford, Rhodes, Thornton & Co. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial Chartered Accountants statements. An audit also includes assessing the accounting Colombo policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation. 17 August 2011 34 Annual Report 2011

Income statements

Group Company

For the year ended 31 March 2011 2010 2011 2010 Notes Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Revenue 3 37,128,661 30,874,797 29,669,660 17,328,142

Cost of sales 4 (33,646,234) (28,234,424) (28,210,024) (16,732,614)

Gross profit 3,482,427 2,640,373 1,459,636 595,528

Other income 5 582,450 510,453 633,048 634,121 Distribution costs (635,971) (506,121) (176,045) (110,907) Administrative expenses (1,412,112) (1,072,180) (806,978) (437,074) Other expenses (191,352) (142,980) (59,306) (38,947)

Operating profit 1,825,442 1,429,545 1,050,355 642,721

Finance costs 6 (363,946) (428,819) (294,248) (297,234)

Share of loss of equity accounted investee 14.4 (54,793) - - -

Profit before taxation 7 1,406,703 1,000,726 756,107 345,487

Income tax expense 8 (312,530) (288,334) (200,822) (30,044)

Net profit for the year 1,094,173 712,392 555,285 315,443

Attributable to : Equity shareholders of the parent 1,088,550 712,392 555,285 315,443 Minority interest 5,623 - - - 1,094,173 712,392 555,285 315,443

Earnings per share (Rs.) 10 4.86 3.18 2.48 1.41 Dividend per share (Rs.) 11 1.50 1.10 1.50 1.10 Dividend paid per share (Rs.) 1.30 0.80 1.30 0.80

The accounting policies and notes from pages 38 to 66 form an integral part of these financial statements. Annual Report 2011 35

Balance sheets

Group Company

As at 31 March 2011 2010 2011 2010 Notes Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

ASSETS Non - current assets Property, plant and equipment 12 11,104,597 8,691,716 7,471,198 6,515,762 Intangible assets 13 1,054,384 291,923 - - Investments in subsidiaries 14.1 - - 1,668,553 1,668,453 Investment in associate 14.2 161,282 216,075 216,075 216,075 Advance paid for acquisition of assets 15 1,205,425 - - - Prepayment on leasehold land and building 16 28,875 29,750 - - Deferred tax assets 17 14,315 21,777 - - 13,568,878 9,251,241 9,355,826 8,400,290 Current assets Inventories 18 3,576,322 3,059,389 2,707,913 1,823,335 Trade and other receivables 19 1,584,089 1,119,749 699,823 474,571 Amount due from related companies 20 197,079 252,941 2,800,698 268,757 Short term investments 14.3 75,587 3,759 46,965 3,672 Cash and cash equivalents 23 303,645 261,763 246,161 160,051 5,736,722 4,697,601 6,501,560 2,730,386 Total assets 19,305,600 13,948,842 15,857,386 11,130,676

EQUITY Stated capital 21 130,723 130,723 130,723 130,723 Reserves 22 4,608,892 4,487,687 4,103,606 3,983,518 Retained earnings 2,220,095 1,522,745 571,237 407,152 Total equity attributable to equity holders of the company 6,959,710 6,141,155 4,805,566 4,521,393 Minority interest 89,723 - - - Total Equity 7,049,433 6,141,155 4,805,566 4,521,393

LIABILITIES Non - current liabilities Borrowings 24 384,167 198,499 - - Deferred tax liability 25 328,458 360,352 287,662 324,195 Capital grant 26 2,389 - - - Retirement benefit obligations 27 192,761 163,360 164,553 150,270 907,775 722,211 452,215 474,465

Current liabilities Trade and other payables 28 4,817,170 4,086,484 3,843,632 3,433,827 Current tax liability 277,501 181,175 229,719 57,983 Amount due to related companies 20 1,636 4,166 1,035,803 349,704 Dividend payable 29 17,610 14,080 17,609 14,080 Borrowings 24 6,234,475 2,799,571 5,472,842 2,279,224 11,348,392 7,085,476 10,599,605 6,134,818 Total liabilities 12,256,167 7,807,687 11,051,820 6,609,283 Total equity and liabilities 19,305,600 13,948,842 15,857,386 11,130,676

I certify that these financial statements have been prepared in accordance with the requirements of the Companies Act No. 7 of 2007.

Signed K D N S Perera (General Manager - Finance)

The Board of Directors is responsible for the preparation and presentation of these financial statements. The accounting policies and notes from page 38 to 66 form an integral part of these financial statements. These financial statements have been approved by the Board on 17 August 2011.

Signed for and on behalf of the Board

Signed M I Abdul Wahid (Managing Director / Deputy CEO) Signed P S Mathavan (Executive Director / CFO)

Colombo 36 Annual Report 2011

Statements of changes in equity

Attributable to equity holders of Parent Stated Capital Revaluation General Retained Total Minority Total capital reserve reserve reserve earnings interest Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Group

Balance as at 1 April 2009 130,723 7,928 619,000 385,500 989,553 2,132,704 - 2,132,704 Revaluation - - 3,571,724 - - 3,571,724 - 3,571,724 Net profit for the year - - - - 712,392 712,392 - 712,392 Deferred tax on revaluation - - (96,465) - - (96,465) - (96,465) Dividends - - - - (179,200) (179,200) - (179,200) Balance as at 31 March 2010 130,723 7,928 4,094,259 385,500 1,522,745 6,141,155 - 6,141,155

Balance as at 1 April 2010 130,723 7,928 4,094,259 385,500 1,522,745 6,141,155 - 6,141,155 Acquisition of subsidiaries ------84,100 84,100 Net profit for the year - - - - 1,088,550 1,088,550 5,623 1,094,173 Deferred tax on revaluation - - 21,205 - - 21,205 - 21,205 Transferred to General reserve - - - 100,000 (100,000) - - - Dividends - - - - (291,200) (291,200) - (291,200) Balance as at 31 March 2011 130,723 7,928 4,115,464 485,500 2,220,095 6,959,710 89,723 7,049,433

Stated Revaluation General Retained Total capital reserve reserve earnings Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Company

Balance as at 1 April 2009 130,723 619,000 385,500 270,909 1,406,132 Revaluation - 3,072,021 - - 3,072,021 Net profit for the year - - - 315,443 315,443 Deferred tax on revaluation - (93,003) - - (93,003) Dividends - - - (179,200) (179,200) Balance as at 31 March 2010 130,723 3,598,018 385,500 407,152 4,521,393

Balance as at 1 April 2010 130,723 3,598,018 385,500 407,152 4,521,393 Transferred to General reserve - - 100,000 (100,000) - Net profit for the year - - - 555,285 555,285 Deferred tax on revaluation - 20,088 - - 20,088 Dividends - - - (291,200) (291,200) Balance as at 31 March 2011 130,723 3,618,106 485,500 571,237 4,805,566

The accounting policies and notes from pages 38 to 66 form an integral part of these financial statements. Annual Report 2011 37

Cash flow statements

Group Company

For the year ended 31 March 2011 2010 2011 2010 Notes Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Cash flows from operating activities Profit before tax 1,406,703 1,000,726 756,107 345,487

Adjustments for: Depreciation 12 851,291 772,852 535,586 455,641 Retirement benefit obligations 27 28,454 79,693 24,753 75,816 Amortisation of intangible assets 13 7,785 7,478 - - Amortisation of prepayment on leasehold land & building 16 875 875 - - Loss / (profit) on sales of property, plant and equipment 5 151 (8,604) 113 (2,825) Impairment of property, plant and equipment 12 10,967 - - - Write-off of capital work in progress 814 - - - Amortisation of capital grant 26 (477) - - - Share of Associate results 14.4 54,793 - - - Profit from disposal of investments 5 (7,768) - (7,768) - Provision for inventories 11,355 6,276 - - Provision / (reversal) for doubtful debtors 9,186 (16,658) - (10,222) Provision / (reversal) for investments 1,844 (506) 1,877 (461) Finance cost 6 363,946 428,819 294,248 297,234 Dividend income 5 (8) - (48,603) (275,382)

Operating profit before working capital changes 2,739,911 2,270,951 1,556,313 885,288

Changes in working capital - (Increase) / decrease in inventories (417,291) (415,879) (884,578) (236,934) - (Increase) / decrease in trade and other receivables (214,243) 11,374 (164,244) 61,062 - (Increase) / decrease in related company receivables 115,368 20,976 (1,445,653) 3,842 - Increase / (decrease) in trade and other payables 464,888 168,963 409,805 57,149 - Increase / (decrease) in related company payables (14,431) (4,510) 686,099 408,082

Cash generated from operations 2,674,202 2,051,875 157,742 1,178,489 Taxes paid (210,753) (240,624) (106,539) (68,836) Interest paid (363,946) (428,819) (294,248) (297,234) Gratuity paid 27 (11,228) (7,888) (10,470) (7,309) Net cash generated from / (used in) operating activities 2,088,275 1,374,544 (253,515) 805,110

Cash flows from investing activities Addition of property, plant and equipment (2,188,963) (835,266) (1,491,135) (539,690) Addition to intangible assets 13 (5,853) - - - Acquisition of subsidiaries 14.6 (1,380,668) - (1,037,785) - Advance paid for acquisition of assets 15 (1,205,425) - - - Short term investments (64,535) - (37,402) - Investment in associates - (216,075) - (216,075) Sales of property, plant and equipment 826 11,021 - 4,609 Dividend received 5 8 - - - Net cash generated from / (used in) investing activities (4,844,610) (1,040,320) (2,566,322) (751,156)

Cash flows from financing activities Net proceeds from short term borrowings 1,920,315 717,062 2,039,980 634,980 Repayments of long term borrowings 24 (143,776) (701,337) (49,999) (550,001) Dividend paid (287,671) (172,676) (287,671) (172,676) Net cash generated from / (used in) financing activities 1,488,868 (156,951) 1,702,310 (87,697)

Increase / (decrease) in cash and cash equivalents (1,267,467) 177,273 (1,117,527) (33,743)

Movement in cash and cash equivalents At the beginning of the year (806,429) (983,702) (819,194) (785,451) On acquisition of subsidiaries 14.6 (196,547) - - - Movement during the year (1,267,467) 177,273 (1,117,527) (33,743) At the end of the year 23 (2,270,443) (806,429) (1,936,721) (819,194)

The accounting policies and notes from pages 38 to 66 form an integral part of these financial statements. 38 Annual Report 2011

Notes to the financial statements

1.1 Reporting entity 1.3.1.1 Subsidiaries

Cargills (Ceylon) PLC is a quoted public limited liability Subsidiaries are all entities over which the Group has Company incorporated and domiciled in Sri Lanka. The the power to govern the financial and operating policies registered office of the Company is located at 40, York generally accompanying a shareholding of more than one Street, Colombo 1. half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible The principal activities of the Group are operation of large are considered when assessing whether the Group controls supermarket chain, “Food City” in Sri Lanka, manufacture/ another entity. Subsidiaries are fully consolidated from the produce/ process and marketing of “ Cargills Magic” date on which control is transferred to the Group. They are ice cream and dairy products, “Kist” fruit base products de-consolidated from the date that control ceases. “Supremo” meat products, “Kotmale” dairy products, “Helan” biscuits and franchise holder to operate Kentucky The purchase method of accounting is used to account for Fried Chicken (KFC) restaurants in Sri Lanka, by processing the acquisition of subsidiaries by the Group. The cost of an agricultural produce. Further the subsidiary Millers Limited acquisition is measured as the fair value of the assets given, engages in Island wide distribution of fast moving consumer equity instruments issued and liabilities incurred or assumed goods, operation of hotel in Bandarawela and operation of at the date of exchange, plus costs directly attributable to the chain of photo processing outlets. acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are The Company, in the Financial Statements, refers to Cargills measured initially at their fair values at the acquisition date, (Ceylon) PLC and Group refers to the Company and all irrespective of the extent of any minority interest. The excess its subsidiaries whose financial statements have been of the cost of acquisition over the fair value of the Group’s consolidated. share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value 1.2 Basis of preparation of the net assets of the subsidiary acquired, the difference is The financial statements are prepared in accordance with recognised directly in the income statement. and comply with Sri Lanka Accounting Standards (SLAS) Inter - company transactions, balances and unrealised gains laid down by the Institute of Chartered Accountants of Sri on transactions between group companies are eliminated. Lanka and the requirements of Companies Act No. 7 of 2007. Unrealised losses are also eliminated but considered an These financial statements have been prepared under the impairment indicator of the asset transferred. Accounting historical cost convention, as modified by the revaluation of policies of subsidiaries have been changed where necessary free hold land and building. to ensure consistency with the policies adopted by the The preparation of financial statements in conformity with Group. SLASs requires the use of certain critical accounting estimates. The subsidiary undertakings financial years are coterminous It requires management to exercise their judgment in the with that of the Company. process of applying the Company’s accounting policies. The areas where assumptions and estimate are significant to the 1.3.1.2 Minority interests consolidated financial statements are disclosed. Minority interest is measured at the minorities’ share of the The directors have made an assessment of the Group’s ability post acquisition fair values of the identifiable assets and to continue as a going concern in the foreseeable future, and liabilities of the acquired entity. Separate disclosure is made they do not intend either to liquidate or cease operations. of minority interest.

1.3 Significant accounting policies The Group applies a policy of treating transactions with minority interests as transactions with parties external to the These accounting policies applied by the Group are, unless Group. Disposals to minority interests result in gains and otherwise stated, consistent with those used in the previous losses for the Group are recorded in the income statement. year. Previous year figures and phrases have been re- Purchases from minority interests result in goodwill, being arranged, wherever necessary, to conform to the current the difference between any consideration paid and the year’s presentation. relevant share acquired of the carrying value of net assets of 1.3.1 Basis of consolidation the subsidiary.

The consolidated financial statements (referred to as the 1.3.1.3 Associates “Group”) comprise the financial statements of the Company and its subsidiaries and the Group’s interest in associate Associates are all entities over which the Group has companies. Subsidiaries and associates consolidated are significant influence but not control, generally accompanying disclosed in note 14 to the financial statements. a shareholding of between 20% and 50% of the voting rights. Annual Report 2011 39

Notes to the financial statements contd...

Investments in associates are accounted for using the equity statements are presented in Sri Lankan Rupees, which is the method of accounting and are initially recognised at cost. Company’s functional and presentation currency. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment Foreign currency transactions are translated into the loss. functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and The Group’s share of its associates’ post-acquisition profits losses resulting from the settlement of such transactions and or losses is recognised in the income statement, and its share from the translation at year-end exchange rates of monetary of post-acquisition movements in reserves is recognised in assets and liabilities denominated in foreign currencies are reserves. The cumulative post acquisition movements are recognized in the income statement. adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals 1.3.3 Assets and bases of their valuation or exceeds its interest in the associate, including any other 1.3.3.1 Property, plant and equipment unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments Recognition and measurement on behalf of the associate. The property, plant and equipment are measured at cost/fair Unrealised gains on transactions between the Group and its value less accumulated depreciation and any accumulated associates are eliminated to the extent of the Group’s interest impairment losses. in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment The cost of property, plant and equipment includes of the asset transferred. Accounting policies of associates expenditures that are directly attributable to the acquisition have been changed where necessary to ensure consistency of the asset. When a property, plant and equipment with the policies adopted by the Group. comprise components which has different useful life, they are accounted for as a separate items of property, plant and Dilution gains and losses in associates are recognised in the equipment. income statement. Carrying amounts of property plant and equipment are 1.3.1.4 Goodwill reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not Goodwill represents the excess of the cost of an acquisition be recoverable. An asset’s carrying amount is written down over the fair value of the Group’s share of the net identifiable immediately to its recoverable amount if the asset’s carrying assets of the acquired subsidiary at the date of acquisition. amount is greater than its estimated recoverable amount. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill acquired in a business All the property, plant and equipment are initially recorded combination is tested annually for impairment, or more at cost. Where items of property, plant and equipment are frequently if events or changes in circumstance indicate that subsequently revalued, any increases in the carrying amount it might be impaired; and carried at costs less accumulated are credited to revaluation reserve in shareholders’ equity. impairment losses. Separately recognised goodwill is tested Decreases that offset previous increases of the same asset are annually for impairment and carried at cost less accumulated charged against the revaluation reserve directly in equity, impairment losses. Impairment losses on goodwill are not any excess and all other decreases are charged to the income reversed. statement. Revaluation of property, plant and equipment are undertaken by professionally qualified independent Goodwill is allocated to cash-generating units for the purpose valuers. of impairment testing. The allocation is made to those cash generating units or groups of cash generating units that are Subsequent cost expected to benefit from the business combination in which Subsequent costs are included in the asset’s carrying amount the goodwill arose. or recognised as a separate asset, as appropriate, only when 1.3.1.5 Reporting date it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item All the Group’s subsidiaries and associate company have a can be measured reliably. Property, plant and equipment common financial year ends on the 31 March. are derecognised upon replacement, disposal or when no future economic benefits are expected from its use. Any 1.3.2 Transactions in foreign exchange gain or loss arising on derecognition of property plant and Items included in the financial statements of each of the equipment is included in the income statement in the year it Group’s entities are measured using the currency of the is derecognised. All other repairs and maintenance costs are primary economic environment in which the entity operates charged to the income statement during the financial period (‘the functional currency’). The consolidated financial in which they are incurred. 40 Annual Report 2011

Notes to the financial statements contd...

Depreciation of transaction. Provision for impairment is made in the income statement, when there has been a decline other than Provision for depreciation is calculated based on their temporary in the value of investments, determined on an estimated useful lives of each part of an item of property, individual basis. plant and equipment other than land. Depreciation is calculated using straight line method to allocate their cost Marketable securities which have been classified under or revalued amounts to their residual values over their short term investments are valued at lower of cost and estimated useful lives. market value, on an aggregate portfolio basis. Market value is calculated by reference to closing share values as The estimated useful lives are as follows at the balance sheet date published by the Colombo Stock Exchange. Freehold buildings 50 years Plant and machinery 5 years 1.3.3.4 Intangible assets Office and other equipment 5 years Furniture and fittings 5 years Franchisee fee IT equipment and software 3 - 5 years Motor vehicles 4 years Franchisee fee are shown at historical cost. Franchisee Air condition and refrigeration 5 -10 years fee have a finite useful life and are carried at cost less Improvements to leasehold assets 4 -10 years accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of Franchisee fee Improvements on leasehold buildings and buildings over their estimated useful life of 10 years. constructed on leasehold land are amortised over the lower of their economic useful lives or unexpired period of lease. Computer software

Depreciation of an asset begins when it is available for use Acquired computer software licences are capitalised on and ceases at the earlier of the date that the assets is classified the basis of the costs incurred to acquire and bring to use as held for sale and the date that the assets is derecognised. the specific software. These costs are amortised over their estimated useful life of 4 years. The useful life, depreciating methods and residual values are assessed annually or in an earlier date where any Costs associated with developing or maintaining computer circumstance indicates such assessment is required. software programmes are recognised as an expense as incurred. Costs that are directly associated with the 1.3.3.2 Leases production of identifiable and unique software products controlled by the Group, and that will probably generate Finance leases economic benefits exceeding costs beyond one year, are Assets are classified as acquired by finance leases when by recognised as intangible assets. Costs include the software an agreement, the Group substantially assumes the risk and development employee costs and an appropriate portion rewards incidental to the ownership of an asset. of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated Assets acquired by the way of finance lease are measured useful lives. at an amount equal to the lower of their fair value and the present value of minimum lease payments at the inception 1.3.3.5 Inventories less accumulated depreciation and accumulated impairment losses. Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price Operating leases in the normal course of business less estimated cost of realisation and/or cost of conversion from their existing When the lessor effectively retains substantially all the risks state to saleable condition. and rewards of an asset under the lease agreement, such leases are classified as operating leases. Payments under The cost of each category of inventory of the Group is operating leases are recognised as an expense in the income determined on the following basis. statement over the period of lease on a straight line basis. Raw Materials - Actual cost on a First In First Out 1.3.3.3 Investments (FIFO) basis Finished goods and - Directly attributable Quoted and unquoted investments held on long term basis work-in-progress manufacturing cost are classified as non-current investments and are measured Merchandising goods - Actual cost on a First In First Out at cost less impairment losses. The cost of the investment (FIFO) basis is the cost of acquisition inclusive of brokerage and cost Other inventories - Actual cost Annual Report 2011 41

Notes to the financial statements contd...

1.3.3.6 Receivables 1.3.4.3 Employee benefits

Trade receivables are recognised at the amounts that they Defined benefit plan – retiring gratuity are estimated to realise less provision for impairment. A provision for impairment of trade receivables is established A defined benefit plan is a post employment benefit when there is objective evidence that the Group will not be plan other than a defined contribution plan. The liability able to collect all amounts due according to the original terms recognised in the balance sheet, in respect of defined benefit of receivables. Significant financial difficulties of the debtor, plan is the present value of defined benefit obligation at the probability that the debtor will enter bankruptcy or financial balance sheet date. Benefits falling due more than 12 months reorganisation, and default or delinquency in payments are after the balance sheet date are discounted to present value. considered indicators that the trade receivable is impaired. The defined benefit obligation is calculated annually The amount of the provision is the difference between the by independent actuaries using Projected Unit Credit asset’s carrying amount and the estimated realisable value. Method (PUC) as recommended by SLAS 16 - “Employees The amount of the provision is recognised in the income benefits”. statement within selling and distribution costs. When a trade receivable is uncollectible, it is written off against The actuarial gains and losses are credited or charged to the allowance account for trade receivables. Subsequent income statement in the period in which they arise. recoveries of amounts previously written off are credited in The assumptions based on which the results of the actuarial the income statement. valuation was determined, are included in Note 27 to the 1.3.3.7 Cash and cash equivalents financial statements.

Cash and cash equivalents comprise cash in hand and at However, according to the Payment of Gratuity Act No.12 bank and short term highly liquid investments, readily of 1983, the liability for the gratuity payment to an employee convertible to known amounts. arises only on the completion of 5 years of continued service

For the purpose of cash flow statements, cash and cash with the Company. equivalents comprise cash in hand and at bank net of Defined contribution plan - Employees’ Provident Fund outstanding bank overdraft. and Employees’ Trust Fund

Cash flow statement is prepared based on the indirect method. A defined contribution plan is a post employment benefit 1.3.3.8 Impairment of assets plan under which an entity pays fixed contribution into a separate entity and will have no legal or constructive Assets that have an indefinite useful life, for example land, obligations to pay further amounts. are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are All the employees who are eligible for Employees’ Provident reviewed for impairment annually or at an earlier date Fund and Employees’ Trust Fund are covered by relevant where events or changes in circumstances indicate that the contribution funds in line with the respective statutes. carrying amount may not be recoverable. An impairment Employer’s contribution to the defined contribution plans loss is recognised in the income statement for the amount by are recognised as an expense in the income statement when which the asset’s carrying amount exceeds its recoverable incurred. amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. 1.3.4.4 Provisions, contingent assets and contingent liabilities 1.3.4 Equity and liabilities Provisions are recognised when the Group has a legal 1.3.4.1 Stated capital or constructive obligation, as a result of past events, it is Incremental costs directly attributable to the issue of new probable that an outflow of resources embodying economic shares are shown in equity as a deduction, net of tax, from benefits will be required to settle the obligation and a reliable the proceeds. estimate of the amount of such obligation can be made.

1.3.4.2 Borrowings All contingent liabilities are disclosed, as notes to the financial statements unless the outflow of resources is Borrowings are classified as current liabilities unless the remote. Company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet Contingent assets if exist, are disclosed, when inflow of date. economic benefit is probable. 42 Annual Report 2011

Notes to the financial statements contd...

1.3.4.5 Commitments the property, plant and equipment in a state of efficiency has been charged to the income statement. All material commitments as at the balance sheet date have been identified and disclosed in the notes to the financial 1.3.5.5 Borrowing costs statements. Borrowing costs are recognised as an expense in the period 1.3.5 Income statement in which they are incurred. 1.3.5.1 Presentation 1.3.5.6 Disposal of property, plant and equipment The income statement is presented on the “function of Gain or losses on the disposal of property, plant and expenses” method, as it represents fairly the elements equipment have been accounted for in the income of Company performance and prescribed by Sri Lanka statement. Accounting Standards.

1.3.5.2 Revenue 1.3.5.7 Grants and subsidies

The turnover of the Company and Group represents invoiced Grants and subsidies related to assets are immediately value of goods to customers other than to companies in the recognised in the balance sheet as a deferred income and Group, net of discounts and returns. recognised in the income statement on a systematic and rational basis over the useful life of the asset. 1.3.5.3 Revenue recognition 1.3.5.8 Income tax expense Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and the revenue Current tax can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable, net of The provision for income tax is based on the element of trade discounts and value added taxes, net of sales within income and expenditure in the financial statements and is the Group. computed in accordance with the provisions of the Inland Revenue Act. The following specific criteria are used to recognize revenue. Deferred taxation

Revenue from sale of goods is recognised when the significant Deferred taxation is the tax attributable to the temporary risk and reward of ownership have been transferred to the differences that arise when the carrying amounts of assets buyer, the consideration is recoverable, the associated costs and liabilities and their value derived based on the taxation and possible return of goods can be estimated reliably and rules (tax base). there is no continuing management involvement with the goods. Deferred taxation is provided based on the balance sheet liability method on the temporary differences at the balance Rental income is recognised on an accrual basis. sheet date between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Interest income is recognised as it accrues.

Dividend income is recognised in the income statement on Deferred tax assets are recognised for all deductible an accrual basis when the company’s right to receive the temporary differences, carry forward of unused tax credits dividend is established. and unused tax losses only to the extent that it is probable that future taxable profits will be available against which Gains or losses of revenue nature arising from the disposal of the asset can be utilised. property, plant and equipment and other non-current assets, including investments, are accounted for in the income The carrying amount of deferred tax assets is reviewed at statement, after deducting from the net sales proceeds on each balance sheet date and reduced to the extent that it disposal the carrying amount of such assets. is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be All other income is recognised on an accrual basis. utilised. 1.3.5.4 Expenditure Deferred tax assets and liabilities are measured at tax rates Expenses are recognised in the income statement on the that are expected to apply to the year when the assets is basis of a direct association between the cost incurred realised or liability is settled, based on the tax rates that and the earning of specific items of income. All expenses have been enacted or substantively enacted as at the incurred in the running of the business and in maintaining balance sheet date. Annual Report 2011 43

Notes to the financial statements contd...

1.3.5.9 Segment information The Group is currently in the process of evaluating the potential effect of the adoption of these standards on its A business segment is a group of assets and operations financial statements. Such impact has not been quantified as engaged in providing products or services that are subject at the reporting date. to risks and returns that are different from those of other business segments. A geographical segment is engaged in 2 Risk Management providing products or services within a particular economic Credit risk environment that are subject to risks and returns that are different from those of segments operating in other Credit risk arises from cash and cash equivalents, deposits economic environments. with banks as well as credit exposure to customers including outstanding receivables. For bank and financial institutions A segment is a distinguishable component of the Group only rated financial institutions are accepted. The credit that is engaged either in providing products or services control assess the credit quality of customers, taking into (business/industry segment) or in providing products account their financial position, past experience and other or services within a particular economic environment factors. The individual risk limits are set based on internal geographical segment), which is subject to risks and rewards ratings in accordance with limits set by the Board. The that are different from those of other segments. utilisation of credit limits are regularly monitored.

The activities/businesses of the Group fall under the Food Liquidity risk & Beverages and Distributor categories. There are no distinguishable components to be identified as geographical Effective liquidity risk management includes maintaining segment for the Group. The business segments are reported sufficient cash and marketable securities and the availability based on the Group’s management and internal reporting of funding from adequate amount of committed credit structures. facilities. The Group maintains flexibility in funding by maintaining sufficient cash reserves and committed credit Inter segment pricing is determined at prices mutually lines. agreed by the companies. Interest rate risk Segment results, assets and liabilities include items directly The Group’s income and operating cash flows are attributable to a segment as well as those that can be allocated substantially independent of changes in market interest on a reasonable basis. Unallocated items mainly comprise rates. income earning assets and revenues, interest bearing loans, borrowings and expenses, corporate assets and expenses. The Group’s interest rate risk arises from long-term borrowings. The borrowings at variable rates expose the Segment capital expenditure is the total cost incurred during Group to cash flow interest rate risk whilst borrowings at the period to acquire segment assets, which are expected to fixed rates exposes the Group to interest rate risk. The Group be used for more than one accounting period. analyses its interest rate exposure on a dynamic basis. 1.3.6 Events occurring after the balance sheet date

All material post balance sheet events have been considered, disclosed and adjusted where applicable.

1.3.7 New accounting standards issued but not effective as at balance sheet date

The Institute of Chartered Accountants of Sri Lanka issued a new volume of Sri Lanka Accounting Standards which will become applicable for annual periods beginning on or after 1 January 2012. Accordingly these standards have not been applied in preparing these financial statements as they are not effective for the year ended 31 March 2011.

These Sri Lanka Accounting Standards comprise accounting standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Apllication of Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed to be an adoption of SLFRSs. 44 Annual Report 2011

Notes to the financial statements contd...

3 Revenue Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

3.1 Gross revenue Gross revenue 38,156,172 31,772,821 30,150,911 17,624,661 Turnover tax (1,027,511) (898,024) (481,251) (296,519) Net turnover 37,128,661 30,874,797 29,669,660 17,328,142

3.2 Business segment analysis Food and beverages 36,861,287 30,559,093 29,653,892 17,306,716 Wholesale distribution 3,172,727 2,792,425 15,768 21,426 Leisure 65,085 45,935 - - Photo processing 72,878 61,350 - - 40,171,977 33,458,803 29,669,660 17,328,142 Inter segment sales (3,043,316) (2,584,006) - - 37,128,661 30,874,797 29,669,660 17,328,142

3.3 Geographical dispersion of turnover The Group does not distinguish its turnover into significant geographical segments. The almost total turnover consists of turnover within Sri Lanka.

4 Cost of sales Cost of sales of the Company and Group include direct operating costs of super markets, factories and restaurants.

5 Other income Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Dividend income 8 - 48,603 275,382 Rental income 19,150 14,100 32,188 21,710 (Loss) / profit on sale of property, plant and equipment (151) 8,604 (113) 2,825 Merchandising income 534,032 473,675 544,602 333,457 Profit on sale of investments 7,768 - 7,768 - Exchange gain 6,329 10,899 - - Amortisation of capital grant 477 - - - Sundry income 14,837 3,175 - 747 582,450 510,453 633,048 634,121

6 Finance costs Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Interest expense on - Commercial papers and loans 139,814 150,647 120,243 122,183 - Bank overdrafts 107,545 85,309 95,452 63,696 - Other loans and bank charges 116,186 192,486 78,152 110,978 - Staff security deposits 401 377 401 377 363,946 428,819 294,248 297,234 Annual Report 2011 45

Notes to the financial statements contd...

7 Profit before taxation Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Profit before taxation is stated after charging all expenses including the following :

Staff costs (Note 7 (a)) 1,995,461 1,664,220 1,452,358 912,508 Auditors’ remuneration - audit 3,981 2,345 690 575 - non audit services 462 270 255 80 Depreciation on property, plant and equipment (Note 12) 851,291 772,852 535,586 455,641 Donations 114 72 9 72 Amortisation of intangible assets (Note 13) 7,785 7,478 - - Foreign exchange gain (Note 5) (6,329) (10,899) - - Provision for inventories 11,355 6,276 - - Impairment of property, plant and equipment (Note 12) 10,967 - - - Directors’ emoluments 74,625 40,883 70,113 39,458

(a) Staff costs

Salaries, wages and other costs 1,808,132 1,458,132 1,311,277 768,261 Pension costs - retirement benefit obligations (Note 27) 28,454 79,693 24,753 75,816 Defined contribution plan cost - EPF and ETF 158,875 126,395 116,328 68,431 1,995,461 1,664,220 1,452,358 912,508

Number of employees as at 31 March 6,790 5,267 5,007 4,285

8 Income tax expense Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

(a) Current tax charge Income tax 322,094 217,597 226,324 57,126 Social Responsibility Levy 4,434 3,024 3,395 856 Irrecoverable ESC 2,439 852 - - Dividend tax 6,864 20,708 - 7,125 (Over)/ under provision (15,243) 92,828 (12,452) - Deferred tax [Note 8 (f)] (8,058) (46,675) (16,445) (35,063) 312,530 288,334 200,822 30,044

(b) The Company and its subsidiaries other than which enjoy a tax holiday or are exempt from income tax as referred below in note 8 (c), are liable for income tax at 35% on their taxable income.

(c ) Subsidiary companies enjoying tax holiday / exempt from income tax.

Cargills Quality Dairies (Private) Limited, Cargills Quality Foods Limited, Cargills Agrifoods Limited, Cargills Food Processors (Private) Limited and Cargills Food Services (Private) Limited are exempt from income tax in accordance with the provisions of the Inland Revenue Act No. 38 of 2000 and Act No. 10 of 2006 and subsequent amendments thereto.

Diana Biscuits Manufactures (Private) Limited is exempt from income tax in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto.

Cargills Quality Dairies (Private) Limited, Cargills Quality Foods Limited and Cargills Agrifoods Limited are on tax holiday till the year of assessment 2010/11 and subject to a concessionary tax rate of 10% thereafter.

Cargills Food Processors (Private) Limited and Cargills Food Services (Private) Limited are on tax holiday till the year of assessment 2010/11. Cargills Food Processors (Private) Limited is subject to a concessionary tax rate of 10% from year of assessment 2011/12. However, after reviewing the position as at the balance sheet date, a tax provision of Rs. 31 Mn (2010 - Rs. 81.1 Mn) has been made for the above two companies for the financial year ended 31 March 2011.

Diana Biscuits Manufactures (Private) Limited is on a tax holiday till the year of assessment 2017/18 and subject to a normal tax rate thereafter. 46 Annual Report 2011

Notes to the financial statements contd...

(c ) Subsidiary companies enjoying tax holiday / exempt from income tax (Contd.).

Kotmale Milk Products Limited, Kotmale Dairy Products (Private) Limited and Kotmale Kiri (Private) Limited are on tax holiday till the year of assessment 2010/11 and subject to a concessionary tax rate of 10% thereafter.

(d) During the year the Company and the subsidiaries paid Economic Service Charge (ESC) amounting to Rs. 106.41 Mn (2010 - Rs. 68.68 Mn) and Rs. 31.73 Mn (2010 - Rs. 60.83 Mn) respectively.

(e) Reconciliation between income tax charge Group Company

and profit before tax is given below : 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Profit before tax 1,406,703 1,000,726 756,107 345,487 Aggregate disallowed expenses 1,226,405 1,079,558 628,778 574,263 Aggregate allowable expenses (843,616) (653,095) (631,341) (416,535) Aggregate other income (7,961) (1,427) (56,371) (275,382) Aggregate exempt income (757,859) (646,839) (34,382) (7,726) Adjusted profit (a) 1,023,672 778,923 662,791 220,107

Tax losses brought forward 459,625 523,551 16,150 73,040 Tax losses added (b) 44,653 - - - Tax losses acquired ( c ) 373,468 - - - Tax losses utilised (d) (28,924) (63,926) (16,150) (56,890) Tax losses carried forward 848,822 459,625 - 16,150

Taxable income (a+b+d) 1,039,401 714,997 646,641 163,217 Income tax @ 35% 290,821 193,108 226,324 57,126 Income tax @ 15% 31,273 24,489 - - Income tax expense 322,094 217,597 226,324 57,126

(f) Deferred tax Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Deferred tax expense arising from; Accelerated depreciation for tax purposes 33,782 (44,500) 33,790 (30,997) Retirement benefit obligation (2,794) (24,549) (4,000) (23,977) Tax losses 1,361 22,374 - 19,911 Decrease in future tax rate (40,407) - (46,235) - Deferred tax release (8,058) (46,675) (16,445) (35,063)

Deferred tax has been computed taking into consideration the revised tax rates effective from 1 April 2011 which is 28% for all standard rate companies. The deferred tax effect on undistributed reserves of subsidiaries has not been recognized since the parent can control the timing of the reversal of these temporary differences.

Temporary differences associated with Cargills Retail (Private) Limited, Cargills Agrifoods Limited, Cargills Quality Dairies (Pri vate) Limited, Kotmale Dairy Products (Private) Limited and Kotmale Milk Foods Limited, subsidiary companies for which a deferred tax assets have not been recognized, are disclosed as follows.

2011 2010 Temporary Tax effect on Temporary Tax effect on difference temporary difference temporary difference difference Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Property, plant and equipment 332,427 93,080 379,145 120,152 Retirement benefit obligations 9,976 1,072 8,649 3,027 Carried forward losses 435,959 45,435 389,125 136,194 778,362 139,587 776,919 259,373 Annual Report 2011 47

Notes to the financial statements contd...

(f) Deferred tax (Contd.).

The Management recognises deferred tax assets only when it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. It is probable that taxable profits will not be available against which the above de- ductible temporary differences amounting to Rs. 778.4 Mn (2010 - Rs. 776.9 Mn) can be utilized in accordance with SLAS 14 (Revised 2005) - “Income taxes”.

9 Segment profit Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Segment profit before unallocated overheads Food & beverages 2,197,584 1,581,406 1,456,482 591,243 Wholesale distribution operation 68,223 141,840 3,154 4,285 Photo processing 2,805 3,166 - - Leisure 11,582 8,701 - - 2,280,194 1,735,113 1,459,636 595,528 Unallocated overheads (473,742) (320,794) (497,727) (252,724) Dividend income 8 - 48,603 275,382 Rental income 19,150 14,100 32,188 21,710 Profit from sale of investment 7,768 - 7,768 - (Loss) / Profit from sale of property, plant and equipment (151) 8,604 (113) 2,825 Amortisation of intangible assets (7,785) (7,478) - - Finance costs (363,946) (428,819) (294,248) (297,234) Share of Associate result (54,793) - - - Income tax expense (312,530) (288,334) (200,822) (30,044) Profit after taxation 1,094,173 712,392 555,285 315,443

10 Earnings per share Group Company

2011 2010 2011 2010

Profit attributable to ordinary shareholders (Rs. ‘000) 1,088,550 712,392 555,285 315,443 Weighted average number of ordinary shares in issue 224,000,000 224,000,000 224,000,000 224,000,000 Basic earnings per share (Rs.) 4.86 3.18 2.48 1.41

Basic earnings per share is calculated based on the net profit attributable to ordinary shareholders of Cargills (Ceylon) PLC divided by the weighted average number of ordinary shares in issue during the year.

11 Dividend per share Group Company

2011 2010 2011 2010 Rs. Rs. ‘ 000 Rs. ‘ 000 Rs. Rs. ‘ 000 Rs. ‘ 000

Dividend for the year Interim 0.50 112,000 67,200 0.50 112,000 67,200 Final - proposed 1.00 224,000 179,200 1.00 224,000 179,200 1.50 336,000 246,400 1.50 336,000 246,400

An interim dividend of 50 Cents per share (Rs. 112,000,000) was paid on 7 February 2011 for the year ended 31 March 2011. A final dividend of Rs. 1 per share is proposed for the year ended 31 March 2011. The final dividend proposed on 17 August 2011 has not been recognised as at the balance sheet date in compliance with SLAS 12 (Revised 2005) - “Events after the Balance Sheet Date”.

48 Annual Report 2011

Notes to the financial statements contd...

12 Property, plant and equipment

Freehold Freehold Expenditure Plant, Motor Total Total land building incurred on machinery vehicles 2011 2010 leasehold and others building Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Group

Cost / revaluation As at 1 April 4,030,820 1,292,223 1,428,245 4,643,156 370,775 11,765,219 7,610,401 Additions 250,758 3,212 300,462 791,976 62,530 1,408,938 602,720 Revaluation ------3,571,724 On acquisition of subsidiaries 49,000 32,000 215,500 842,762 33,388 1,172,650 - Disposals - - - (3,181) (1,239) (4,420) (19,626) Impairment - - - (10,967) - (10,967) - As at 31 March 4,330,578 1,327,435 1,944,207 6,263,746 465,454 14,331,420 11,765,219

Depreciation / amortisation As at 1 April - 227,218 795,842 2,457,182 241,610 3,721,852 2,966,209 Charge for the year - 45,225 162,464 588,398 55,204 851,291 772,852 On acquisition of subsidiaries - 2,582 4,690 80,658 16,290 104,220 - Disposals - - - (2,203) (1,239) (3,442) (17,209) As at 31 March - 275,025 962,996 3,124,035 311,865 4,673,921 3,721,852

Net book value As at 31 March 2011 4,330,578 1,052,410 981,211 3,139,711 153,589 9,657,499 Capital work in progress - - - - - 1,447,098 4,330,578 1,052,410 981,211 3,139,711 153,589 11,104,597

As at 1 April 2010 4,030,820 1,065,005 632,403 2,185,974 129,165 8,043,367 Capital work in progress - - - - - 648,349 4,030,820 1,065,005 632,403 2,185,974 129,165 8,691,716

Freehold Freehold Expenditure Plant, Motor Total Total land building incurred on machinery vehicles 2011 2010 leasehold and others building Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Company

Cost / revaluation As at 1 April 3,590,420 529,154 762,201 2,672,886 140,178 7,694,839 4,172,279 Additions - - 249,739 573,662 53,804 877,205 458,414 Revaluation ------3,072,021 Disposals - - - (622) - (622) (7,875) As at 31 March 3,590,420 529,154 1,011,940 3,245,926 193,982 8,571,422 7,694,839

Depreciation / amortisation As at 1 April - 21,073 410,736 1,141,675 70,306 1,643,790 1,194,240 Charge for the year - 10,584 132,222 361,998 30,782 535,586 455,641 Disposals - - - (509) - (509) (6,091) As at 31 March - 31,657 542,958 1,503,164 101,088 2,178,867 1,643,790

Net book value As at 31 March 2011 3,590,420 497,497 468,982 1,742,762 92,894 6,392,555 Capital work in progress - - - - - 1,078,643 3,590,420 497,497 468,982 1,742,762 92,894 7,471,198

As at 1 April 2010 3,590,420 508,081 351,465 1,531,211 69,872 6,051,049 Capital work in progress - - - - - 464,713 3,590,420 508,081 351,465 1,531,211 69,872 6,515,762 Annual Report 2011 49

Notes to the financial statements contd...

(a) Expenditure incurred on leasehold building represent the cost incurred in setting up new outlets.

(b) Freehold land owned by the Group was revalued as at 31 March 2010 by Mr. T Weeratne (FIV), an independent professional valuer on a depreciated replacement cost basis for buildings and market value basis for land as at the date of valuation. The revalued amount was accordingly incorporated in the financial statements.

This revaluation has been carried out in conformity with the requirements of the Sri Lanka Accounting Standard No. 18 (Revised 2005) - “Property, plant and equipment”. The surplus on revaluation was credited to the revaluation reserve account.

(c ) The details of assets mortgaged for banking facilities obtained have been given in the note [24 ( c)] to the financial statements.

(d) If land and buildings were stated at the historical cost basis, the amounts would have been as follows:

Land Building 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Group Cost 213,163 213,163 711,014 711,014 Accumulated depreciation - - (273,617) (227,218) Net book value 213,163 213,163 437,397 483,796

Company Cost 137,122 137,122 263,431 263,431 Accumulated depreciation - - (26,342) (21,073) Net book value 137,122 137,122 237,089 242,358

(e) Depreciation expense of Rs. 669 Mn (2010 - Rs. 629.8 Mn) for the Group and Rs. 478.1 Mn (2010 - Rs. 416.7 Mn) for the Company has been charged in cost of goods sold, Rs. 182.3 Mn (2010 - Rs. 143.0 Mn) for the Group and Rs. 57.5 Mn (2010 - Rs. 38.9 Mn) for the Company in distribution and other expenses.

(f) Capital work in progress consists of expenditure incurred on projects where operations had not completed as at the balance sheet date.

(g) Fully depreciated assets of the Group as at the year end is Rs. 1,281 Mn (2010 - Rs. 863.2 Mn) and that of Company is Rs. 412.8 Mn (2010 - Rs. 188.5 Mn).

(h) It was identified that machinery purchased on an agreement with Tetra Pak Singapore and Emerging Markets, a division of Tetra Pak South Asia (Pte) Ltd, has been impaired. Consequently an impairment loss of Rs. 11 Mn has been charged in the financial statement of Kotmale Milk Products Limited.

13 Intangible assets Goodwill Franchisee fee Software Total

Group 2011 2010 2011 2010 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Gross value As at 1 April 294,043 294,043 65,801 65,801 9,314 9,314 369,158 369,158 Additions 764,393 - - - 5,853 - 770,246 - As at 31 March 1,058,436 294,043 65,801 65,801 15,167 9,314 1,139,404 369,158

Amortisation As at 1 April 36,450 36,450 36,013 30,864 4,772 2,443 77,235 69,757 Amortisation for the year - - 5,148 5,149 2,637 2,329 7,785 7,478 As at 31 March 36,450 36,450 41,161 36,013 7,409 4,772 85,020 77,235

Net book value as at 31 March 1,021,986 257,593 24,640 29,788 7,758 4,542 1,054,384 291,923

Goodwill as at the balance sheet date has been tested for impairment and found no impairment in carrying value. Recoverable values have been estimated based on the value in use or fair value less cost to sell, as applicable.

During the year addition to the Goodwill reflects the excess of the purchase consideration made for the fair value of assets and liabilities acquired in acquiring the Kotmale Holdings PLC and Diana Biscuits Manufactures (Private) Limited. 50 Annual Report 2011

Notes to the financial statements contd...

13 Intangible assets (Contd.).

Amortisation of intangible assets of Rs. 5.1 Mn (2010 - 5.1 Mn) has been charged in cost of goods sold and Rs. 2.6 Mn (2010 - 2.3 Mn) in administrative expenses.

14 Investments No. of Holding Market Group Company Shares % Value 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

14.1 Investments in subsidiaries Unquoted : Cargills Retail (Pvt) Ltd 47,500,002 100% - - 475,000 475,000 Cargills Quality Foods Ltd 4,860,291 100% - - 1,193,453 1,193,453 Millers Brewery Ltd 1,002 100% - - 100 - Dawson Office Complex (Pvt) Ltd 1 100% ------1,668,553 1,668,453

14.2 Investment in associates Unquoted : C T Properties Limited 21,500,000 25% 161,282 216,075 216,075 216,075 161,282 216,075 216,075 216,075

14.3 Short term investments Quoted : Lanka IOC PLC 200,000 3,520 5,400 5,400 5,400 5,400 Sierra Cables PLC 49,500 267 150 150 30 30 Aitken Spence PLC 267,500 43,415 45,170 - 45,170 - 47,202 50,720 5,550 50,600 5,430 Provision for falling value (3,635) (1,791) (3,635) (1,758) 47,202 47,085 3,759 46,965 3,672 Unquoted : REPO Investments 28,502 - - - 75,587 3,759 46,965 3,672

(a) Cargills Quality Foods Limited, Cargills Retail (Private) Limited, Millers Brewery Limited and Dawson Office Complex (Private) Limited are subsidiaries of Cargills (Ceylon) PLC.

(b) During the year, Cargills Quality Foods Limited a wholly owned subsidiary of Cargills (Ceylon) PLC, acquired 100% ownership of Diana Biscuits Manufactures (Private) Limited with an investment of Rs. 342.89 Mn. The main business activity of the Company is manufacture and distribution of biscuits.

(c) During the year, the Company acquired majority shareholding of Kotmale Holdings PLC at a purchase consideration of Rs. 1,038 Mn. Initially, the shareholding increased to 73.4% and subsequently with the mandatory offer closing on 30 December 2010, the shareholding was increased to 81.72%.

As at 31 March 2011, Cargills (Ceylon) PLC transferred the ownership of Kotmale Holdings PLC to its wholly owned subsidiary Cargills Quality Foods Limited. This transaction was done outside the trading floor of Colombo Stock Exchange consequent to a special approval from the Securities and Exchange Commission of Sri Lanka. The sales consideration amounted to Rs. 1,038 Mn and was accounted as intercompany receivable.

(d) During the year, the Company incorporated Millers Brewery Limited to set up a brewery venture, which would commence business in the next financial year. The initial share capital issued amounted to Rs. 100,020/-.

(e) Dawson Office Complex (Private) Limited incorporated with an initial share investment of Rs. 100 for the purpose of building an office complex to be utilised as head office of Cargills (Ceylon) PLC. Annual Report 2011 51

Notes to the financial statements contd...

(f) Cargills Agrifoods Limited, CPC (Lanka) Limited, Cargills Quality Dairies (Private) Limited, Cargills Distributors (Private) Limited, Cargills Food Processors (Private) Limited, Millers Limited and Diana Biscuits Manufactures (Private) Limited are subsidiaries of Cargills Quality Foods Limited (CQF). The financial statements of the said subsidiaries of CQF have been consolidated as 100% subsidiaries in view of the minority shareholders (subscriber shares) confirming that they hold the shares in trust for CQF.

(g) Kotmale Holdings PLC is a subsidiary of Cargills Quality Foods Limited (CQF) in which CQF has 81.72% stake and the financial statements of the said subsidiary has been consolidated.

(h) The financial statements of Cargills Food Services (Private) Limited (CFS) has been consolidated with that of Cargills Food Processors (Private) Limited (CFP) as a 100% subsidiary in view of the two shareholders of CFS holding the shares in trust for CFP.

(i) The financial statements of Kotmale Products Limited, Kotmale Marketing (Private) Limited, Kotmale Dairy Products (Private) Limited, Kotmale Milk Products Limited, Kotmale Kiri (Private) Limited and Kotmale Milk Foods Limited have been consolidated with that of Kotmale Holdings PLC as 100% subsidiaries.

(j) The market value of quoted short term investments as at 31 March 2011, as quoted by the Colombo Stock Exchange amounted to Rs. 47,202,550 (2010 - Rs. 3,758,900)

14.4 Investment in associates Group

2011 2010 Rs. ‘000 Rs. ‘000

As at 1 April 216,075 - Acquisition - 216,075 Share of loss incurred (54,793) - As at 31 March 161,282 216,075

14.5 Summarised financial information of associates Group

2011 2010 Rs. ‘000 Rs. ‘000 Group share of; Revenue 183,728 - Operating expenses (203,156) - Finance expenses (33,331) - Income tax expense (2,034) - Loss for the year (54,793) -

Group share of; Total assets 329,218 461,061 Total liabilities (375,279) (452,329) Net assets (46,061) 8,732 Goodwill 207,343 207,343 161,282 216,075 52 Annual Report 2011

Notes to the financial statements contd...

14.6 Acquisitions during the year

A detailed disclosure as required by SLAS 9 - Cash Flow Statements, is given below for the two acquisitions made during the year. Kotmale Holdings PLC (KHP) and Diana Biscuits Manufactures (Private) Limited (DBML) were acquired by the Group.

KHP DBML

Rs. ‘000 Rs. ‘000

Total purchase consideration 1,037,785 342,883 Cash paid for acquisition (1,037,785) (342,883) Cash and cash equivalents acquired (2,662) (193,885) Net cash flow from acquisition of subsidiaries (1,040,447) (536,768) Net assets attributable to parent on acquisition 375,919 240,356 Goodwill on acquisition 661,866 102,527 Net assets holding % 81.72% 100%

Summary of net assets as of acquisition date is as follows;

Property, plant and equipment 296,993 790,976 Inventories 89,064 21,934 Trade and other receivables 284,981 16,329 Short term investments 1,369 - Total assets 672,407 829,239 Borrowings (36,891) (301,246) Retirement benefit obligations, deferred tax and capital grant (19,872) - Trade and other payables (152,963) (93,752) Net assets acquired other than cash and cash equivalents 462,681 434,241

Buildings, plant and machinery owned by the Diana Biscuits Manufactures (Private) Limited was revalued as at 17 October 2010 by Mr. M C Abdul Malick (FIV), an independent professional valuer on a depreciated replacement cost basis to determine the fair value of assets as at the acquisition date. The revalued amount was accordingly incorporated in the financial statements of Diana Biscuits Manufactures (Private) Limited.

15 Advance paid for acquisition of assets

During the financial year, newly formed wholly owned subsidiary of Cargills (Ceylon) PLC, Millers Brewery Limited entered in to an agreement for the sale and purchase of the business and business assets, including the brands, of McCallum Breweries (Ceylon) (Private) Limited, McCallum Brewing Company (Private) Limited and Three Coins Company (Private) Limited at a purchase consideration of Rs. 1,415 Mn. In relation to this agreement, payments made up to the balance sheet date amounted to Rs. 1,187.7 Mn. Further sum of Rs. 17.7 Mn was advanced to acquire various assets.

Advance paid (Rs.’000) 1,205,425

16 Prepayment on leasehold land and building Group 2011 2010 Rs. ‘000 Rs. ‘000

Gross value As at 31 March 35,000 35,000

Amortisation As at 1 April 4,375 3,500 Amortisation for the year 875 875 As at 31 March 5,250 4,375

Balance as at 31 March 29,750 30,625

Current portion of the prepayment 875 875 Non- current portion of the prepayment 28,875 29,750 29,750 30,625 Annual Report 2011 53

Notes to the financial statements contd...

17 Deferred tax assets Group

2011 2010 Rs. ‘ 000 Rs. ‘ 000

As at 1 April 21,777 21,573 (Charge) / release for the year (7,462) 204 As at 31 March 14,315 21,777

Deferred tax assets as at the year end is made up as follows:

Deferred tax assets arising from - temporary difference of property, plant and equipment - 2,163 - temporary difference of retirement benefit obligations 2,644 591 - carried forward tax losses 11,671 19,023 14,315 21,777

18 Inventories Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Raw materials 471,446 337,915 - - Work in progress 8,253 8,879 - - Finished goods 77,730 38,192 - - Merchandising stock for sale 2,918,880 2,638,907 2,630,352 1,803,966 Food and beverages - restaurant operations 34,131 21,295 - - Consumables 81,352 30,336 58,760 19,369 3,591,792 3,075,524 2,689,112 1,823,335 Provision for obsolete inventories (61,087) (37,918) - - 3,530,705 3,037,606 2,689,112 1,823,335 Goods in transit 45,617 21,783 18,801 - 3,576,322 3,059,389 2,707,913 1,823,335

Inventories amounting to Rs. 194 Mn has been mortgaged for bank facilities obtained [refer note 24 (C)]

19 Trade and other receivables Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Trade receivables 830,553 548,842 126,905 98,991 Provision for bad & doubtful debts for trade receivables (96,592) (71,230) (3,546) (3,546) 733,961 477,612 123,359 95,445 Prepayments and deposits 355,545 228,926 281,335 183,215 Other receivables 125,947 84,848 33,275 41,466 Loans and advances [refer note 19 (a)] 20,607 7,513 6,819 7,389 Tax recoverable [refer note 19 (b)] 348,029 320,850 255,035 147,056 1,584,089 1,119,749 699,823 474,571 54 Annual Report 2011

Notes to the financial statements contd...

19 (a) Loans and advances represents loans to employees Group Company and the movement during the year is as follows : 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

As at 1 April 7,513 6,007 7,389 5,839 On acquisition of subsidiaries 10,656 - - - Loans granted 21,523 14,022 18,156 13,852 39,692 20,029 25,545 19,691 Repayments (19,085) (12,516) (18,726) (12,302) As at 31 March 20,607 7,513 6,819 7,389

19 (b) Tax recoverable This includes Economic Service Charges, VAT recoverable, WHT recoverable and Income tax overpayments.

20 Amounts due from / due to related companies Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Amounts due from subsidiaries Cargills Quality Foods Limited - - 1,112,836 - Millers Limited - - 21,302 17,421 Millers Brewery Limited - - 1,221,688 - Dawson Office Complex (Private) Limited - - 249,599 - - - 2,605,425 17,421

Amounts due from holding company C T Holdings PLC 17,865 17,796 17,254 17,252

Amounts due from other related companies Ceylon Hotels Corporation PLC 404 23 - 23 Ceylon Printers PLC 8 23 - - C T Properties Limited 94,251 80,900 94,242 80,891 Ceylon Theatres (Private) Limited 2,228 2,257 2,208 2,213 C T Land Development PLC 77,002 150,875 77,002 150,937 Dialog Telekom PLC 3,887 - 3,887 - Galle Face Hotel Co. Limited 435 886 6 20 Kalamazoo Systems PLC - 36 - - Kandy Hotels Co.(1938) PLC 325 145 - - Lanka Tiles PLC 674 - 674 - 179,214 235,145 178,019 234,084 Total amounts due from related companies 197,079 252,941 2,800,698 268,757

Amounts due to subsidiaries Cargills Retail (Private) Limited - - 857,245 103,149 Cargills Quality Foods Limited - - - 134,327 Cargills Distributors (Private) Limited - - 18,604 13,972 Cargills Quality Dairies (Private) Limited - - 59,961 40,843 Cargills Agrifoods Limited - - 34,037 47,007 C P C (Lanka) Limited - - 17,329 6,759 Diana Biscuits Manufactures (Private) Limited - - 2,998 - Kotmale Dairy Products Limited - - 45,378 - - - 1,035,552 346,057 Amounts due to other related companies Dialog Telekom PLC - 3,247 - 3,247 Lanka Ceramics PLC 251 400 251 400 Paragon Ceylon PLC - 1 - - Unidil Packaging (Private) Limited 1,385 518 - - 1,636 4,166 251 3,647 Total amount due to related companies 1,636 4,166 1,035,803 349,704

Annual Report 2011 55

Notes to the financial statements contd...

21 Stated capital Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Issued and fully paid : 224,000,000 Ordinary shares 130,723 130,723 130,723 130,723

22 Reserves Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Capital reserves Revaluation reserve 4,115,464 4,094,259 3,618,106 3,598,018 Capital reserve 7,928 7,928 - - 4,123,392 4,102,187 3,618,106 3,598,018

Revenue reserve General reserve 485,500 385,500 485,500 385,500 4,608,892 4,487,687 4,103,606 3,983,518

Revaluation reserve consists of net surplus resulting from the revaluation of property, plant & equipment.

Capital reserve consists of share of capital reserve resulting from consolidation.

General reserve represents the amount set aside by the directors for general applications.

23 Cash and cash equivalents Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Cash at bank and in hand 303,645 261,763 246,161 160,051

For the purpose of the cash flow statement, the year end cash and cash equivalents comprise the following:

Cash and bank balances 303,645 261,763 246,161 160,051 Bank overdraft (2,574,088) (1,068,192) (2,182,882) (979,245) (2,270,443) (806,429) (1,936,721) (819,194)

For the purpose of the cash flow statement, following major non-cash transactions have been eliminated.

- Transfer consideration of Kotmale Holdings PLC - - 1,037,785 - - Dividend received from subsidiary companies - - 48,603 275,382 56 Annual Report 2011

Notes to the financial statements contd...

24 Borrowings Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Current Current portion of long term loan 127,427 130,399 - 49,999 Commercial papers and short term loans 3,532,960 1,600,980 3,289,960 1,249,980 Bank overdraft 2,574,088 1,068,192 2,182,882 979,245 6,234,475 2,799,571 5,472,842 2,279,224

Non-current Bank borrowings 384,167 198,499 - - 384,167 198,499 - - Total borrowings 6,618,642 2,998,070 5,472,842 2,279,224

(a) Non current As at 1 April 328,898 1,030,235 49,999 600,000 On acquisition of subsidiaries 326,472 - - - Repayments (143,776) (701,337) (49,999) (550,001) As at 31 March 511,594 328,898 - 49,999 Falling due within one year (127,427) (130,399) - (49,999) 384,167 198,499 - - Repayment during 1-2 years 141,289 130,800 - - Repayment during 2-5 years 242,878 67,699 - - 384,167 198,499 - -

(b) Details of all loans outstanding at the balance sheet date are set out below: Principal Institution & facility amount Repayment terms & interest rate Rs. ‘ 000

Cargills (Ceylon) PLC Bank Overdrafts - Bank of Ceylon 94,000 Average interest rate of 14.17 % - Commercial Bank 200,000 Average interest rate of 8.8 % - Commercial Bank 500,000 Average interest rate of 8.8 % - Deutsche Bank 200,000 Average interest rate of 8.58 % - Hatton National Bank 500,000 Average interest rate of 7.88 % - HSBC Bank 500,000 Average interest rate of 9.05 % - MCB Bank 200,000 Average interest rate of 7.5 % - Nation Trust Bank 700,000 Average interest rate of 8.89 % - Sampath Bank 100,000 Average interest rate of 11.75 % - Seylan Bank 100,000 Average interest rate of 9.9 % - Standard Chartered Bank 10,000 Average interest rate of 9.15 %

Bank Loans Long Term Loan - Sampath Bank 500,000 59 monthly installments of Rs. 8.33 Mn per month, commencing from April 2009 and final installment of Rs. 8.24 Mn, at average interest rate of 9.68 % Short Term Loans - Commercial Bank 400,000 Average interest rate of 8.78 % - DFCC Bank 200,000 Average interest rate of 8.36 % - Hatton National Bank 1,000,000 Average interest rate of 7.85 % - Hatton National Bank 500,000 Average interest rate of 7.85 % - NDB Bank 100,000 Average interest rate of 8.63 % - Standard Chartered Bank 465,000 Average interest rate of 8.48 % - Standard Chartered Bank 525,000 Average interest rate of 8.48 % Annual Report 2011 57

Notes to the financial statements contd...

Institution & facility Principal amount Repayment term & interest rate Rs. ‘ 000

Cargills Retail (Private) Limited Bank Loan - DFCC Bank 150,000 60 monthly installments of Rs. 2.5 Mn per month, commencing from March 2009 at average interest rate of 11.71 %

Cargills Quality Foods Limited Bank Overdraft - Commercial Bank 40,000 Average interest rate of 8.8%

Bank Loan - Commercial Bank 300,000 71 monthly installments of Rs. 4.2 Mn per month, commencing from July 2007 and final installment of Rs. 1.8 Mn at average interest rate of 9.58 % for the year

Cargills Quality Dairies (Private) Limited Bank Overdraft - Seylan Bank 80,000 Average interest rate of 9.97%

Cargills Agrifoods Limited Bank Overdraft - Commercial Bank 50,000 Average interest rate of 8.8%

Cargills Food Processors (Private) Limited Bank Overdraft - Commercial Bank 50,000 Average interest rate of 8.8%

Millers Limited Bank Overdrafts - Commercial Bank 165,000 Average interest rate of 8.83% - Hatton National Bank 175,000 Average interest rate of 10.38% - HSBC Bank 200,000 Average interest rate of 9.63%

Bank Loan Short Term Loan - Standard Chartered Bank 250,000 Repayable on maturity at average interest rate of 9.15%

Diana Biscuits Manufactures (Private) Limited Bank Overdrafts - Bank of Ceylon 176,450 Average interest rate of 9.5% - Bank of Ceylon 47,540 Average interest rate of 9.5%

Bank Loans - Bank of Ceylon 11,115 54 monthly installments of Rs. 205,835 per month , commencing from July 2011, at average interest rate of 6% for the year. Grace period of 6 months available 58 Annual Report 2011

Notes to the financial statements contd...

Institution & facility Principal amount Repayment term & interest rate Rs. ‘ 000

- Bank of Ceylon 282,560 64 monthly installments of Rs. 4.42 Mn per month , commencing from July 2011, at average interest rate of 7.67% for the year. Grace period of 6 months available

- Bank of Ceylon 7,482 72 monthly installments of Rs. 103,920 per month , commencing from January 2011, at average interest rate of 6.5% for the year

Kotmale Dairy Products (Private) Limited Bank Overdraft - Bank of Ceylon 10,000 Average interest rate of 12.75%

Import Loan - Bank of Ceylon 40,000 Repayable on maturity at average interest rate of 11.75%

Bank Loans - Lankaputhra Development Bank 11,196 60 monthly installments of Rs. 186,599 per month , commencing from March 2009, at average interest rate of 14% for the year

-Peoples Leasing Co. 3,549 48 monthly installments of Rs. 73,940 per month , commencing from September 2009, at average interest rate of 6.5 % for the year

- Peoples Leasing Co. 4,500 48 monthly installments of Rs. 93,750 per month , commencing from August 2010, at average interest rate of 6.5 % for the year

Kotmale Holdings PLC Bank Overdraft - DFCC Vardana Bank 25,000 Average interest rate of 15%

Kotmale Milk Products Limited Bank Overdraft Pan Asia Bank 5,000 Average interest rate of 16%

Bank Loan Short Term Loan Pan Asia Bank 20,000 Average interest rate of 16.5%

(c) The security offered to each loan are set out below:

Loan Security offered

Cargills (Ceylon) PLC Bank of Ceylon - Overdraft facility of Rs. 94 Mn Trading stock of 15 locations

Commercial Bank - Overdraft facility of Rs. 200 Mn An agreement to mortgage land and building at Kandy for Rs. 100 Mn and Corporate guarantee from C T Holdings PLC for Rs. 50 Mn MCB Bank - Overdraft facility of Rs. 200 Mn Demand promissory note for Rs. 200 Mn.

Sampath Bank - Long term loan facility of Rs. 500 Mn Primary mortgage for Rs. 400 Mn over Machinery and equipments of Rs. 535 Mn, imported and locally purchased. Undertaking to execute mortgage bond for Rs. 100 Mn over equipments to be imported during 2009 to a total value of Rs. 135 Mn. Annual Report 2011 59

Notes to the financial statements contd...

Loan Security offered

Seylan Bank - Overdraft facility of Rs. 100 Mn Stock mortgage for Rs. 100 Mn and Demand promissory note for Rs. 100 Mn

Standard Chartered Bank - Overdraft facility of Rs. 10 Mn Undertaking to mortgage land and building at Staple Street, Colombo-2 for - Short term loan facility of Rs. 465 Mn Rs. 75 Mn and Corporate guarantee from C T Holdings PLC for Rs. 75 Mn. - Short term loan facility of Rs. 525 Mn }

Cargills Retail (Private) Limited DFCC Bank - Long term loan facility of Rs. 150 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 150 Mn

Cargills Quality Foods Limited Commercial Bank - Long term loan facility of Rs. 400 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 425 Mn Primary mortgage for Rs. 300 Mn over leasehold land, building and project assets at Bandigoda, Ja -Ela

Millers Limited Commercial Bank - Overdraft facility of Rs. 165 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 215 Mn

Hatton National Bank - Overdraft facility of Rs. 175 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 335Mn

HSBC Bank - Overdraft facility of Rs. 200 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 200 Mn

Standard Chartered Bank - Short term loan facility of Rs. 250 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 250 Mn

Diana Biscuits Manufactures (Private) Limited

Bank of Ceylon - Overdraft facility of Rs. 176.45 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 176.45 Mn - Overdraft facility of Rs. 47.54 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 47.54 Mn - Long term loan facility of Rs. 11.12 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 11.12 Mn - Long term loan facility of Rs. 282.56 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 282.56 Mn - Long term loan facility of Rs. 7.48 Mn Corporate guarantee from Cargills (Ceylon) PLC for Rs. 7.48 Mn

Kotmale Dairy Products (Private) Limited Bank of Ceylon - Overdraft facility of Rs. 10 Mn Corporate guarantee from Kotmale Holdings PLC over stocks and book debts. - Letter of credit facility of Rs. 40 Mn Corporate guarantee from Kotmale Holdings PLC over stocks and book debts. - Import loan facility of Rs. 40 Mn Corporate guarantee from Kotmale Holdings PLC over stocks and book debts. Lankaputhra Development Bank - Long term loan facility of Rs. 11.2 Mn Primary mortgage on project machinery along with relevant insurance cov- ers and a corporate guarantee from Kotmale Holdings PLC. Peoples Leasing Co. - Long term loan facility of Rs. 3.55 Mn Corporate guarantee from Kotmale Holdings PLC.

- Long term loan facility of Rs. 4.5 Mn Corporate guarantee from Kotmale Holdings PLC. 60 Annual Report 2011

Notes to the financial statements contd...

25 Deferred tax liability Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

As at 1 April 360,352 310,358 324,195 266,256 On acquisition of subsidiaries 4,831 - - - On revaluation surplus of building (21,205) 96,465 (20,088) 93,003 Release for the year (15,520) (46,471) (16,445) (35,064) As at 31 March 328,458 360,352 287,662 324,195

Deferred tax provision as at the year end is made up as follows. Group Company

2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Deferred tax provision from - temporary difference of property plant and equipment 303,399 317,446 260,822 283,787 - temporary difference of revaluation surplus of building 75,259 96,465 72,915 93,003 - temporary difference of retirement benefit obligations (50,200) (53,559) (46,075) (52,595) 328,458 360,352 287,662 324,195

26 Capital grant Group

2011 Rs. ‘ 000

As at 1 April - On acquisition of subsidiaries 2,866 Amortisation (477) As at 31 March 2,389

Grant represents funds received in the form of plant. Grant is amortised on straight line basis over the useful life of such asset.

27 Retirement benefit obligations Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

At beginning of year 163,360 91,555 150,270 81,763 On acquisition of subsidiaries 12,175 - - - Income statement charge 28,454 79,693 24,753 75,816 Contributions paid (11,228) (7,888) (10,470) (7,309) At end of year 192,761 163,360 164,553 150,270

(a) The amount recognised in the balance sheet is as follows Present value of unfunded obligations 192,761 163,360 164,553 150,270 Present value of funded obligations - - - - Total present value of obligations 192,761 163,360 164,553 150,270 Fair value of plan assets - - - - Recognised liability for defined benefit obligation 192,761 163,360 164,553 150,270

Annual Report 2011 61

Notes to the financial statements contd...

Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

(b) The movement in retirement benefit obligations over the year as follows

At beginning of year 163,360 91,555 150,270 81,763 On acquisition of subsidiaries 12,175 - - - Current service cost 24,515 21,583 21,398 20,626 Interest cost 17,137 10,988 16,530 9,812 Benefit paid (11,228) (7,888) (10,470) (7,309) Actuarial (gain)/loss (13,198) 47,122 (13,175) 45,378 Present value obligation as at the year end 192,761 163,360 164,553 150,270

(c) The amount recognised in the income statement as follows

Current service cost 24,515 21,583 21,398 20,626 Interest cost 17,137 10,988 16,530 9,812 Net actuarial (gain)/loss (13,198) 47,122 (13,175) 45,378 28,454 79,693 24,753 75,816

(d) This obligation is not externally funded.

(e) The Gratuity liability is based on the actuarial valuation carried out by Messrs. Actuarial and Management Consultants (Private) Limited, Actuaries, on 29 April 2011. The principal assumptions used in the actuarial valuation were as follows:

2011 2010 % %

1. Discount rate (the rate of interest used to discount the future cash flows in order to determine the present value) 11 11

2. Future salary increase - Executives 10 12 - Staff 10 8

In addition to the above, demographic assumptions such as mortality, withdrawal and disability, and retirement age were considered for the actuarial valuation. “A 67/70 mortality table” issued by the Institute of Actuaries London was used to estimate the gratuity liabilities of the Company.

28 Trade and other payables Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Trade payables 3,560,049 3,022,209 3,143,698 2,744,763 Other payables 718,404 607,090 513,520 438,295 Accrued expenses 538,717 457,185 186,414 250,769 4,817,170 4,086,484 3,843,632 3,433,827

29 Dividend payable Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Unclaimed dividend 17,610 14,080 17,609 14,080 62 Annual Report 2011

Notes to the financial statements contd...

30 Segment information - Group Food & Beverage Distribution Photo processing Leisure Total 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Assets and liabilities Segment assets 16,933,755 12,310,493 1,068,669 1,088,470 3,851 27,941 26,154 22,734 18,032,429 13,449,638 Unallocated assets ------1,036,301 279,370 Unallocated investments ------236,870 219,834 Consolidated assets 19,305,600 13,948,842

Segment liabilities 11,270,683 6,817,117 650,404 626,169 - - 6,622 4,050 11,927,709 7,447,336 Unallocated liabilities ------328,458 360,351 Consolidated liabilities 12,256,167 7,807,687

Capital expenditure 2,086,719 801,931 97,878 30,768 3,851 617 515 1,950 2,188,963 835,266

Segment depreciation 801,720 735,582 34,642 23,232 9,584 8,312 745 725 846,691 767,851 Unallocated depreciation ------4,600 5,001 Total depreciation 851,291 772,852

Non cash expenses other than depreciation 106,245 79,265 19,827 428 - - - - 126,072 79,693

31 Commitments Group Company

2011 2010 2011 2010 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Capital commitments Approved and contracted 395,553 - 168,254 -

Financial commitments Future payments of operating lease rentals : - within 1 year 320,792 213,444 214,971 153,842 - between 1 - 5 years 1,674,997 868,353 1,131,292 622,097 - more than 5 years 1,844,745 1,572,407 1,397,082 1,239,222 3,840,534 2,654,204 2,743,345 2,015,161

32 Contingent liabilities

The Company has given letters of guarantee to commercial banks on behalf of the subsidiary companies amounting to Rs. 2.1 Bn. Kotmale Holdings PLC, a subsidiary of the Company has given letters of guarantee to Commercial Banks on behalf of its subsidiary companies amounting to Rs. 109 Mn.The Directors do not expect any claim on these guarantees. Accordingly, no provision has been made in the financial statements.

There are no material pending litigations as at the balance sheet date which would result in material liability.

There are no other material contingent liabilities as at the balance sheet date. Annual Report 2011 63

Notes to the financial statements contd...

33 Transfer of operations within the Group

With effect from 1 June 2010, the operations of Cargills Retail (Private) Limited, a wholly owned subsidiary of Cargills (Ceylon) PLC, was transferred to Cargills (Ceylon) PLC as part of a restructuring process of the Group. Consequently the business assets of Cargills Retail (Private) Limited is now used by the Company for which a rent is paid to the subsidiary. The Company expects to purchase all the assets and liabilities of Cargills Retail (Private) Limited.

The operations of Cargills Food Services (Private) Limited was transferred to Cargills Food Processors (Private) Limited, the parent of Cargills Food Services (Private) Limited, with effect from 1 October 2010. Cargills Food Processors (Private) Limited expects to purchase all the assets and liabilities of Cargills Food Services (Private) Limited.

34 Events after the balance sheet date

Millers Brewery Limited (MBL), wholly owned subsidiary of Cargills (Ceylon) PLC, finalised the sale and purchase agreement with MaCallum Breweries (Ceylon) (Private) Limited, MaCallum Brewing Company (Private) Limited and Three Coins Company (Private) Limited, and commercial operations commenced in May 2011. With the finalisation of agreement, the business and business assets of above companies were transferred to MBL.

The Board of Directors has proposed a final dividend of Rs. 1 per share (on the 224,000,000 shares now in issue) for the year ended 31 March 2011 which is to be approved by the shareholders at the Annual General Meeting.

As required by Section 56 (2) of the Companies Act No. 7 of 2007, the Board of Directors has confirmed the Company satisfies the Solvency test, and has obtained a certificate from the auditors. In accordance with SLAS 12 (Revised 2005) - “Events after the Balance Sheet Date”, the proposed dividend has not been recognised as a liability in the financial statements.

Dawson Office Complex (Private) Limited made a share issue to Cargills (Ceylon) PLC amounting to Rs. 100,000 subsequent to the balance sheet date.

Subsequent to the balance sheet date, the name of Diana Biscuits Manufactures (Private) Limited, a sub-subsidiary of the Company, was changed to Cargills Quality Confectionaries (Private) Limited.

No events other than the above, have occurred since the balance sheet date which would require any adjustment to, or disclosure in the financial statements.

35 Transactions with group companies

The Company has provided corporate guarantees for term loans and banking facilities obtained by its subsidiary companies, the details of which have been disclosed under note 24 (c ) to the financial statements.

The Company provides Secretarial and Management services to its subsidiary companies free of charge.

Companies within the Group engage in trading and business transactions under normal commercial terms which give rise to related company balances. The balances have been disclosed under note 20 to the financial statements.

(a) Transactions with key management personnel (KMP)

According to SLAS 30 (revised 2005) - “Related Party Disclosure”, KMP are those having authority and responsibility for planning, directing, controlling the activities of the entity. Accordingly, the Directors of the Company and its parent (including executive and non - executive Directors) and their immediate family members have been classified as KMP of the Group.

The Company has provided an owned apartment to the Deputy Chairman/Chief Executive Officer for the due performance of his office.

The Group has paid Rs. 74.63 Mn (2010 - Rs. 40.88 Mn) to the Directors as emoluments during the year. There are no other payments made to key management personnel apart from the disclosed amount. 64 Annual Report 2011

Notes to the financial statements contd...

(b) The Directorates of Directors of the group companies

The Directors of the Company are also directors of the following companies with which the Company had regular business transac- tions as disclosed in below.

Mr. Anthony Mr. L R Mr. A T P Mr. S E C Mr. Sunil Mr. J C Mr. E A D Mr. Jayantha Mr. V R Mr. M I Mr. S V Mr. P S A Page Page Edirisinghe Gardiner Mendis Page Perera Danapala Page Abdul Wahid Kodikara Mathavan

Group Companies Cargills (Ceylon)PLC Cargills Distributors (Pvt) Ltd Cargills Food Processors (Pvt) Ltd Cargills Food Services (Pvt) Ltd Cargills Quality Dairies (Pvt) Ltd Cargills Quality Foods Ltd. Cargills Retail (Pvt) Ltd C P C (Lanka) Ltd Cargills Agrifoods Ltd Dawson Office Complex (Pvt) Ltd. Diana Biscuits Manufactures (Pvt) Ltd. Kotmale Dairy Products (Pvt) Ltd. Kotmale Holdings PLC Kotmale Kiri (Pvt) Ltd. Kotmale Marketing (Pvt) Ltd. Kotmale Milk Products Ltd. Kotmale Milk Foods Ltd. Kotmale Products Ltd. Millers Brewery Ltd. Millers Ltd

Mr. Anthony Mr. L R Mr. A T P Mr. S E C Mr. Sunil Mr. J C Mr. E A D Mr. Jayantha Mr. V R Mr. M I Mr. S V Mr. P S A Page Page Edirisinghe Gardiner Mendis Page Perera Danapala Page Abdul Wahid Kodikara Mathavan

Other companies Ceylon Hotels Corporation PLC Ceylon Printers PLC Ceylon Theartres (Pvt) Ltd C T Holdings PLC C T Capital Ltd C T Land Development PLC C T Properties Ltd Dialog Telekom PLC Galle Face Hotel Co. Ltd Kalamazoo Systems PLC Kandy Hotels Co. (1938) PLC Lanka Ceramics PLC Lanka Tiles PLC Lanka Walltiles PLC Paragon Ceylon PLC Unidil Packaging Ltd

Directors have no direct or indirect interest in any other contracts with the Company. The above interest in contracts have been declared at Board Meeting by the Directors concerned. Annual Report 2011 65

Notes to the financial statements contd...

(c) Transactions with related companies

Company 2011 2010 Sales Other Purchases Other Sales Other Purchases Other income expenses income expenses Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Transactions with subsidiaries Cargills Retail (Pvt) Ltd - - - 64,950 - - - - Cargills Quality Foods Ltd. 1,819 1,437 340,011 - 1,385 - 297,607 - Cargills Distributors (Pvt) Ltd - 712 245,417 - - - 185,808 - Cargills Food Services (Pvt) Ltd 8,146 2,242 - - 902 4,771 - - Cargills Food Processors (Pvt) Ltd 9,108 10,310 - - - 7,794 - - Cargills Quality Dairies (Pvt) Ltd 2,312 3,289 668,079 - 892 - 600,431 - Cargills Agrifoods Ltd 6,922 3,455 290,514 - 3,687 - 254,357 - C P C (Lanka) Ltd 18,018 - 76,661 - - - 60,468 - Millers Ltd 35,002 28,278 357,240 18 24,286 20,637 398,895 18 Diana Biscuits Manufactures (Pvt) Ltd 5,335 - 8,044 - - - - - Kotmale Dairy Products (Pvt) Ltd - - 50,499 - - - - -

Transactions with holding company C T Holdings PLC - - - - 72 - - -

Transactions with other related companies Ceylon Hotels Corporation PLC 117 - - - 142 - - - Ceylon Printers PLC - - - 979 - - - 243 Ceylon Theatres (Pvt) Ltd 31 ------C T Capital Ltd ------347 C T Land Development PLC - - - 23,846 16 - - 14,889 Dialog Telekom PLC - 99,998 - - - 52,304 - 7,562 Galle Face Hotel Co. Ltd 122 - - - 289 - - - Kalamazoo Systems PLC ------633 Lanka Tiles PLC 714 - - 8,590 137 - - 2,000 Lanka Walltile Meepe (Pvt) Ltd - - - 1,991 - - - 29 Lanka Ceramics Ltd - - 1,258 22 - - 396 - Lanka Walltiles PLC - - - 704 - - - 424

2011 2010 Rs. ‘ 000 Rs. ‘ 000

Dividend received from subsidiary companies Cargills Retail (Pvt) Ltd - 71,250 Cargills Quality Foods Ltd 48,603 204,132

Transfer of investment Cargills Quality Foods Ltd 1,037,785 -

As at 31 March 2011, Cargills (Ceylon) PLC transferred the ownership of Kotmale Holdings PLC to its wholly owned subsidiary Cargills Quality Foods Limited. This transaction was done outside the trading floor of Colombo Stock Exchange consequent to a special approval from the Securities and Exchange Commission of Sri Lanka. The sales consideration amounted to Rs. 1,038 Mn and was accounted as intercompany receivable. As at the balance sheet date, the entire amount was due to the Company.

Advance for funding investment Millers Brewery Ltd 1,205,425 - Dawson Office Complex (Pvt) Ltd 249,599 -

Cargills (Ceylon) PLC has advanced a sum of Rs. 1,205 Mn to Millers Brewery Limited to fund the purchase of assets. This amount is reflected as an intercompany receivable pending the issue of shares in Millers Brewery Limited.

Company has advanced a sum of Rs. 250 Mn to Dawson Office Complex (Private) Limited to fund the purchase of assets. This amount is reflected as an intercompany receivable pending the issue of shares in Dawson Office Complex (Private) Limited. 66 Annual Report 2011

Notes to the financial statements contd...

Group 2011 2010 Sales Other Purchases Other Sales Other Purchases Other income expenses income expenses Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Transactions with holding company C T Holdings PLC 497 - - - 632 - - 629

Transactions with associate C T Properties Ltd - - - - 4 - - -

Transactions with other related companies Ceylon Hotels Corporation PLC 928 - - - 890 - - - Ceylon Printers PLC 87 - - 979 23 - - 243 Ceylon Theatres (Pvt) Ltd 395 ------C T Capital Ltd ------347 C T Land Development PLC - - - 48,521 80 - - 31,462 Dialog Telekom PLC - 99,998 - 61 - 80,792 - 7,593 Galle Face Hotel Co. Ltd 2,680 - - - 2,605 - - 10 Kalamazoo Systems Ltd - - - - 139 - - 633 Kandy Hotels Co. (1938) PLC 894 - - - 432 - - - Lanka Tiles PLC 714 - - 8,590 137 - - 2,230 Lanka Walltile Meepe (Pvt) Ltd - - - 2,106 - - - 2,303 Lanka Ceramics PLC - - 1,258 22 - - 396 - Lanka Walltiles PLC - - - 789 - - - 424 Paragon Ceylon Ltd ------495 Unidil Packaging (Pvt) Ltd - - 4,705 - - - 9,569 -

Panadaria (Private) Limited

Mrs. R Page, wife of the Deputy Chairman/CEO is a Director of the above company with which the Company had the following transaction during the year and the amount outstanding as at 31 March 2011 was Rs. 2,055,684 (2010 - Rs. 2,146,032).

- Purchases for re-sale in the ordinary course of business of Rs. 27,953,221 (2010 - Rs. 23,023,373) - Rental income of Rs. 1,560,000 (2010 - Rs. 780,000)

There are no material related party transactions other than those disclosed above.

(d) Amounts due from / due to related companies

Amounts due from and due to related companies as at the year end have been disclosed under note 20 to these financial statements. Annual Report 2011 67

Statement of value added

Group 2011 2010 % Rs. ‘ 000 % Rs. ‘ 000 Creation of value added

Gross revenue 38,156,172 31,772,821 Cost of good and service (33,019,093) (27,476,535)

Value added from operation 5,137,079 4,296,286 Dividend received 8 - Other income 582,450 510,453 Total value added 5,719,537 4,806,739

Distribution of value added

To associates Salaries, wages and other related costs 34.89 1,995,461 34.62 1,664,220 Directors’ fees and remuneration 1.30 74,625 0.88 42,098 36.19 2,070,086 35.50 1,706,318 To government Government levies 17.97 1,027,511 18.68 898,024 Corporate taxes 5.46 312,530 6.00 288,334 23.43 1,340,041 24.68 1,186,358 To lenders of capital Interest 6.36 363,946 8.92 428,819 Minority interest 0.10 5,623 - - 6.46 369,569 8.92 428,819 To shareholders Dividends 5.09 291,200 3.73 179,200

Retained for growth Depreciation 14.88 851,291 16.08 772,852 Retained earnings 13.95 797,350 11.09 533,192 28.83 1,648,641 27.17 1,306,044 100.00 5,719,537 100.00 4,806,739

Value addition for 2011 Value addition for 2010

Retained for growth 27.17% Retained for growth 28.83% 36.19% 35.50% To associates To associates

3.73% 5.09% To shareholders To shareholders 8.92% 6.46% 23.43% To lenders of capital 24.68% To lenders of capital

To government To government 68 Annual Report 2011

Five year financial summary

2007 2008 2009 2010 2011 Group Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000 Rs. ‘ 000

Financial results Revenue 17,936,712 23,142,619 28,692,481 30,874,797 37,128,661 Profit from operation 675,013 947,199 1,232,186 1,429,545 1,825,442 Profit before taxation 394,924 607,152 702,586 1,000,726 1,406,703 Profit after taxation 337,454 491,016 539,900 712,392 1,094,173 Minority interests (75,419) (43,169) (40,446) - (5,623) Profit attributable to Equity shareholders of the parent 262,035 447,847 499,454 712,392 1,088,550

Financial position Stated capital 130,723 130,723 130,723 130,723 130,723 Reserves 1,153,889 1,410,967 2,001,981 6,010,432 6,828,987 Minority Interest 183,731 353,818 - - 89,723 Capital and reserves 1,468,343 1,895,508 2,132,704 6,141,155 7,049,433

Current assets 2,681,012 3,627,091 4,249,141 4,697,601 5,736,722 Current liabilities (4,578,529) (5,548,754) (6,371,303) (7,085,476) (11,348,392) Working capital (1,897,517) (1,921,663) (2,122,162) (2,387,875) (5,611,670) Non current assets 4,091,504 4,712,094 5,411,594 9,251,241 13,568,878 Non current liabilities (725,644) (894,923) (1,156,728) (722,211) (907,775) Minority interest (183,731) (353,818) - - (89,723) Net assets 1,284,612 1,541,690 2,132,704 6,141,155 6,959,710

Key Indicators Growth in turnover (%) 27.30 29.02 23.98 7.61 20.26 Growth in earnings (%) 61.70 70.91 11.52 42.63 52.83 Return on total assets (%) 3.87 5.37 5.17 5.11 5.67 Growth in total assets (%) 23.42 23.13 15.85 44.39 38.40 Growth in capital and reserves (%) 24.99 29.09 12.51 187.95 14.79 Return on capital and reserves (%) 22.98 25.90 25.32 11.60 15.52 Return on investment (%) 25.53 29.19 26.81 17.22 16.59 Earnings per share (Rs.) 1.17 2.00 2.23 3.18 4.86 Dividends per share (Rs.) 0.30 0.39 0.50 1.10 1.50 Net assets per share (Rs.) 5.73 6.88 9.52 27.42 31.07 Dividend pay out (%) 25.65 19.38 22.42 34.59 30.87 Dividends paid 67,200 67,200 86,800 179,200 291,200 Debt equity ratio (times) 4.13 4.18 3.53 1.27 1.74 Interest cover (times) 2.41 1.79 2.33 3.33 5.02 Current ratio (times) 0.59 0.65 0.67 0.66 0.51 Quick assets ratio (times) 0.18 0.19 0.25 0.23 0.19 Capital additions 954,353 1,058,914 1,096,392 602,720 1,408,938 Market capitalisation 2,520,000 11,198,600 5,264,000 15,792,000 51,139,200

(a) Return on investment is computed by dividing the profit for the year by total average assets employed.

(b) Debt equity ratio is computed by dividing the total liabilities by the shareholders’ funds.

(c ) Above ratios have been computed based on 224,000,000 shares in issue as at 31 March 2011. Annual Report 2011 69

Group real estate portfolio

Location Land extent Building area Valuation / Costs Year of (Sq. ft.) Rs. ‘ 000 valuation

Cargills (Ceylon) PLC Colombo 01 141 Perches 140,000 1,640,000 2010 Colombo 02 82 Perches 12,450 473,000 2010 Kandy 94 Perches 6,729 750,000 2010 Maharagama 145 Perches 6,384 382,000 2010 Nuwara Eliya 57 Perches 6,900 106,000 2010 Mattakuliya 330 Perches 65,000 552,000 2010 Park Road - 4,332 28,000 2010 Boralasgamuwa 2.5 Acres - 167,500 2010

Cargills Quality Foods Limited Mattakuliya 1.5 Acres 6,667 188,500 2010 Ja - Ela 5.1 Acres 23,067 294,000 2010

Cargills Agrifoods Limited Katana 11.3 Acres 10,210 183,680 2010

Millers Limited Bandarawela 85 Perches 6,345 100,000 2010 Kelaniya 1.2 Acres 62,985 197,600 2010

C P C (Lanka) Limited Katoolaya estate, Thawalantenne 4 Acres 550 4,159 -

Dawson Office Complex (Private) Limited Colombo 02 99 Perches - 249,599 -

Kotmale Dairy Products (Private) Limited Mulleriyawa 1.7 Acres 29,615 69,000 - Bogahawatta 1.7 Acres 17,442 12,000 -

Note: Current year addition to the real estate portfolio from C P C (Lanka) Limited, Dawson Office Complex (Private) Limited and Kotmale Dairy Products (Private) Limited are stated at their respective historical cost for which no valuation has been made during the financial year. 70 Annual Report 2011

Investor relations supplement

1. General

Stated capital Rs. 130,723,000 Issued shares 224,000,000 Class of shares Ordinary shares Voting rights One vote per ordinary share

2. Stock exchange listing

The issued ordinary shares of Cargills (Ceylon) PLC are listed in the Colombo Stock Exchange.

3. Distribution of shareholders

31 March 2011 31 March 2010 Size of Shareholders Holding Shareholders Holding Number % Number % Number % Number %

1 - 1,000 1,307 58.27 433,523 0.19 1,056 54.94 338,875 0.15 1,001 - 10,000 638 28.45 2,436,337 1.09 561 29.19 2,255,985 1.01 10,001 - 100,000 242 10.79 6,885,808 3.07 254 13.22 7,347,258 3.28 100,001 - 1,000,000 42 1.87 11,731,632 5.24 40 2.08 10,973,882 4.90 1,000,001 and over 14 0.62 202,512,700 90.41 11 0.57 203,084,000 90.66

2,243 100.00 224,000,000 100.00 1,922 100.00 224,000,000 100.00

4. Analysis of shareholders

31 March 2011 31 March 2010 Group of Shareholders Holding Shareholders Holding Number % Number % Number % Number %

Institutions 177 7.89 185,265,631 82.71 111 5.78 184,952,040 82.57 Individuals 2,066 92.11 38,734,369 17.29 1,811 94.22 39,047,960 17.43 Total 2,243 100.00 224,000,000 100.00 1,922 100.00 224,000,000 100.00

Residents 2,146 95.68 217,441,965 97.07 1,844 95.94 221,662,440 98.96 Non residents 97 4.32 6,558,035 2.93 78 4.06 2,337,560 1.04 Total 2,243 100.00 224,000,000 100.00 1,922 100.00 224,000,000 100.00

5. Group companies

During the year Company acquired majority shareholding of Kotmale Holdings PLC at a purchase consideration of Rs. 1,038 Mn. Initially, the shareholding increased to 73.4% and subsequently with the mandatory offer closing on 30 December 2010, the shareholding was increased to 81.72%.

As at 31 March 2011, Cargills (Ceylon) PLC transferred the ownership of Kotmale Holdings PLC to its wholly owned subsidiary Cargills Quality Foods Limited.

During the year, Cargills Quality Foods Limited a wholly owned subsidiary of Cargills (Ceylon) PLC, acquired 100% ownership of Diana Biscuits Manufactures (Private) Limited with an investment of Rs. 343 Mn.

During the year, the Company incorporated Millers Brewery Limited to set up a brewery venture, which would commence busi- ness in the next financial year. The initial share capital issued amounted to Rs. 100,020/-.

Dawson Office Complex (Private) Limited incorporated with an initial share investment of Rs. 100 for the purpose of building an office complex to be utilised as head office of Cargills (Ceylon) PLC. Annual Report 2011 71

Investor relations supplement contd...

6. Share Valuation

The market price per share recorded during the year ended 31 March 2011 2010 Rs. Rs.

Highest 253.00 73.50 Lowest 70.00 23.00 Last traded price 228.30 70.50

7. Top 20 shareholders

31 March 2011 31 March 2010 The holdings of the top 20 shareholders Number of Number of Shares % Shares %

C T Holdings PLC 156,749,240 69.98 156,749,240 69.98 Mr. V R Page 14,380,200 6.42 14,285,000 6.38 Ceylon Guardian Investment Trust - A/C No.1 6,558,700 2.93 6,949,700 3.10 Employees Provident Fund 6,263,600 2.80 - - Mr. Anthony A Page 5,050,000 2.25 4,838,500 2.16 Odeon Holdings (Ceylon) Limited 4,622,920 2.06 4,622,920 2.06 Ms. M M Page 2,648,400 1.18 2,280,400 1.02 Mr. J C Page 1,705,500 0.76 1,705,500 0.76 Est. of Mrs. M M Udeshi 1,536,640 0.69 1,536,640 0.69 BNY - CF Ruffer Investment Funds : CF Ruffer Pacific Fund 1,500,000 0.67 - - HINL - JPMCB - Butterfield Trust (Bermuda) Limited 1,497,500 0.67 1,597,500 0.71 The Gilpin Fund Limited 864,000 0.39 864,000 0.39 The Associated Newspapers of Ceylon Limited 799,840 0.36 799,840 0.36 Bank of Ceylon No.1 Account 799,600 0.36 - - Northern Trust Co S/A - Northern Trust Fiduciary Services (Ireland) Ltd - as Trustee 787,500 0.35 - - Mr. C Gardiner, The Bishop of Jaffna, The Archbishop of Colombo 563,040 0.25 563,040 0.25 National Savings Bank 548,300 0.24 - - Pictet & Cie 500,000 0.22 500,000 0.22 Mr. P E Muttukumaru 393,500 0.18 356,040 0.16 Sri Lanka Insurance Corporation Ltd - Life Fund 382,100 0.17 8,518,600 3.80 Deutsche Bank -Employee Provident Fund - - 511,600 0.23 Deutsche Bank AG - National Equity Fund - - 500,000 0.22 Nikan (Private) Limited - - 466,800 0.21 Mr. B N Shiner - - 492,000 0.22 Mr. M M Udeshi - - 387,500 0.17 Total 208,150,580 92.93 208,524,820 93.09

8. Public holding

The percentage of shares held by the public as at 31 March 2011 was 18.38 % (2010 - 18.49%) 72 Annual Report 2011

Notice of Annual General Meeting

Notice is hereby given that the sixty fifth Annual General Meeting of the Company will be held at the Sri Lanka Foundation Institute, No. 100, Independence Square, on Thursday, 29 September 2011, at 10.00 a.m. and the business to be brought before the meeting will be:

1 To consider and adopt the Annual Report of the Board and the Statements of Accounts for the year ended 31 March 2011, with the Report of the Auditors thereon

2. To declare a dividend as recommended by the Directors

3. To re - elect Directors a) A. T. P. Edirisinghe, b) E. A. D. Perera, c) Sanjeev Gardiner, who retire by rotation, and d) Jayantha Dhanapala, who retires in terms of Section 210 (2) (b) of the Companies Act No. 7 of 2007 having attained the age of seventy two years and offers himself for re-election in terms of Section 211 (1) and (2) of the Companies Act No. 7 of 2007.

Ordinary Resolution “Resolved that Jayantha Dhanapala, a retiring Director, who has attained the age of seventy-two years be and is hereby reappointed a Director of the Company and it is hereby declared that the age limit of seventy years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the appointment of the said Director”

4. To authorise the Directors to determine contributions to charities for the financial year 2011/12

5. To authorise the Directors to determine the remuneration of the Auditors, Messrs. KPMG Ford, Rhodes, Thornton & Co., who are deemed reappointed as Auditors at the Annual General Meeting of the Company in terms of Section 158 of the Companies Act No. 7 of 2007

By Order of the Board Cargills (Ceylon) PLC

S L W Dissanayake Company Secretary

17 August 2011

Notes : i. A member is entitled to appoint a proxy to attend and vote at the meeting in his or her stead and the proxy need not be a member of the Company.

ii. A form of proxy is enclosed for this purpose. iii. The instrument appointing a proxy must be completed and deposited at the registered office of the Company not less than 48 hours before the time fixed for the meeting. Annual Report 2011 73

Proxy form

For use at the sixty fifth Annual General Meeting

*I / We ………………………...... ……………...... ……………… of ……………………………………...... …...... ………………………...... being a *member/members of Cargills (Ceylon) PLC hereby appoint …...... ….. of …...... …..…………...... ……...... …...... ………….……...... whom failing

...... …...... ………...... ………...... …....…………of ...... or failing him / her, the Chairman of the Meeting as *my/our Proxy to represent *me/us and to vote for on *my/our behalf at the sixty fifth Annual General Meeting of the Company to be held on Thursday, 29 September 2011 and at any adjournment thereof and at every Poll which may be taken in consequent thereof in the manner indicated below:

Ordinary resolutions

Resolution number 1 2 3 (a) 3 (b) 3 (c) 3 (d) 4 5

For

Against

...... Date Signature of member (s)

NOTES:

(a) *Strike out whichever is not desired

(b) Instructions as to completion of the Form of Proxy are set out in the reverse hereof

(c) A Proxy holder need not be a Member of the Company

(d) Please indicate with an “X” in the cage provided how your Proxy holder should vote. If no indication is given, or if there is, in the view of the Proxy holder, any doubt (by reason of the manner in which the instructions contained in the Proxy have been completed) as to the way in which the Proxy holder should vote, the Proxy holder in his/her discretion may vote as he/she thinks fit 74 Annual Report 2011

Proxy form contd...

Instructions as to completion of the proxy form

1. To be valid, the completed Form of Proxy should be depos- ited at the Registered Office of the Company at No: 40, York Street, Colombo 1, not less than 48 hours before the time appointed for the holding of the Meeting.

2. In perfecting the form, please ensure that all details are legi- ble. If you wish to appoint a person other than the Chairman as your proxy, please fill in your full name and address, the name and address of the proxy holder and sign in the space provided and fill in the date of signature.

3. The instrument appointing a Proxy shall, in the case of an individual, be signed by the appointer or by his Attorney and in the case of a Corporation must be executed under its Common Seal or in such other manner prescribed by its Articles of Association or other constitutional documents.

4. If the Proxy Form is signed by an Attorney, the relevant Power of Attorney or a notarially certified copy thereof, should also accompany the completed Form of Proxy, if it has not already been registered with the Company.

5. In the case of joint holders, only one need sign. The votes of the senior holder who tenders a vote will alone be counted.

6. In the case of non-resident Shareholders, the stamping will be attended to upon return of the completed form of proxy to Sri Lanka.