Annual Report 2010

More than just a Brand, More than just a Taste
Annual Report 2009/10
Contents
Cover Story Vision / Mission Financial Highlights CEOs Review Profile Board of Directors Kotmale, at a Glance Corporate Governance Report of the Directors Financial Information Statement of Directors Responsibility Auditors Report Income Statement Balance Sheet Statement of Changes In Equity Cash Flow Statement Notes to the Financial Statements Investors Information Five Year Financial Summary Notice of Meeting Form of Proxy 22 23 24 25 26 27 28 40 42 43 47 1 2 3 6 10 11 16 17
More than just a Brand, More than just a Taste

At Kotmale Holdings PLC, we have a rich heritage of quality and fine expertise that precedes us, in every way. Not only do we have one of the largest, progressive and diverse dairy portfolios in the country, we assure freshness and goodness, every single time. The care and attention that goes into our products is what has made us who we are today - a trusted brand in the minds of our most important stakeholders, our customers. We strive to be more than just a valued brand and recognise the importance of being more than just a taste. At Kotmale, were so much more.
Vis Mis
Our Vision
To be the leading producer of food and beverage products for the local and international market.
Our Mission
Providing the nation with quality and affordable food and beverage products using state of the art technology and local expertise, continuously seeking opportunities for growth and creating an environment that develops, motivates and rewards all employees whilst providing consistent returns to all its stakeholders.
Kotmale Holdings PLC 2
Financial Highlights
Group
Operating Results Turnover Gross Profit Net Finance Cost Profit before taxation Balance Sheet Highlights Non - Current Assets Current Assets Current Liabilities Non - Current Liabilities Share Capital & Reserves Total Assets Market/Share Holders Information Market Price per Share-at the year end Earnings per Share Net Assets per Share Interest Cover Debt/ Equity Ratio Borrowings / Total assets Price Earnings Ratio
2009/10 Rs 000s
2008/09 Rs 000s
1,348,176 288,905 (10,172) 87,061
1,352,959 257,754 (23,682) 75,557
345,242 394,344 153,239 52,187 534,159 739,586
356,098 407,266 183,666 48,244 531,454 763,364
(Rs) (Rs) (Rs) (times) (times) (times) (times)
24.75 2.09 17.01 9.56 0.10 0.04 11.8
9.50 2.02 16.93 4.19 0.09 0.04 4.7
Group Gross Turnover

1520 1570 1354 1389 541
Gross Profit
180 203 258 289
Profit Before Taxation
Total Assets
562 685 598 763 740
86
01
30
11
76
Rs in million
Rs in million
Rs in million
87
Rs in million
07/08
07/08
07/08
08/09
08/09
08/09
07/08
09/10
09/10
09/10
08/09
2005
2006
2005
2006
2005
2006
2005
2006
Note - The figures stated for financial year 2007/08 reflect performance for a 15 month period, consequent to the Company changing its financial year from 31st December to 31st March.
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Year
Year
Year
Year
09/10
Annual Report 2009/10 Annual Report 2009/10
CEOs Review of Operations

Sri Lankas focus on a resurgence of both the economy and the social fabric of the country post a nearly thirty year old war started breaking new ground towards the latter part of the year with development projects and focused infrastructure taking precedence. There was also a concerted effort towards ensuring that growth indicators remained apace with a preparation for an upward journey ahead. We at Kotmale Holdings too, began seeing the palpable signs of development and in tandem, strengthened our initiatives to keep apace with the countrys plans for the future. It gives me great pleasure therefore to present this Annual Report and Statement of Account for your Company in an environment where, we as a responsible corporate citizen will continue with our work of sustainable development in creating enabling communities among our stakeholders.
Overview of the economy Despite stimulus packages introduced in most of Europe and the USA, the global economy was slow in getting off the ground, seeing the cascading negativities continuing to flow throughout most of the developed and emerging economies. However, there was a concerted effort by these economies to adopt diverse policies in order to combat some of the effects of the fallout, including relaxation of monetary policies, unprecedented expansion of fiscal policy in order to boost demand and stabilise financial markets and lowering of interest rates. However, despite the introduced panaceas, the IMFs projection of a contraction in the world economy of 0.8% held true for the year. Sri Lankas legendary resilience continued to remain at the fore with the growth rate displayed at a consistent 3.5% in 2009, despite challenging domestic and external conditions. The noteworthy growth rate is primarily attributed to the significant growth of 6.2% seen in the last quarter of the year which saw the country maintain its equilibrium and stay afloat. The first quarter of the year also had to contend with an immense increase in defence expenditure due to the strong thrust to end the war, while interest payments, salaries and wages, resettlement, rehabilitation and reconstruction activities did exert a heavy burden on the state. However, with the end to the war and investor confidence seeing a sharp reversal for the better, foreign financial inflows helped the country record an unprecedented surplus in its Balance of Payment to US $2.7 Bn. by end 2009 with foreign exchange reserves posting a historic high of US $5.1 Bn., while most sectors of the economy, especially tourism, saw rapid upward movement as well. The Dairy Industry The dairy industry this year showcased an increase of 12.1% in total milk production to 233 Mn. liters in 2009. Sri Lanka has managed to produce 28% of its total milk requirement this year, quantified at a per capita consumption of 110 milliliters per day. This was primarily due to a number of enhanced measures implemented to expand dairy farming and higher prices being obtained due to better product quality. Neat cattle milk, which saw 7% growth, detailed a milk production of 184 Mn. liters, while buffalo milk, which had 38% growth, produced 49.3 Mn. liters. Financial Review It has been a good year for the Group which performed well in a challenging economic milieu. The challenges for our business stemmed specifically on our powdered milk operations, which is heavily reliant on imported milk powder. A consolidated revenue of Rs 1.348 Bn. was recorded by the Group with profit before tax posted at Rs 87.1 Mn., a growth of 15.2% by March 31st 2010. Kotmale Holdings shares closed at Rs 24.75, a 260% increase over last year. Similarly, the market capitalization of the company increased from Rs 298 Mn. to Rs 777 Mn. The positive results display the value that the market places on our business and the potential future growth that can be envisaged tangibly in the current environment. Profit before tax saw an incline of 15.2 %, which in tandem improved PBT ratio to 6.4% from 5.6%, while Group net profit after tax increased 3.1 % to Rs 65.5 Mn. from Rs 63.5 Mn., despite a Withholding Tax payment on inter-company dividends amounting to Rs 16.6 Mn.. This Withholding Tax payment also saw group taxation increase by Rs 9.5 Mn. However, turnover remained flat at Rs 1.3 Bn. at consolidated level, primarily due to the meager performance of the powdered milk sector in our business which pulled down our figures with a 55% decline in turnover The Liquid Milk Based Product (LMBP) segment meanwhile showed a robust 28% growth in turnover accounting for Rs 1.136 Bn. a significant upward momentum compared to the previous year. I must also add that this noteworthy performance by the LMBP sector contributed immensely to maintaining and improving upon the growth indicators of all operations.
Kotmale Holdings PLC
CEOs Review of Operations Continued
87.1Mn Rs777Mn
Rs
profit before tax 2010
The market capitalisation 2010
This also saw our consolidated gross profit record a growth of 12% to stand at Rs 289 Mn., although our consolidated operating profit declined 2% from Rs 99.2 Mn. to Rs 97.2 Mn. The latter is primarily due to increased investments in marketing and HR activities which in turn increased administration expenditure. Finance costs within the group saw a significant reduction of 57 % from Rs 23.6 Mn. the previous year to Rs 10.1 Mn. this year, attributed to prudent cash flow management, added focus on profit making areas of the business and less emphasis on powdered milk business. The positive results now allow us to pursue the long planned expansion of our operations and focus more diligently on accelerating our business performance. The Group recorded a ROE of 18.2% during the year, a decline once again reflective of the large Withholding tax component. However, the positive facet to this is that our shareholders were availed handsome returns this year with a dividend of Rs 2 per share for the first time in the history of the Company since it became Kotmale Holdings PLC. The directors have also made a further recommendation of Rs 2, for which shareholder approval is awaited. This will bring the total dividend for the year to Rs 4 per share. Business Sector Performance As mentioned previously, the dairy industry did have its challenges although Kotmale continued on the strategic plans we had already embarked on during the last two years. We recognise increasing competition in the market but are confident that the strategies we have employed in maintaining standards, continuous product development, focused expansion and operational improvements will be the USPs to strengthening and nurturing our business. One of the key focus areas this year was the expansion of our production facilities. Given increasing energy and other relevant costs, we are strong proponents of good cost management initiatives and based on analyses conducted, embarked on better usage of resources and facilities. With our machinery possessing the required capacity, one of the shortcomings we observed was the lack of support utilities to ensure we optimise on what we have. Common resources have been enhanced and boiler and generator capacities etc., have been increased. Our focus now will be in enhancing production capacity in anticipation of the envisaged future growth we foresee in the next few years. Liquid Milk Sector One of our best performing sectors during the year, the liquid milk sector was also primarily responsible for the good results we posted for the year, increasing turnover by 28% and offsetting the negative impacts we experienced in the
The positive results also display the value that the market places on our business and the potential future growth that can be envisaged tangibly in the current environment.
Profit Before Taxation
01
30
11
76
Rs in million
87
Year
2007/08 - Reflects 15 Month period
07/08
08/09
2005
2006
09/10

powdered milk business. Now firmly consolidating its market leadership in the flavoured milk segment, this sector achieved a robust volume growth over the year. Powdered Milk Sector This was probably the watershed year for the powdered milk sector which saw a gradual decline in profitability compounded by the fact that world market prices saw sharp inclines making importation of milk highly unprofitable. For Kotmale Holdings, which is a relatively small player in this segment without the backing of a large multinational company, due to its susceptibility to wide fluctuations in market prices, duty structures, and foreign exchange, purchasing powdered milk from the market at these high prices proved to be disadvantageous. For example, duty on imported milk powder was increased from Rs.55 per Kg at the beginning of the year to Rs.145 per Kg in June 09. All these were tantamount to turnover declining 55% which affected the performance of the Group. We therefore decided to strategically withdraw temporarily from this area of business, until the market dynamics become more favourable and Kotmale can work on a business strategy that will prove to be fruitful. Adding value to our value chain One of the biggest contributors to the success of this business area and the entirety of the Group is the impressive network of dairy farmers we have within our fold. Having begun this company on the premise of sustainable development, Kotmale has, since inception, created a sustainable income avenue for over 8,000 dairy farmers mainly in the central hill country areas, collecting about 12 Mn. liters of milk annually. The long lasting partnership we have nurtured with these farmers and their families have imbued empowerment among the farmers which cascades to an upliftment of their lifestyles, better working and living conditions and development of the next generation through enhanced educational avenues. A continuous on the job training and learning feature adds value to the relationship we have with our farmers, as our technical officers have constant dialogue and hands on training imparted to them to ensure that quality standards remain paramount in caring for cattle in order to optimise milk output, the collection of milk and in transport to our collection centers. We are one of the largest milk collectors in the country and are extremely honoured to have become a part of the development of the rural communities, who most often have little or limited opportunities for betterment. Sales and Marketing Having seen the resurgence of the economy in both the North and East of the country, Kotmale capitalised on the opportunities by commencing UHT milk operations in Jaffna, which saw noteworthy results for the year. For a segment of the population that has always been consuming fresh milk due to the high component of dairy farming in the Jaffna peninsula, the fact that the product has been well accepted by the consumer and has been acclaimed for its high quality and value for money features are certainly encouraging. Our distribution network too was further strengthened. This year we worked on a strategic distribution plan conceptualised around our liquid milk as the primary product and the rest of the product portfolio following in its wake. In addition to this, we added to our distributor network and worked on visibility of our product. Our continuous investment into brand development has ensured that the Kotmale brand is visible, accessible, and remains true to its brand values and pillars. This consistent thrust towards our brand bore fruition this year when Kotmale was named for the first time in Brands Annual, a publication of Media Services and Brand Finance and placed 61st among the countrys top 100 most valuable brands. People Power While Kotmale continues to add to its commendable portfolio of products, some of which hold market leadership, one of the most salient features in our business is the extraordinary input that our human resources adds into the continued success of our business. With 300 within our team, one of our biggest assets is our people, a resource that must be nurtured, strengthened and retained in order to achieve a win-win formula for both the team member and the company. HR plans have always been worked on aligning individual aspirations to the companys vision and this year, we began a cohesive plan of upgrading our skills base. Departments were restructured to obtain maximum operational efficiency and aligned to the operational strategies of the company, while a knowledge gaining culture is encouraged within our team. Journey Ahead With the country now looking ahead and macro indicators envisaging unprecedented growth for the country, it is pertinent to mention here that Kotmale, having seen the positive signs had already begun laying the foundation for this growth phase in the last two years. Additional investment remains high on the cards aligned to the buoyant mindset perceived among other sectors of the economy as well. One

area that will see us give added focus is a further penetration into the tourism industry, which has seen an unprecedented fillip since the end to the war in May 2009. The trusses for the enhancement of production, capacity, sales and marketing and other operational areas are already functional with new standards being introduced to ensure optimum efficiency and maximum productivity. Given the new market opportunities emerging, Kotmale will focus more proactively in increasing visibility and accessibility of our product in both these geographic areas. This will also involve significant investment in brand equity, R&D and product look and feel, which will enhance our presence and product portfolio throughout the country. This will be augmented with further training and development imparted to our team as well and emphasis on attracting the best talent available, which we feel is an imperative in ensuring that we reach our growth objectives. Into this equation, we aim to further empower our most valued business partners, our farmer network, whose skills and technical knowledge too will continue to be upgraded, while collection, processing, storage and final production of our product will remain consistent with the stringent standards we maintain throughout. One of the primary development drives of the government in a social context is ensuring food security for the people, based on the United Nations Millennium Development Goal. Food security of people can only be ensured through a sustainable increase in food production, stable prices and enhancing income levels of low income households. This has stemmed the way for a concerted drive to uplift the rural economy through sustainable agriculture and dairy farming initiatives which augurs well for the future of dairy development. The benefits are manifold in that while farmers receive enhanced incomes, malnutrition can also be assuaged due to increased milk being consumed, especially by children. The government also aims to drive an initiative of providing fresh milk for children of low income families from the ages of two to five through school nutrition programmes. With the drive to improve dairy farming, Kotmale strongly believes that a cohesive partnership between the private sector and government will yield the envisaged growth pattern and ancillary benefits. It is important that the drive for development retains both public and private sector input, as this then enables added investment in much required infrastructure, while the governments aid in financing and creating an enabling environment for the farmers in the difficult areas will make for a sustainable growing industry. As I observe the end of one year and the beginning of another, Im most appreciative of the guidance and direction given to me by the Board of Directors and the confidence they have placed in me to lead the company. For the hard work and dedication that my team has displayed over the year in ensuring that our growth curve retains its upward momentum, thank you to each and every one of you. My thanks also extend to our expansive network of valued business partners from farmers to suppliers and distributors who have all been responsible for the success that Kotmale has achieved this year. Our growing portfolio of consumers too deserves an accolade for the encouragement we have received to ensure that our product continues to give you the quality you so richly deserve. While we make a firm pledge to continue creating sustainable wealth for our shareholders, Im more than committed, as is my team, to begin etching a successful chapter for Kotmale, growing on the successes of the past year and creating a sustainable on-going business venture constructed on the trusses of quality, transparency, ethics, accountability and most of all trust and care for all our stakeholders to journey towards a horizon of prosperity and growth.
(Sgd.) Jude Fernando Director/CEO 08th July 2010
Profile of the Board of Directors

Mrs. Manjula Mathews Executive Director MBA, FCMA Ms. Mathews brings to the Board over 21 years experience in General Management and Finance, both in Sri Lanka and overseas. She currently serves as Managing Director of Dunamis Capital PLC, a diversified conglomerate, and as a Director of other Dunamis subsidiaries. Ms. Mathews was formerly the Finance Director at Janashakthi Insurance PLC one of the leading insurers in the country. She continues to hold a Non-Executive position at Janashakthi Insurance PLC. Ms. Mathews is a fellow Member of the Chartered Institute of Management Accountants of (UK), and holds a Masters Degree in Business Administration from the University Cambridge (UK). Mr. Nihara Rodrigo Independent Non-Executive Director Presidents Counsel Mr. Rodrigos professional career span of over 30 years is enriched with diversified expertise and experience in various fields including different aspects of law and e-commerce. He serves as the Chairman of the Grants Board of the Information and Communication Technology Agency of Sri Lanka Capacity Building Program. He was appointed as President Counsel in May 2010. Mr. Rodrigo also serves as a Director of Dunamis Capital PLC and its listed subsidiaries namely First Capital Holding PLC and Kelsey Development PLC.
Mr. Jude Fernando Executive Director/CEO MBA, FCMA, Dip. M (UK), MCIM, Mr. Fernando brings to the Board over 17 years of experience in the fields of Supply Chain Management, Finance, Strategic Planning and International Marketing. Prior to joining the Group, Mr. Fernando held the position of Director Supply Chain, at Hemas Manufacturing (Private) Limited. He joined the Hemas Group following a career in Finance at Royal Ceramic PLC where he headed the finance operations as Finance Manager. Mr. Fernando is also a Director of Dunamis Capital PLC. He is a Fellow Member of the Chartered Institute of Management Accountants (UK), a member of the Chartered Institute of Marketing (UK) and holds a Masters Degree in Business Administration from the University of Wales.
Mr. Dinesh Schaffter Non-Executive Director ACMA, LLB Mr. Dinesh Schaffter counts over 20 years experience in the Financial Services and Manufacturing sectors. He also serves as a Director of Dunamis Capital PLC, and its subsidiaries. Mr. Schaffter is an Associate Member of the Chartered Institute of Management Accountants (UK), and holds a Bachelor of Law Honours Degree (LLB) from the United Kingdom.
Kotmale, at a Glance
Built on an ethos of quality, wholesome products that form the foundation for a legendary reputation, Kotmale is now synonymous with dairy production in Sri Lanka, amply augmented with an extensive product portfolio developed over an expanse of over three decades. Kotmale was established in 1979, in the upcountry region of Patana, sitting serenely surrounded by picturesque mist covered hills within the Kotmale Valley. Creating a sustainable dairy industry The primary precept of Kotmale at its inception was the development of a dairy industry that would be founded on sustaining the thousands of dairy farmers around the country. These farmers most often eked meagre incomes from their produce which permeated to poverty ridden lifestyles, lack of knowledge and bad cash management. Kotmales intervention with these farmers since 1979, therefore has been a holistic one, constructed on a 360 degree platform that empowered and enabled the dairy farmer, while giving the company the required fresh milk to develop an extensive product portfolio, which in turn has seen a considerable development of the national dairy industry. Today, Kotmale is the third largest fresh milk collector in the country, purchasing over 12 million litres of milk annually with most of it sourced directly from more than 8,000 farmers across the central region of the country. The long term relationship that has been nurtured not only with the farmer but with his extended family has created a firm foundation of commitment and loyalty among the dairy farmers within our network due to the tangible development they have seen within their families and communities. Animal health and hygiene remains key to maintaining our stringent quality standards. Our technical teams therefore become an integral link in not only the imparting of knowledge, skills and technical know how, but also in forging a strong bond between the farmer and the company. Transforming raw milk into delightful experiences Pooling extensive resources within three manufacturing plants and a widespread milk collection centre network across the country, the three hundred strong team at Kotmale enjoy the challenges of creating tasteful masterpieces from the raw milk that is collected from our dairy farmers each day. Our entire range of ice-creams, pasteurised milk and UHT (Ultra Heat Treated) milk, yoghurts and curd are produced in the automated and semi-automated manufacturing plant, located in Colombo. The Cheese Factory manned by an efficient team of Cheese Masters is located in the picturesque town of Bogahawatte in close proximity to Talawakelle, with its rolling tea plantations and pure unpolluted environment, the ideal location for the production of cheese. The range manufactured here includes the entire Kotmale range of cheeses and fresh cream. Kotmale has been manufacturing cheese for over three decades, with an unmatched expertise that far surpasses those in existence within the local industry. Maintenance of rigorous
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Kotmale, at a Glance Continued
Today, Kotmale is the third largest fresh milk collector in the country, purchasing over 12 million litres of milk annually with most of it sourced directly from more than 8,000 farmers across the central region of the country.
hygienic standards including a scientific food safety assurance system are of paramount importance, although the age old traditions of cheese making, which imbues our cheese with its uniqueness, remains inherent in the manufacturing process. Quality and R&D Imperatives The quality control systems that encompass the A to Z of our manufacturing process, from raw milk collection to packaging are comprehensive with each stage of production being subjected to a rigorous testing and approval process, ensuring the end product exceeds food regulatory standards. In addition, Research and Development initiatives which
are spearheaded in Colombo has extensive investment into improvement of the existing product portfolio and in new product development aligned to evolving consumer trends, all of which aspire to eventually exceed changing customer expectations. Quality and efficiency in production Producing quality dairy products is not limited to good raw materials and stringent quality standards. What is also required is a significant emphasis on maintaining an efficient cold chain, which monitors storage facilities at production plants, delivery vehicle temperatures, hygienic standards, astute logistical planning and apt procedures for loading and unloading of these perishable products. Kotmales concentration therefore extends beyond the norm, focusing on managing quality across the board to ensure that the cold chain is maintained stringently and cohesively from manufacturing stage to selling point. This includes auditing and constant monitoring of distributor facilities in a network that spans the entire country as well as in supermarkets and retail outlets, with the necessary advice and technical know how imparted by our quality assurance team. Where People make the difference Ours is a product that has the proactive intervention of people from start to finish; collecting our raw material from people, our products being manufactured by people whose skills and talent come to the fore in creating the diverse range that
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Kotmale, at a Glance Continued

make up our product portfolio and finally being consumed by a discerning segment of people. The three hundred people within our team therefore form an integral seamless chain in ensuring that our product retains its quality and flavour, ultimately delighting the customer. Our team is a talented one, specialised in creating some of the most unique products In the market, while also developing products that encompass pioneers in different product categories. Their commitment in ensuring that the Kotmale brand remains strong, visible and true to its values has built our company into the success it is today. While training and development remains a high priority in every working day, the company also creates a knowledge gaining culture within the organisation, inviting participation, open dialogue, specialty enhancement and a team spirit that infuses an entrepreneurial spirit in everything we do. Motivated by commitment and spurred by dynamism, the team has made Kotmale a brand and a company that steadily climbed the ladder of success, meeting and overcoming competition and gearing itself for the future with a pragmatic and forward thinking mindset. Experiencing Dairy, the Kotmale way It has been a little over thirty years since the Kotmale brand first hit the shelves and refrigerators in supermarkets and retail outlets and in that time, Kotmale has also ensured consumer loyalty and top of the mind recall due to a firm commitment to producing an expansive product portfolio built on unsurpassed quality. The trust and dependability that surrounds the product and brand is now firmly embedded as growing goodwill among an expanding consumer market, successfully standing shoulder to shoulder with some of the bigger and larger local and multinational dairy product manufacturers and marketers in Sri Lanka.
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Products
UHT Milk & Pasteurised Milk One of the largest producers of both pasteurised and UHT milk in the country, Kotmale now enjoys market leadership in this category. Available in plain and flavoured variants, our flagship product portfolio encompasses the unique creamy flavour and natural goodness of the purity of upcountry milk in its chocolate and vanilla flavours.
Cheese Producing some of the finest cheeses available in Sri Lanka, Kotmales selection of cheeses in both Swiss and Processed cheeses, remain incomparable to any other producers range available in the market today. One of our considerable advantages is that Kotmale specialises in manufacturing cheese devoid of any preservatives. Supplying to both the retail and hospitality sectors, the Kotmale cheese board includes Swiss, Plain and Spiced Balls, Plain and Spiced Processed and Cheese Spread, as well as an expansive range of spiced cheeses. Added to this range is Feta, Cottage, Paneer and Mozzarella, available in both 100g packs and 3 kg bulk packs.
Fresh Cream The largest producer of fresh cream in Sri Lanka, Kotmale Fresh Cream is the purest form of pure fresh milk and is sought after by housewives and the hospitality industry alike for use as whipped cream in desserts, toppings and exotic recipes.
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Ice Cream Multiple flavours collated in a diverse range of 100% dairy ice cream, Kotmales rich and creamy ice cream encompasses the natural goodness of pure fresh milk. Manufactured to an international recipe, the staple flavours of vanilla, chocolate, strawberry and mango present the rich and creamy flavour of farm fresh milk, while the Fresh Fruit range infuses pieces of fresh fruit into the ice cream. Making ice cream a truly exotic experience is synonymous with our Signature Range, a truly world class range of products renowned for its unsurpassed quality and taste with a smorgasbord of flavours including Wild Berry, to Richy Rich and Butter Pecan. We are also proud to be just one of the few dairy manufacturers in Sri Lanka to utilise fresh milk and fresh cream as primary ingredients in our ice cream, exampled amply by the natural creamy taste that is unique to our products.
Yoghurt Packaged distinctively in square cups and containers in a dual range of set yoghurt and non-fat yoghurt, the goodness of natural yoghurt is expertly contained within our product. Produced with pure fresh milk into which special cultures are added to give it the uniqueness that makes it a Kotmale product. Yoghurt is available islandwide with the nonfat variety increasingly capturing the health conscious market as well.
Curd Kotmale curd is abundant with rich dairy goodness. It is manufactured using home-grown fresh milk. The product has earned a name for its quality, amongst the reputed chefs in Sri Lanka. Owing to its rich dense texture and appealing flavour, the product is served as a dessert with treacle and it is also used for cooking and in the preparation of other desserts as well. Currently, Kotmale curd is distributed along the hotel and catering chain.
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Corporate Governance
The Directors acknowledge their responsibility for the Companys corporate governance and the system of internal control. The directors are responsible to the stakeholder for providing strategic direction to the company and safeguarding the assets of the business. Currently the Board comprises of one independent non-executive director, one non-executive director and two executive directors all of whom possess a broad range of skills and experience. The Board reviews strategic and operational issues, approves interim and annual financial statements and annual budgets, assesses performance and ensures compliance with all statutory and regulatory obligations. Advice and guidance is provided to the senior management team at monthly performance review meetings. These meetings provide an opportunity to assess progress and ensure accountability of the senior management team. The Board is satisfied with the effectiveness of the system of internal control in the Company for the period up to the date of signing the Financial Statements. Kotmale Holdings PLC is in the process of regularising the composition of the Board of Directors to comply with the requirements of the CSE Listing Rules. Although the Company has two non-executive directors on its board and meets the requirements of Rule 7.10.1 (a), it is currently not in compliance with Rule 7.10.2 (b) which requires two or onethird of the non-executive directors (whichever is higher) to be independent. The independent non-executive director on the Board, Mr. Nihara Rodrigo has submitted a declaration of his independence. Mr. Rodrigo does not qualify as independent against the criteria set out in the listing rules because he is a director of other companies in which a majority of the other directors of the Company are employed or are directors. However the Board is of the opinion that this does not affect his independence as he does not have a business relationship or a significant shareholding in Kotmale Holdings PLC. The proper constitution of Remuneration and Audit committees that meet the requirements of the CSE listing rules have been hampered due to the lack of adequate independent directors within the Company. The Company is in the process of regularising the composition of the Board to comply with the requirements of the listing rules. The Remuneration Committee currently consists of two non-executive directors Mr. Nihara Rodrigo and Mr. Dinesh Schaffter with Mr. Rodrigo functioning as the Chairman. The committee therefore does not comply with the criteria of listing rule 7.10.5(a). The remuneration policy of the Company is to base remuneration on both individual and company performance whilst recognising the importance of attracting and retaining high caliber personnel. The recommendations of the Remuneration Committee on payments to executive directors were duly adopted by the Board of Directors. The Company currently does not meet the requirements of the listing rules with respect to an audit committee.
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Report of the Directors

The Directors have pleasure in presenting the 43rd Annual Report and the Audited Statement of Account of the Company for the year ended 31st March 2010. These Statements of Account were approved by the Board of Directors on the 05th of July 2010. Going Concern The Directors have adopted the basis of the business being a going concern in preparing these financial statements. Directors Responsibility in Financial Reporting The Directors responsibility in relation to the financial statements is detailed on page 22. Legal Status Kotmale Holdings PLC was incorporated in 1967 under the provisions of the Companies Ordinance No. 51 of 1938 and re-registered under the Companies Act No. 7 of 2007 on 06th May 2008. The Company was listed on the Colombo Stock Exchange in 1969. Principal Activities The principal activities of the Group are the manufacturing and distribution of dairy products and the packaging and distribution of milk powder. There have been no significant change in the nature of the activities of the Group or of the Company during the financial year. Review of Operations A review of the operations of the Company during the financial year and results of those operations are contained in the Chief Executive Officers Review of Operations on pages 06 to 09 of the Annual Report. This report forms an integral part of the Directors Report. Risk and Internal Control The Board of Directors is satisfied that an effective and comprehensive system of internal controls to monitor, control and manage the risks to which the Company is exposed exists within the Company. These internal controls remain integral to carrying on the business of the Company in a streamlined, transparent and accountable manner, safeguarding assets and securing as far as possible, the reliability and accuracy of records. Corporate Governance The Directors acknowledge their responsibility for the Groups corporate governance and the system of internal control. The Directors are also responsible to the shareholders for providing strategic direction to the Company and safeguarding the assets of shareholders. Currently, the Board comprises one independent Non-Executive Director, one Non-Executive Director and two Executive Directors, all of whom possess a broad range of skills and experience. The Executive Director/CEO is fully accountable to the Board for the daily operations of the business. He provides leadership to the senior management team and is responsible for articulating the Boards vision. The performance of the Company is monitored by way of monthly review meetings. These meetings provide an opportunity to ensure that progress is aligned to agreed targets. Regular Board meetings are held to further strengthen the review process and ensure compliance with all statutory and regulatory obligations. The Board is satisfied with the effectiveness of the system of internal control for the period ending at the date of signing the financial statements. The Group is in the process of regularising the composition of the Board of Directors to comply with the requirements of the Listing Rules of the Colombo Stock Exchange. Financial Results Group results for the current year are summarised below, with comparative figures for the previous year. 2009/10 Rs. 000 Revenue Profit Before Tax Income Tax Expense Profit After Tax Retained Profit B.F. Retained Profit C.F. 1,348,176 87,061 (21,555) 65,506 83,877 86,583 2008/09 Rs. 000 1,352,279 75,557 (12,035) 63,522 20,355 83,877
The financial statements of the Company are detailed in pages 24 to 39 of the Annual Report. Significant Accounting Policies The Accounting Policies adopted in preparation of the financial statements are presented on pages 28 to 31. There were no changes in the Accounting Policies adopted by the Company during the year under review. Dividends For the year ended 31st March 2010, in addition to the interim dividend of Rs.2/- per share paid on 5th November 2009, the Directors have recommended a payment of a final dividend of Rs. 2/- per share amounting to Rs.62,800,000/= on Ordinary Shares.
17
Report of the Directors Continued

As required by sections 56 (2) and 56 (3) of the Companies Act No. 07 of 2007, the Board of Directors signed a certificate, which stated that in their opinion and based on the information available as at present, the Company would satisfy the solvency test immediately after the distribution, in accordance with Section 57 of the Companies Act No. 07 of 2007. The Company obtained this certificate from the Auditors, prior to recommending the final dividend for approval of the shareholders at the Annual General Meeting to be held on 05th August 2010 Directorate The Directors of the Company as at 31st March 2010 are: 1. 2. 3. 4. Mrs. Manjula Mathews Mr. Dinesh Schaffter Mr. Jude Fernando Mr. Nihara E. Rodrigo Interests Register An Interest Register was maintained by the Company as per the Companies Act No. 7 of 2007 during the accounting period under review. All Directors have made declarations as provided for in Section 192 of the said Act. Directors Interests in Contracts with the Company Details of the Directors interests in contracts or proposed contracts with the Company both direct and indirect are disclosed on pages 38 and 39. These interests have been declared at the meetings of Directors. The Directors have no direct or indirect interest in any other contract or proposed contract with the Company. Directors Interest in contracts in relation to transactions with related entities and other related disclosures are stated in Note 25 to the financial statements. In addition, the Company carried out transactions in the ordinary course of business with the following entities having one or more Directors in common. Income Tax Expenses Income tax expenses have been computed at the rates given in Note 07 to the financial statements. Capital Expenditure Details of property, plant & equipment and their movements during the year are shown in Note 09 to the financial statements.
The profiles of the Directors are detailed on page 10 of the Annual Report. Retirement by Rotation and Re-Election Mr. Nihara E Rodrigo retires by rotation in terms of Article 100 and being eligible, offers himself for re-election. The continuing Directors recommend his re-election. Related Party Transactions Related party transactions have been declared at meetings of the Directors and are detailed on pages 38 and 39.
Name of Company Kotmale Milk Products Limited
Name of Director Mrs. Manjula Mathews Mr. Dinesh Schaffter Mr. M S Jude Fernando Director Director Director
Position
Transaction Details Corporate Guarantee Rs.25,000,000/-
Swiss Cheese Co (Pvt) Limited
Mrs. Manjula Mathews Mr. Dinesh Schaffter Mr. M S Jude Fernando
Director Director Director
Corporate Guarantee Rs.3,548,500/= Rs.7,299,400/=
Directors Shareholding The direct and indirect shareholdings of the Directors at the beginning of the year and as at end of the year are as follows:
No. of Shares 2010 Mrs. Manjula Mathews Mr. Dinesh Schaffter Mr. M S Jude Fernando Mr. Nihara E. Rodrigo 200,000 862,988 Nil Nil
No. of Shares 2009 200,000 6,062,988 Nil Nil
18
Report of the Directors Continued

Market Value of Freehold Properties Details of revaluations as at 31st March 2009 are listed in Note 9.1 to the financial statements. Fixed Assets Details of movements in fixed assets of the Group during the year are set out in Note 9 to the financial statements. Reserves There have been no other material transfers to or from reserves during the financial year other than those disclosed on page 26. Stated Capital The stated capital of the Company as at 31st March 2010 was Rs. 314 million, consisting of 31,400,000 ordinary shares. The movements in profits and reserves are given in the statements to Changes in Equity on page 26 to the accounts. Employee Share Option Plan and Profit Sharing Scheme The Company does not have an Employee Share Option Plan and profit sharing scheme as at year end. Share Information and Substantial Shareholders As at 31st March 2010, there were 1,430 registered shareholders. Share information and the twenty largest shareholders as at 31st March 2010 are listed on pages 40 and 41 of the Annual Report. Information relating to earnings, net assets per share, market value of a share and information on share trading is stated under Shareholder and Investors Information on pages 40 and 41 of the Annual Report. Corporate Donations The Group did not make any donations to charities during the year. Statutory Payments and Compliance with Laws and Regulations The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to the employees have been made in time and the Group has not engaged in any activities contravening laws and regulations. Equal Opportunities The Group is committed to providing equal opportunities to all employees irrespective of gender, sexual orientation, marital status, age, religion, race or disability. It is the Groups policy to give full and fair consideration to persons, with respect to applications for employment, continued employment, training, career development and promotion, having regard for each individuals particular aptitudes and abilities. Events after Balance Sheet Date No material events have taken place after the balance sheet date which requires an adjustment to or a disclosure in the financial statements, other than as disclosed in Note 28 to the accounts. Independent Auditors The Companys Auditors during the period under review were M/s Nihal Hettiarachchi & Company, Chartered Accountants. A sum of Rs. 215,000 was paid as audit fees during the period under review. Based on the declaration from M/s Nihal Hettiarachchi & Company and as far as the Directors are aware, the Auditors do not have any relationship or interest in the Company or its subsidiaries, other than those disclosed in the above paragraph. M/s Nihal Hettiarachchi & Company, Chartered Accountants have expressed their willingness to continue as Auditors to the Company for the ensuing year. In accordance with the Companies Act No. 7 of 2007, a resolution proposing the re-appointment of M/s Nihal Hettiarachchi & Company, Chartered Accountants as Auditors to the Company will be submitted at the Annual General Meeting. Annual General Meeting The 43rd Annual General Meeting of the Company will be held on 05th August 2010 at the auditorium of the Sasakawa Memorial Sri Lanka Japan cultural center, No 4, 22nd lane, Colombo 03 The Notice convening the Meeting and the Agenda are given on page 43. This Annual Report is signed for and on behalf of the Board
19
(Sgd.) Jude Fernando Director/CEO
(Sgd.) Mrs. Manjula Mathews Director
Financial Information
Statement of Directors Responsibility Auditors Report Income Statement Balance Sheet Statement of Changes In Equity Cash Flow Statement Notes to the Financial Statements Investors Information Five Year Financial Summary
22 23 24 25 26 27 28 40 42
Statement of Directors Responsibility

The Directors are responsible, under Sections 150 (1), 151, 152 (1), 153 (1) & 153 (2) of the Companies Act No. 7 of 2007, to ensure compliance with the requirements set out therein to prepare Financial Statements for each financial year giving a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit & loss of the Company and Group for the financial year. The Directors are also responsible, under Section 148 for ensuring that proper accounting records are kept to disclose, with reasonable accuracy, the financial position and enable preparation of the Financial Statements. The Board accepts responsibility for the integrity and objectivity of the Financial Statements presented. The Directors confirm that in preparing the Financial Statements, appropriate accounting policies have been selected and applied consistently while reasonable and prudent judgments have been made so that the form and substance of transactions are properly reflected. They also confirm that the Financial Statements have been prepared and presented in accordance with the Sri Lanka Accounting Standards. The Financial Statements provide the information required by the Companies Act and the listing rules of the Colombo Stock Exchange. The Directors have taken reasonable measures to safeguard the assets of the Group, and in that context, have instituted appropriate systems of internal control with a view to preventing and detecting fraud and other irregularities. As required by section 56 (2) of the Companies Act, the Board of Directors has authorised distribution of the dividends proposed, being satisfied based on information available to it, that the Company would satisfy the solvency test after such distributions in accordance with section 57 of the Companies Act No. 7 of 2007, and sought in respect of the dividend now proposed, certificates of solvency from its auditors. The external auditors, Messrs Nihal Hettiarachchi & Company, Chartered Accountants, are deemed reappointed in terms of section 158 of the Companies Act No. 7 of 2007 were provided with every opportunity to undertake the inspections they considered appropriate to enable them to form their opinion on the Financial Statements. The report of the auditors, shown on page 23 sets out their responsibilities in relation to the Financial Statements.
The Directors confirm that to the best of their knowledge, all statutory payments relating to employees and the Government that were due in respect of the Company and its subsidiaries as at the Balance Sheet date have been paid or where relevant, provided for. By order of the Board,
(Sgd.) K H L Corporate Services Limited Secretaries 08th July 2010
22
Auditors Report
INDEPENDENT AuDITORS REPORT TO THE SHAREHOLDERS OF KOTMALE HOLDINGS PLC. Report on the Financial Statements We have audited the accompanying financial statements of Kotmale Holdings PLC (Company), the consolidated financial statements of the Company and its subsidiaries which comprise the balance sheets as at 31st March 2010, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Scope of Audit and Basis of Opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31st March, 2010 and the financial statements give a true and fair view of the Companys state of affairs as at 31st March, 2010 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards. In our opinion, the consolidated financial statements give a true and fair view of the state of affaires as at 31st March, 2010 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company. Report on Other Legal and Regulatory Requirements In our opinion, these financial statements also comply with the requirements of Section 151 (2) and 153 (2) to 153 (7) of the Companies Act No. 07 of 2007.
23
COLOMBO July 05, 2010
NIHAL HETTIARACHCHI & CO., Chartered Accountants.
Income Statement
Group For the, Notes Year ended 31.03.2010 Rs. 1,348,175,880 (1,059,270,478) 288,905,402 1,910,904 (04) 7,984,320 (130,749,669) (65,449,387) (5,368,501) (05) (06) (07) (10,172,075) 87,060,994 (21,555,452) 65,505,542 Year ended 31.03.2009 Rs. 1,352,959,089 (1,095,205,514) 257,753,575 1,910,904 10,636,297 (104,135,385) (59,737,431) (7,189,448) (23,681,810) 75,556,702 (12,034,736) 63,521,966 Year ended 31.03.2010 Rs. 136,216,924 (1,242,893) (1,382,670) 133,591,361 (721,203) 132,870,158 Company Year ended 31.03.2009 Rs. 5,630,492 (3,816,935) (5,835,812) (4,022,255) (1,314,651) (5,336,906)
Revenue Cost of sales Gross profit Amortisation of grant Other income Distribution expenses Administrative expenses Impairment of goodwill Finance expenses Profit / (Loss) before tax Taxation Net profit / (loss)
(03)
Earnings per share Basic earnings / (loss) per share (08) 2.09 2.02 4.23 (0.17)
Dividends per share Interim paid Final proposed 2.00 2.00 2.00 2.00 -
The accounting policies and notes from pages 28 to 39 form an integral part of these financial statements.
Balance Sheet
As at, Notes 31.03.2010 Rs. Group 31.03.2009 Rs. 31.03.2010 Rs. Company 31.03.2009 Rs.
ASSETS Non-current assets Property, plant and equipment Intangible assets Investments in subsidiaries
(09) (10) (11)
289,378,470 55,863,274 345,241,744
294,866,123 61,231,775 356,097,898
215,400,060 215,400,060
215,400,000 215,400,000
Current assets Inventories Trade and other receivables Prepayments, deposits and advances Amounts due from related parties Short term investments Cash at banks and in hand Total assets EQuITY AND LIABILITIES Capital and reserves Stated capital Reserves
(12) (13) (14) (15)
46,707,677 208,843,401 36,890,879 30,381,922 71,520,192 394,344,071 739,585,815
51,064,756 172,559,343 44,198,135 100,482,232 38,961,877 407,266,343 763,364,241
65,327,065 102,278,840 72,286 167,678,191 383,078,251
689,333 117,827,847 67,203 118,584,383 333,984,383
(16) (17)
314,000,000 220,159,351 534,159,351
314,000,000 217,453,809 531,453,809
314,000,000 65,905,436 379,905,436
314,000,000 (4,164,722) 309,835,278
Non-current liabilities Deferred liability Deferred tax Interest bearing borrowings Retirement benefit obligations Current liabilities Trade and other payables Amounts due to related parties Income tax payable Interest bearing borrowings Bank overdrafts Total liabilities Total equity and liabilities Net assets per share
(18) (19) (20) (21)
4,299,504 4,829,801 32,533,537 10,524,508 52,187,350 141,654,299 7,046,611 3,928,877 609,327 153,239,114 205,426,464 739,585,815 17.01
6,210,408 5,687,263 28,292,501 8,054,002 48,244,174 138,700,806 8,684,295 14,545,161 2,138,989 19,597,007 183,666,258 231,910,432 763,364,241 16.93
629,060 2,089,917 453,838 3,172,815 3,172,815 383,078,251 12.10
1,414,500 4,258,909 18,475,696 24,149,105 24,149,105 333,984,383 9.87
(22) (23) (24)
I certify that these financial statements have been prepared in compliance with the requirements of the Companies Act No.07 of 2007. (Sgd.) Ranjith Thenuwara Head of Finance The Board of Directors is responsible for the preparation and presentation of these financial statements. Signed for and on behalf of the Board, (Sgd.) Jude Fernando Director / CEO July 05th 2010 (Sgd.) Manjula Mathews Director
25
Statement of Changes In Equity

Group Stated capital Rs. 314,000,000 314,000,000 Revaluation reserve Rs. 23,221,170 112,149,018 (4,847,407) 130,522,781 Other reserves Rs. 3,054,017 3,054,017 Retained earnings Rs. 20,355,045 63,521,966 83,877,011 Total Rs. 360,630,232 112,149,018 (4,847,407) 63,521,966 531,453,809
Balance as at 1st April, 2008 Revaluation surplus Deferred tax attributable to revaluation Profit for the year Balance as at 31st March, 2009
Balance as at 1st April, 2009 Profit for the year Dividends paid Balance as at 31st March, 2010
314,000,000 314,000,000
130,522,781 130,522,781
3,054,017 3,054,017
83,877,011 65,505,542 (62,800,000) 86,582,553
531,453,809 65,505,542 (62,800,000) 534,159,351
Company
Stated capital Rs. 314,000,000 314,000,000 314,000,000
General reserve Rs. 1,269,472 1,269,472 1,269,472
Capital reserves Rs. 1,784,545 1,784,545 1,784,545
Retained earnings Rs. (1,881,833) (5,336,906) (7,218,739) (7,218,739) 132,870,158
Total Rs. 315,172,184 (5,336,906) 309,835,278 309,835,278 132,870,158 (62,800,000) 379,905,436
Balance as at 1st April, 2008 Loss for the year Balance as at 31st March, 2009 Balance as at 1st April, 2009 Profit for the year Dividends paid Balance as at 31st March, 2010
314,000,000
1,269,472
1,784,545
(62,800,000) 62,851,419
26
Cash Flow Statement

Group For the, Year ended 31.03.2010 Rs. Year ended 31.03.2009 Rs. Year ended 31.03.2010 Rs. Company Year ended 31.03.2009 Rs.
Cash flows from operating activities Profit / (loss) before tax Adjustments for : Amortisation of grant Impairment of goodwill Interest expenses Depreciation Provision for gratuity Profit on sale of property, plant & equipment Reversal of VAT Expenses charge on the revaluation Amortisation of share issue expenses Operating profit before working capital changes Decrease in inventories Decrese / (increase) in trade & other receivables Decrease / (increase) in prepayments, deposits Decrease / (increase) in amounts due from related parties (Decrease) / increase in trade & other payables (Decrease) / increase in amounts due to related parties Cash generated from operations Interest paid Gratuity paid Tax paid Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant & equipment Effect of property, plant & equipment transfers Proceeds from sale of property, plant & equipment Movement in investment Net cash used in investing activities Cash flows from financing activities Movement in Finance lease Dividends paid Movement in Long term borrowings Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of cash and cash equivalents Cash at banks Cash in hand Bank overdrafts Cash and cash equivalents at the end of the year
87,060,994 (1,910,904) 5,368,501 10,172,075 28,342,700 3,243,070 132,276,436 4,357,079 (36,284,058) 7,307,256 100,482,232 2,953,493 (8,684,295) 202,408,143 (10,172,075) (772,564) (29,911,464) 161,552,040
75,556,702 (1,910,904) 7,189,448 23,681,810 27,471,581 1,066,091 (150,675) 222,065 3,957,272 2,224,728 139,308,118 31,497,796 (55,105,289) (19,261,150) (16,610,782) 42,280,338 2,646,395 124,755,426 (23,681,810) (1,427,799) (11,891,616) 87,754,201
133,591,361 1,277,037 134,868,398 (64,637,732) 15,549,007 (785,440) 84,994,233 (1,277,037) (2,890,195) 80,827,001
(4,022,255) 5,835,812 2,224,728 4,038,285 3,778,667 4,463,548 219,500 12,500,000 (5,835,812) 6,664,188
(22,955,171) 100,124 (30,381,922) (53,236,969)
(4,289,061) 150,675 (4,138,386)
(60) (60)
(2,239,199) (62,800,000) 8,270,123 (56,769,076) 51,545,995 19,364,870 70,910,865 71,295,126 225,066 (609,327) 70,910,865
(2,743,665) (45,269,228) (48,012,893) 35,602,922 (16,238,052) 19,364,870 38,762,885 198,992 (19,597,007) 19,364,870
(62,800,000) (62,800,000) 18,026,941 (18,408,493) (381,552) 72,286 (453,838) (381,552)
Annual Report 2009/10 27
6,664,188 (25,072,681) (18,408,493) 67,203 (18,475,696) (18,408,493)
Notes to the Financial Statements

01. CORPORATE INFORMATION 1.1 Domicile and legal form Kotmale Holdings PLC., formerly known as Lambretta (Ceylon) Ltd., is a Company incorporated and operating in Sri Lanka since 6 January, 1967 as a Quoted Public Company listed with the Colombo Stock Exchange. The registered office of the Company is located at No. 75, Arnold Ratnayake Mawatha, Colombo 10. 1.2 Principal activities and nature of operation Kotmale Holdings PLC became the holding company of the Group during the financial year ended 31st December, 2003. The principal activities of the Subsidiaries are to engage in the manufacture of dairy products and the packeting and distribution of milk powder. 1.3 Ultimate parent entity The ultimate parent Company of the Kotmale Holdings PLC is Dunamis Capital PLC. previously known as Kshatriya Holdings PLC. 1.4 Date of authorisation for issue The financial statements of Kotmale Holdings PLC for the year ended 31 March 2010 were authorised for issue in accordance with a resolution of the Board of Directors on 05th July, 2010. 1.5 Subsidiaries Kotmale Products Ltd and Milife Foods Ltd, are fully owned subsidiaries of Kotmale Holdings PLC. The following companies which are fully owned subsidiaries of Kotmale Products Ltd., have also been included in these consolidated financial statements. - Swiss Cheese Co. (Pvt) Ltd. - Kotmale Milk Products Ltd. - Kotmale Kiri (Pvt) Ltd. - Kotmale Marketing (Pvt) Ltd. Kotmale Marketing (Pvt) Limited has ceased operations on 31st March, 2001 and is in the process of liquidation. Kotmale Kiri (Pvt) Limited had ceased operations since February 2007 and continues as a dormant Company. Milife Foods Limited has temporarily ceased its commercial operations with effect from 01st February, 2010. The Company expects to restart its commercial operations no sooner the price of milk powder in the world market reduce to a competitive level. 02. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 General policies 2.1.1 Statement of compliance The financial statements of Kotmale Holdings PLC., have been prepared in accordance with the Sri Lanka Accounting Standards (SLAS) as laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.07 of 2007. 2.1.2 Basis of preparation The balance sheet, income statement, statement of changes in equity and the cash flow statement, together with the accounting policies and notes (The financial statements) of the Group as at 31 March, 2010 and for the year then ended comply with Sri Lanka Accounting Standards (SLAS). The financial statements are presented in Sri Lankan rupees have been prepared on a historical cost basis except for certain property, plant and equipment which have been revalued. 2.1.3 Comparative information The accounting policies applied by the company and the Group are, unless otherwise stated, consistent with those used in the previous year. Previous years figures and phrases have been re-arranged, wherever necessary, to conform to the current year presentation. 2.1.4 Consolidation policy a) Principles of consolidation The Group financial statement comprise a consolidation of the financial statements of the company and its subsidiaries in terms of the Sri Lanka Accounting Standards No - 26 Consolidated financial statement and Accounting for investment in subsidiaries. All the companies in the Group have a common financial period, which ends on 31 March. The financial statements of the Group represent the consolidation of the financial statements of the company and its subsidiaries after elimination of all material inter group transactions. Subsidiaries are controlled from the date the parent obtains control until such time as controls cease. Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The total profits and losses for the period of the Company and of its subsidiaries included in the consolidation are shown in the consolidated income statement. All assets and liabilities of the company and of its subsidiaries included in the consolidation are shown in the consolidated balance sheet. b) Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Groups interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes
28
Notes to the Financial Statements Continued

in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to group of cash-generating units that are expected to benefit from the synergies of the combination. Impairment is determined by assessing the recoverable amount of the cash- generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. The impairment loss is first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. 2.1.5 Foreign currency transactions Transactions arising in foreign currencies are converted into Sri Lankan rupees at the rate of exchange prevailing at the time the transactions were effected. All monetary assets and liabilities in foreign currencies are converted into Sri Lankan rupees at the rate of exchange prevailing as at balance sheet date. The resulting gains or losses arising are dealt with in the income statement. 2.1.6 Taxation (a) Current tax Provision for income tax is based on the elements of income and expenditure as reported in the financial statements and is computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and amendments thereto. Kotmale Milk Products Ltd., a subsidiary company is exempted from income tax for a period of 5 years commencing from the year of assessment 2002/03 under section 17 (2) of the BOI Law of Sri Lanka No. 04 of 1978. Accordingly, income of the company is taxable from the year of assessment 2007/2008. The provision for income tax is based on the elements of income and expenditure as reported in the financial statements and computed in accordance with the provisions of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto. However, Section 16(1) (2) (a) of this Act exempts the profits and income of the company for a period of 5 years commencing from the year of assessment 2006/2007. The profits and income of Kotmale Kiri (Pvt) Ltd is exempt from tax for a period of 5 years commencing from the year of assessment 2006/2007 under section 16 (1) (2) (a) of the Inland Revenue Act No. 10 of 2006. (b) Deferred taxation Deferred taxation is provided in full, using the liability method, on temporary differences arising between tax basis of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit / (loss). Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. 2.2 Valuation of Assets and Their Basis of Measurement 2.2.1 Property, plant and equipment a) Cost and valuation All items of property, plant and equipment are initially recorded at cost. Where items of property, plant and equipment are subsequently revalued, the entire class of such assets is revalued. Revaluations are made with sufficient regularity to ensure that their carrying amounts do not differ materially from their fair values as at the balance sheet date. Subsequent to the initial recognition as an asset at cost, property, plant and equipment, if revalued, are carried at revalued amounts less any subsequent depreciation thereon. Additions subsequent to the last revaluation are disclosed at cost. All other property, plant and equipment are stated at historical cost less depreciation. When an asset is revalued, any increase in the carrying amount is credited directly to a revaluation surplus, unless it reverses a previous revaluation decrease relating to the same assets, which had previously been recognised as an expense. In these circumstances, the increase is recognised as income to the extent of the previous write down. When an assets carrying amount decrease as a result of a revaluation, the decrease is recognised as an expense, unless it reverse a previous increment relating to that asset, in which case it is charged against any related revaluation surplus, to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of that same assets. Any balance remaining in the revaluation surplus in respect of assets, is transferred directly to retained profits on retirement or disposal of the assets b) Restoration costs Expenditure incurred on repairs or maintenance of property, plant and equipment in order to restore or maintain the future economic benefits expected from the originally assessed standard of performance, is recognised as an expense when incurred.
29

c) Depreciation Provision for depreciation is calculated by using a straight line method on the cost or valuation of all property, plant and equipment, in order to write off such amounts over the estimated useful economic lives of such assets. Kotmale Holdings PLC., Kotmale Porducts Ltd., and Kotmale Kiri (Pvt) Ltd., do not own any property, plant and equipment. Kotmale Milk Products Ltd., Swiss Cheese Co. (Pvt) Ltd., and Milife Foods Ltd., depreciate its property, plant and equipment as follows: Assets Building Premises - Mulleriyawa Cool room and cooling plant Cooling unit on lease lorry Plant, machinery and equipment Office furniture, fittings & equipment Motor vehicles Years 20-40 20 10 8 10 4 4 Impairment losses are recognised in the income statement, except that, impairment losses in respect of property, plant and equipment are recognised against the revaluation reserve to the extent that it reverses a previous revaluation surplus. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. Previously recognised impairment losses other than in respect of goodwill, are reversed only if there has been an increase in the recoverable amount of the asset. Such increase is recognised to the extent of the carrying amount had no impairment losses been recognised previously. 2.2.2 Intangible assets Intangible assets are recognised if it is probable that future economic benefit will flow to the enterprise, and the cost of the assets can be measured reliably. 2.2.3 Investments Investments in subsidiaries have been accounted for at cost, net of any impairment which is charged to the income statement. Kotmale Holdings PLC., acquired Kotmale Products Ltd., as wholly owned subsidiary on 2 May, 2003, and Milife Foods Ltd., on 30 November, 2005. Swiss Cheese Co. (Pvt) Ltd., Kotmale Kiri (Pvt) Ltd., Kotmale Milk Products Ltd., and Kotmale Marketing (Pvt) Ltd., are wholly owned subsidiaries of Kotmale Products Ltd. 2.2.4 Inventories Inventories are valued at the lower of cost and estimated net realisable value. Net realisable value is the estimated selling price less estimated costs of completion and the estimated costs necessary to the sale. Inventories are valued according to the basis given below. Finished goods are valued at direct cost. Total direct cost includes: I. Basic cost - This include the purchase of cost of milk and other raw materials II. Packing cost III. Flavor cost Chemical, other raw materials and packing materials are valued at cost 2.2.5 Trade and other receivables Trade and other receivables are stated at the amounts that they are estimated to realise. 2.2.6 Cash and cash equivalents Cash and cash equivalents comprise cash in hand, demand deposits in bank and short term highly liquid investments, readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
(d) Leased assets Where assets are financed by an agreement under which substantially all the risk and rewards of the ownership are transferred to the lessee, such assets are recorded in the balance sheet as property, plant and equipment at their cash price. The total interest payable is accounted as interest in suspense, and the corresponding credit is recorded as an amount payable to the lessor, the installments paid are used to reduce this liability. An amount equal to the interest charges for the year is transferred from the interest in suspense account to the income statement. (e) Impairment of assets The Group assesses, at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash generating units fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
30

For the purpose of the cash flow statement, cash and cash equivalents consist of cash in hand and deposits in bank net of outstanding bank overdraft. The cash flow statement is prepared based on the indirect method. 2.3 Liabilities And Provisions 2.3.1 Liabilities Liabilities classified as current liabilities in the balance sheet are those obligations payable on demand or within one year from the balance sheet date. Liabilities classified as non current liabilities are those obligations that extend beyond a period of one year of the balance sheet date. 2.3.2 Provisions Provisions are recognised when the company has a legal or constructive obligation, as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. 2.3.3 Retirement benefit cost (a) Defined benefit plan - Retirement gratuity Full provision has been made in the financial statements for retiring gratuities payable under the Payment of Gratuity Act No.12 of 1983 for all employees including those who have completed less than five years of continued service with the Group, and is recognised as an expense in the period during which their services are rendered. However, according to the Payment of Gratuity Act No. 12 of 1983; the liability for gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company. This liability, which is classified as a non current liability, is not externally funded nor actuarially valued. This liability is grouped under non current liabilities in the balance sheet date based on gratuity formula method in accordance with Sri Lanka Accounting Standard (SLAS). I. II. Discount rate 11% Salary increment rate 10% 2.3.4 Capital grants Grants represent funds received in the form of plant. Grants are amortised on a straight line basis over useful life of such assets. 2.4 Share Issue Expenditure The Company has incurred Rs. 8,898,913/- in respect of shares issued through private placement on 21 June, 2005. Urgent Issues Task Force (UITF) of the Institute of Chartered Accountants of Sri Lanka has issued a ruling to the Company stating that share issue expenditure can be shown as net of total equity without it is being charged to income statement. The Directors have decided to write off the share issue expenditure over period of 3 years commencing from the year 2006. 2.5 Income Statement 2.5.1 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Group and the revenue can be reliably measured. a) Revenue The revenue of the Group represents the invoiced value of goods, net of discounts and returns. Inter group sales are excluded in computing group revenue. b) Dividend Dividend income is recognised on the income statement, when the Companys right to receive payment is established. c) Interest income Interest income is recognised on an accrual basis. d) Other income Other income is recognised on an accrual basis. 2.5.2 Expenditure recognition Expenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in running the business and in maintaining the capital assets in a state of efficiency has been charged to the income statement. For the purpose of the presentation of the income statement the function of expenses method has been adapted on the basis that it presents fairly the elements of the Company and Groups performances. 2.6 Directors Responsibility Statement The directors acknowledge the responsibility for true and fair presentation of the financial statements in accordance with the accounting records and Sri Lanka Accounting Standards and the requirements of the Companies Act No. 7 of 2007.
(b) Defined contribution plan Employees Provident Fund and Employees Trust Fund. All the employees who are eligible for Employees Provident Fund and Employees Trust Fund contributions are covered by relevant contribution funds in line with respective statutes and regulations. Contribution to provident fund and trust fund covering the employees are recognised as expenses in the income statement in the period in which it is incurred.
31

Group For the, Year ended 31.03.2010 Rs. Year ended 31.03.2009 Rs. Year ended 31.03.2010 Rs. Company Year ended 31.03.2009 Rs.
(03) REVENUE Liquid Milk based products Milk powder Less-Nation Building Tax
1,170,915,483 218,115,901 1,389,031,384 (40,859,504) 1,348,175,483
887,920,782 466,489,867 1,354,410,649 (1,451,560) 1,352,959,089
(04) OTHER INCOME Dividend income Interest income Over provision of bad debts Profit from sale of property, plant & equipment Sundry income
7,815,578 4,046 164,696 7,984,320
7,960,594 150,675 2,525,028 10,636,297
133,093,650 3,123,274 136,216,924
5,630,492 5,630,492
(05) FINANCE EXPENSES Bank charges Exchange Difference Gratuity interest Import Charges Interest on lease Interest on distributors deposit Loan interest Loss arising from change in assumption of gratuity Other financial costs Overdraft interest
2,752,198 (102,438) 733,477 529,552 688,178 91,467 2,490,927 767,435 639 ,087 1,582,192 10,172,075
2,636,020 1,573,397 17,080,077 1,636,515 755,801 23,681,810
105,633 1,277,037 1,382,670
12,679 5,823,133 5,835,812
(06) OPERATING PROFIT The operating profit has been arrived after charging / (crediting), all the expenses including the followings. Amortisation of grant Amortisation of share issue expenses Auditors remuneration Defined contribution plan cost EPF/ ETF Depreciation Impairment of goodwill Retirement benefit plan cost - gratuity Staff expenses (1,910,904) 720,933 9,656,844 28,342,700 5,368,501 1,130,388 63,333,402 (1,910,904) 2,224,728 890,067 8,567,166 27,260,673 7,189,448 827,894 64,471,566 199,500 2,224,728 227,000 -
32

(07) TAXATION Reconciliation of accounting profit to income tax expense on ordinary activities Group For the, Year ended 31.03.2010 Rs. 87,060,994 (84,059,333) 38,829,499 (18,229,401) 23,601,759 7,550,282 23,601,759 (8,151,634) 23,000,407 5,407,544 310,173 81,113 (857,462) 16,614,084 21,555,452 Year ended 31.03.2009 Rs. 75,556,702 (48,331,859) 35,478,304 (29,532,427) 33,170,720 14,884,968 29,957,177 (18,929,298) 25,912,847 11,016,138 14,500 164,242 839,856 12,034,736 Year ended 31.03.2010 Rs. 133,591,361 92,079 133,683,440 3,123,274 (1,093,146) 2,030,128 710,545 10,658 721,203 Company Year ended 31.03.2009 Rs. (4,022,255) 2,224,728 (5,630,492) (7,428,019) 5,630,492 (1,970,672) 3,659,820 1,280,937 14,500 19,214 1,314,651
Accounting profit / (loss) before tax Income not subject to tax Aggregate disallowed expenses Aggregate allowed expenses
Other income ( Excluding dividends income) Taxable profit (Excluding other income) Utilisation of tax losses
Current income tax expenses Under provision for previous year Social responsibility levy Deferred tax 10% Withholding tax on inter company dividends Total tax liability
(7.1) TAX LOSSES CARRIED FORWARD Tax losses brought forward Tax losses arising during the year Utilisation of tax losses
133,416,946 (8,151,634) 125,265,312
144,918,225 7,428,019 (18,929,298) 133,416,946
16,866,338 2,533,484 (1,093,146) 18,306,676
11,408,991 7,428,019 (1,970,672) 16,866,338
(08) BASIC EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders of the Company by weighted average number of ordinary shares in issue during the year. Group For the, Year ended 31.03.2010 Rs. Year ended 31.03.2009 Rs
Amount used as the numerator Profit attributable to ordinary shareholders
65,505,542
63,521,966
As at Amount used as denominator Weighted average number of ordinary shares
13.03.2010 31,400,000
Group 13.03.2009 31,400,000

As at, 31.03.2010 Rs. Group 31.03.2009 Rs. 31.03.2010 Rs. Company 31.03.2009 Rs.
(09) PROPERTY, PLANT AND EQUIPMENT Freehold property, plant & equipment (Note 9.1) Leasehold property, plant & equipment (Note 9.2)
267,861,169
271,111,317
21,517,301 289,378,470
23,754,806 294,866,123
Property, plant and equipment of the subsidiary Companies, Milife Foods Ltd., Swiss Cheese Co. (Pvt) Ltd., and Kotmale Milk Products Ltd.,were revalued by an independent professional valuer, Mr.G.Henry J.Perera in March 2009 and the values were incorporated as at 31st March 2009. 9.1. FREEHOLD PROPERTY, PLANT AND EQUIPMENT Land and Plant & buildings equipment GROUP Rs. Rs. COST / REVALuATION Balance as at 1st April, 2009 Additions Transfers Write off Adjustments Balance as at 31st March, 2010 DEPRECIATION Balance as at 1st April, 2009 Charge for the year Transfers Write off Adjustments Balance as at 31st March, 2010 WRITTEN DOWN VALuE Balance as at 31st March, 2010 Balance as at 31st March, 2009
Motor vehicles Rs.
Furniture & fittings Rs.
Computer equipment Rs.
Total Rs.
103,461,472 103,461,472
253,513,215 20,755,189 129,375 (43,500) (158,158) 274,196,121
11,256,696 11,256,696
7,374,228 261,866 (838,725) (336,719) 14,598 6,475,248
2,387,893 1,938,116 709,350 (203,950) 4,831,409
377,993,504 22,955,171 (584,169) (143,560) 400,220,946
6,961,472 2,250,000 9,211,472
84,265,068 21,556,976 12,938 (143,560) 105,691,422
9,719,622 643,800 10,363,422
4,267,300 1,181,999 (394,341) (288,313) 4,766,645
1,668,725 472,420 185,671 2,326,816
106,882,187 26,105,195 (195,732) (288,313) (143,560) 132,359,777
94,250,000 96,500,000
168,504,699 169,248,147
893,274 1,537,074
1,708,603 3,106,928
2,504,593 719,168
267,861,169 271,111,317
9.2. LEASEHOLD PROPERTY, PLANT AND EQUIPMENT Plant & equipment Rs. Motor vehicles Rs. Total Rs.
GROUP
COST / REVALuATION Balance as at 1 April, 2009 Balance as at 31 March, 2010 DEPRECIATION Balance as at 1 April, 2009 Charge for the year Balance as at 31 March, 2010 WRITTEN DOWN VALuE Balance as at 31 March, 2010 Balance as at 31 March, 2009
36,267,553 36,267,553
4,258,369 4,258,369
40,525,922 40,525,922
13,852,871 1,317,835 15,170,706
2,918,245 919,670 3,837,915
16,771,116 2,237,505 19,008,621
34
21,096,847 22,414,682
420,454 1,340,124
21,517,301 23,754,806

As at, Group 31.03.2010 Rs. 31.03.2009 Rs.
(10) INTANGIBLE ASSETS Cost At the beginning of the year Accumulated amortisation / impairment At the beginning of the year Impairment At the end of the year Net carrying value
97,773,232
97,773,232
(36,541,457) (5,368,501) (41,909,958) 55,863,274
(29,352,009) (7,189,448) (36,541,457) 61,231,775
As from 1st January 2006, goodwill is no longer amortised but tested for impairment annually. Goodwill acquired through business combinations have been allocated to two cash generating units for impairment testing. Company 31.03.2010 31.03.2009 Rs. Rs.
Holding (%) (11) INVESTMENTS IN SUBSIDIARIES Kotmale Products Ltd. Milife Foods Ltd.
No. of shares
100 100
10,372,560 70
185,400,000 30,000,060 215,400,060
185,400,000 30,000,000 215,400,000
The Company has obtained consent from minority share holders of Milife Foods Ltd not to disclose their interest of the company separately in the financial statements. However the minority share holders have transferred their share ownership to Kotmale Holdings PLC during the year. Group 31.03.2009 Rs. Company 31.03.2009 Rs.
As at,
31.03.2010 Rs.
31.03.2010 Rs.
(12) INVENTORIES Finished goods Raw materials Packing materials Others Less:Provision for obsolete stocks
13,893,133 12,541,782 12,078,821 8,193,941 46,707,677
22,638,920 10,543,682 15,374,333 4,441,369 (1,933,548) 51,064,756
35

(13) TRADE AND OTHER RECEIVABLES Trade debtors Staff debtors (Note 13.1) Other receivables (Note 13.2) Janashakthi Ltd.
194,016,992 646,992 14,179,417 208,843,401
156,631,211 416,928 14,011,204 1,500,000 172,559,343
65,327,065 65,327,065
689,333 689,333
(13.1) STAFF DEBTORS Balance at the beginning of the year Festival advance Repayment during the year Balance at the end of the year (13.2) OTHER RECEIVABLES Advance to farmers Dividends receivable Other debtors
416,928 1,510,564 (1,280,500) 646,992
500,160 2,214 (85,446) 416,928
8,966,331 5,213,086 14,179,417
7,291,378 6,719,826 14,011,204
63,998,732 1,328,333 65,327,065
689,333 689,333
(14) PREPAYMENTS, DEPOSITS & ADVANCES Advances Deposits ESC prepayment NBT recoverable NSL recoverable Other prepayments Withholding tax
12,901,686 1,503,074 20,512,443 426,852 3,757 1,338,142 204,925 36,890,879
20,634,687 577,559 21,659,958 3,415 1,113,822 208,694 44,198,135
(15) AMOUNTS DUE FROM RELATED PARTIES Dunamis Capital PLC Kotmale Kiri (Pvt) Ltd. Kotmale Milk Products Ltd. Milife Foods Ltd. Swiss Cheese Co.(Pvt) Ltd.
100,482,232 100,482,232
2,448,176 18,438,381 40,605,562 40,786,721 102,278,840
34,060,802 2,448,176 18,438,381 21,605,562 41,274,926 117,827,847
(16) STATED CAPITAL 31,400,000 ordinary shares (17) RESERVES Capital reserves General reserves Retained earnings Revaluation reserves
314,000,000
314,000,000
314,000,000
314,000,000
36
1,784,545 1,269,472 86,582,553 130,522,781 220,159,351
1,784,545 1,269,472 83,877,011 130,522,781 217,453,809
1,784,545 1,269,472 62,851,419 65,905,436
1,784,545 1,269,472 (7,218,739) (4,164,722)

(18) DEFERRED LIABILITY Grant received for the Tetra pack filling machine Amortisation for the year Balance at the beginning of the year Balance at the end of the year (19) DEFERRED TAX Balance at the beginning of the year Deferred tax attributable to revaluation Deferred tax expenses
(1,910,904) 6,210,408 4,299,504
(1,910,904) 8,121,312 6,210,408
5,687,263 (857,462) 4,829,801
4,847,407 839,856 5,687,263
(20) INTEREST BEARING BORROWINGS Lankaputhra Development Bank Lease creditors Peoples Leasing Tetra pack machinery loan
8,396,947 7,641,563 16,495,027 32,533,537
10,636,146 1,161,328 16,495,027 28,292,501
Kotmale Milk Products Ltd., received a Milk filling machine from Tetra Pak Singapore and Emerging Markets, a division of Tetra Pak South Asia Pte, Ltd., under a sales agreement in the year 2004. This agreement was amended in June 2005 citing a trial period ranging from July 2005 to June 2006. The amended agreement period has lapsed and Tetra Pak South East Asia Pte, Ltd., can reclaim the asset without any financial encumbrances on either side. Accordingly once the asset is reclaimed by the Company the loan amount of Rs.16,495,027 will no longer be payable by Kotmale Milk Products Ltd. The settlement of the above loan is based on the number of packing material imported by the company from Tetra pack, Singapore. (20.1) SECURITIES The following assets have been pledged as securities for liabilities. Company Bank Facility Limit (Rs.) Security Kotmale Holdings PLC. DFCC Vardhana - Colombo Overdraft 25 Mn Facility agreement for Rs.25 Mn Milife Foods Ltd. HSBC - Colombo Import loan 75 Mn Mortgage over stocks & receivables for Rs. 45 Mn Corporate guarantee of Rs.75 Mn and subordination agreement of Rs. 21 Mn from Kotmale Holdings PLC.

(21) RETIREMENT BENEFIT OBLIGATIONS Balance at the beginning of the year Gain / loss arising from change in assumption Interest charge on gratuity Payments made during the year Provision for the year Balance at the end of the year (22) TRADE AND OTHER PAYABLES Accrued expenses GST & VAT payable NBT payable Sundry creditors Trade creditors
8,054,002 640,209 1,387,982 (772,564) 1,214,879 10,524,508
8,415,710 (1,562,224) 1,009,883 (1,427,799) 1,618,432 8,054,002
29,518,591 20,453,411 9,168,202 25,630,064 56,884,031 141,654,299
29,076,231 27,748,232 43,347,154 38,529,189 138,700,806
629,000 60 629,060
1,414,500 1,414,500
(23) AMOUNTS DUE TO RELATED PARTIES Dunamis Capital PLC. The Montessori Workshop (Pvt) Ltd.
1,598,495 7,085,800 8,684,295
(24) INTEREST BEARING BORROWINGS Lease creditors
3,928,877 3,928,877
2,138,989 2,138,989
(25) DIRECTORS INTEREST IN CONTRACTS & RELATED PARTY TRANSACTIONS (a) Details of Directorates are as follows; Mrs.Manjula Mathews Kotmale Holdings PLC. Kotmale Products Ltd. Kotmale Marketing (Pvt) Ltd. Swiss Cheese Company (Pvt) Ltd. Kotmale Milk Products Ltd. Kotmale Kiri (Pvt) Ltd. Milife Foods Ltd. Dunamis Capital PLC. (b)
Mr.Dinesh Schaffter x x x x x x x x
Mr. Jude Fernando x x x x x x x x
Mr. N.E. Rodrigo x
x x x x x x x x
Kotmale Milk Products Ltd., Milife Foods Ltd., and Swiss Cheese Co. (Pvt) Ltd., have paid management fees amounting to Rs. 1,226,351, Rs. 1,226,351 and 1,379,351 respectively to Dunamis Capital PLC. Please refer notes 15 and 23 for outstanding balances with related parties as at 31st March 2010.
(c)
38

(d) Name of the Company Mahaweli Feed Mills ( Pvt ) Ltd. Name of Director Mrs. Manjula Mathews Nature of transactions Cattle feed purchases (recovery made against farmers remittance) Insurance policies Construction Amount Rs. 45,024,347
Janashakthi Insurance Company PLC. Kelsey Homes (Pvt) Ltd.
Mrs. Manjula Mathews Mrs. Manjula Mathews Mr. Jude Fernando Mr. Dinesh Schaffter
4,354,912 2,356,358
Kelsey Aluminium (Pvt) Ltd.
Mrs. Manjula Mathews Mr. Jude Fernando Mr. Dinesh Schaffter
Construction
1,668,000
First Capital Treasuries Ltd.
Mrs. Manjula Mathews Mr. Jude Fernando Mr. Dinesh Schaffter
Investment
30,297,990
(26) CONTINGENT LIABILITIES There were no material contingent liabilities as at the balance sheet date. (27) CAPITAL COMMITMENTS There were no material capital commitments as at the balance sheet date (28) POST BALANCE SHEET EVENTS The Board of Directors have recommended a final dividend of Rs. 2.00 per share for the year ended 2009/10 amounting to Rs. 62,800,000 which is to be approved by shareholders at the annual genaral meeting to be held on 05th August 2010. In accordance with Sri Lanka Accounting Standard 12 (Revised 2005 ) events after the Balance Sheet date, the final dividend has not been recognised as a liability in the financial statements as at 31st March 2010. There were no other material events subsequent to the balance sheet date that require adjustments, or disclosure in the financial statements. ,
39
Investors Information
1. STOCk EXCHANGE LISTING The issued ordinary shares of Kotmale Holdings PLC are listed on the Colombo Stock Exchange. DISTRIBUTION OF SHAREHOLDING 31st March 2010 No. of shares held Shareholders Number 1 1,000 5,000 10,000 50,000 100,000 500,000 1,000,000 1,000,000 1,009 310 83 8 5 1,415 1,001 5,001 10,001 50,001 100,001500,001Over Total % 71.30 21.91 5.87 0.00 0.57 0.35 100.00 Holding Number 22,390,530 6,879,152 1,841,837 177,527 110,954 31,400,000 % 71.30 21.91 0.00 5.87 0.00 0.57 0.00 0.35 100.00 31st March 2009 Shareholders Number 998 261 68 78 7 9 3 5 1,429 % 69.84 18.26 4.76 5.46 0.49 0.63 0.21 0.35 100.00 Holding Number 364,233 771,077 565,181 1,967,007 494,300 1,422,900 1,804,850 24,010,452 31,400,000 % 1.16 2.46 1.80 6.26 1.57 4.53 5.75 76.47 100.00
2.
3.
ANALYSIS OF SHAREHOLDERS 31st March 2010 Shareholders Number 1,352 63 1,415 1,399 16 1,415 % 95.55 4.45 98.87 1.13 Holding Number 30,001,979 1,398,021 31,044,947 355,053 % 95.55 4.45 98.87 1.13 Number 1,362 67 1,429 1,414 15 1,429 31st March 2009 Shareholders % 95.31 4.69 99.30 0.70 Holding Number 7,375,436 24,024,564 31,181,820 218,180 % 23.49 76.51 100.00 99.31 0.69 100.00
Category of shareholders Individuals Institutions Total Resident Non-Resident Total
100.00 31,400,000 100.00
100.00 31,400,000
100.00 31,400,000 100.00
100.00 31,400,000
4.
PUBLIC HOLDING 2009/10 2008/09 5,950,255 18.95
Number of shares held by the publc Percentage held by the public - %
6,021,636 19.18
5.
SHARE PRICE MOVEMENTS FOR THE PERIOD Rs. Highest Lowest Period-end
2009/10 Rs.
2008/09
25.00 (31.03.2010) 9.25 (26.06.2009) 24.75 (31.03.2010)
13.25 (15.09.2008) 8.50 (28.10.2008) 9.50 (31.03.2009)
40
Investors Information Continued

6. INFORMATION ON SHARE TRADING AND MARkET CAPITALISATION 2009/10 Number of transactions Number of shares traded Values of shares traded (Rs.) Market capitalisation (Rs.) 9,706 32,692,600 610,663,975 777,150,000 2008/09 2,573 8,943,638 97,594,724 298,672,809
TOP TWENTY SHAREHOLDERS
No.
Names of shareholders
No. of shares as at 31st March 2010 9,877,038 9,400,000 2,378,738 1,959,600 1,243,500 862,938 700,000 300,000 200,000 158,000 140,000 140,000 120,400 100,000 80,700 67,000 59,700 57,500 57,400 55,400
Holding (%) 31.42 29.90 7.57 6.23 3.96 2.74 2.23 0.95 0.64 0.50 0.45 0.45 0.38 0.32 0.26 0.21 0.19 0.18 0.18 0.18
No. of shares as at 31st March 2009 9,877,038 2,378,738 2,959,600 5,562,938 700,000 150,000 200,000 158,000 14,000 -
Holding (%) 31.42 7.57 9.43 17.69 2.23 0.48 0.64 0.50 0.45 Annual Report 2009/10 41
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Dunamis Capital PLC First Capital Treasuries Limited Mr. Ramesh Schaffter Merchant Bank of Sri Lanka Limited / Mr. R. Schaffter HSBC International Nominees Ltd-SSBT-Deustche Bank AG Singapore Waldock Mackenzie Ltd./Mr. D. Schaffter Lanka Orix Finance Company Limited / Mr. R. Schaffter Seylan Bank Limited / Mr. Jayantha Dewage Mrs. Manjula Mathews National Development Bank PLC /Mouldex Limited Mrs. D F E S Ollegasegrem Bank Of Ceylon - No2 Macksons Holdings (Pvt) Ltd Mr.G. Mahinthan Mr.Fuad Credit Suisse Singapore Mr.G.G.R.Kariyawasam Mrs.I.S Jayasinghe Mr.P.S.R Casie Chitty Mr.M.M Mohamed Makeen
Five Year Financial Summary

2005 Rs 000s 2006 Rs 000s 2007/08 Rs 000s (15 Months) 2008/09 Rs 000s 2009/10 Rs 000s
Financial Results Revenue Profit From Operating Activities Net Finance Cost Profit Before Taxation Income Tax Expenses 10% WHT on Inter Company Dividends Profit After Taxation
541,325 12,536 (11,128) 1,408 (6,733) (5,325)
1,519,802 50,471 (19,973) 30,497 (14,246) 16,251
1,570,283 42,707 (31,552) 11,155 (6,225) 4,930
1,352,959 99,239 (23,682) 75,557 (12,035) 63,522
1,348,176 97,233 (10,172) 87,061 (4,941) (16,614) 65,506
Financial Position Share Capital/Stated Capital Reserves Share Capital/Stated Capital & Reserves Current Assets Current Liabilities Working Capital Property, Plant and Equipment Intangible Assets / Biological Assets Non Current Liabilities Net Assets
314,000 16,799 330,799 234,982 (161,506) 73,476 240,500 86,908 (70,084) 330,799
314,000 35,767 349,767 375,832 (297,530) 78,302 230,529 78,908 (37,971) 349,767
314,000 44,406 358,406 319,278 (194,281) 124,997 210,079 68,421 (45,092) 358,406
314,000 217,454 531,454 407,266 (183,666) 223,600 294,866 61,232 (48,244) 531,454
314,000 220,159 534,159 394,344 (153,239) 241,105 289,378 55,863 (52,187) 534,159
42
Notice of Meeting
NOTICE IS HEREBY GIVEN that the 43rd Annual General Meeting of Kotmale Holdings PLC will be held on Thursday 5th August 2010 at 3.00 p.m. in the Auditorium of the Sasakawa Memorial Sri Lanka Japan cultural center, No 4, 22nd lane, Colombo 03., to transact the following business 3. ORDINARY BUSINESS 1. NOTICE To receive the notice convening the meeting. DIRECTORS REPORT AND AUDITED ACCOUNTS FOR THE YEAR ENDED 31ST MARCH 2010 To receive and consider the Directors Report and the Audited Financial Statements for the year ended 31st March 2010 together with the Report of the Auditors thereon. DECLARATION OF DIVIDENDS To approve the declaration of a final dividend of Rs.2.00 per share for the year ended 31st March 2010 as recommended by the Directors. RE-ELECTION OF DIRECTORS To re-elect Mr. Nihara E Rodrigo who retires by rotation in terms of Article 100 of the Articles of Association and offers himself for re-election. RE-APPOINTMENT OF AUDITORS To re-appoint Messrs. Nihal Hettiarachchi & Co, Chartered Accountants, as the Auditors of the Company for the ensuing year and to authorise the Directors to determine their remuneration. 164- Any member whose registered address is not within Sri Lanka may name an address within Sri Lanka which for the purpose of notice shall be considered as his registered address. To consider and if thought fit to pass the following Special Resolution Resolved that the existing Article 166 be deleted and the following substituted therefor 166- Where notice is given by an advertisement, such advertisement shall be published in Sinhala, Tamil and English national daily newspapers. 4. To consider and if thought fit to pass the following Special Resolution Resolved that the following clause be included immediately after existing clause 170 and be numbered as 171 (compliance with Rules) 171- Notwithstanding anything to the contrary contained in the Articles of Association of the Company, so long as the Company is listed on the Colombo Stock Exchange, the company shall comply with the Rules of the Colombo Stock Exchange and the Central Depository System, which shall be in force from time to time.
2.
3.
4.
5.
By order of the Board (Sgd.) K H L Corporate Services Limited Secretaries 15th July 2010
SPECIAL BUSINESS AMENDMENTS TO THE ARTICLES OF ASSOCIATION 1. To consider and if thought fit to pass the following Special Resolution Resolved that the proviso in paragraph 4 of Article No. 13 be amended to read as follows: Provided that the Company shall not register more than three persons as joint holders (including the principal holder) of any shares (except in the case of executors, administrators or heirs of a deceased member) 2. To consider and if thought fit to pass the following Special Resolution Resolved that the existing Article 164 be deleted and the following substituted therefor
A member entitled to attend and vote at the meeting is entitled to appoint a person to attend and vote on his/her behalf, such a person need not be a member of the Company.
43
44
Notes
Notes Continued
45
46
Notes Continued
Kotmale Holdings PLC - Form of Proxy

I/We,...of....... ............................................................................................................................................................................................................................................ being a member/s of the above named Company, hereby appoint Mr/Mrs/Miss . .......................... (holder of N.I.C. No ) of whom failing 1. 2. 3. 4. Mrs. Manjula Mathews of Colombo Mr. Dinesh Schaffter of Colombo Mr. M S Jude Fernando of Wattala Mr. Nihara E Rodrigo of Negombo whom failing whom failing whom failing
as my/our Proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on 5th August 2010 at 3.00 p.m. at the Auditorium of the Sasakawa Memorial Sri Lanka Japan cultural center, No 4, 22nd lane, Colombo 03., and at any adjournment thereof and at every poll which may be taken in consequence thereof. Please indicate your preference by placing a X in the box of your choice against each Resolution. ORDINARY BUSINESS 1. Receiving of the Report of the Directors and the Audited Financial Statements of the Company for the year ended 31st March 2010 together with the Report of the Auditors thereon. 2. Declaration of the Final Dividend of Rs.2/- per share. 3. Re-election of Mr. Nihara E Rodrigo, who retires by rotation in terms of Article 100. 4. Re-appointment of Messrs Nihal Hettiarachchi & Co as Auditors of the Company for the ensuing year and authorising the Directors to determine their remuneration. SPECIAL BUSINESS 1. 2. 3. 4. Amendment to Article No.13 (Joint Shareholding) Amendment to Article No. 164 (Notices) Amendment to Article No. 166 (Notices) Inclusion of Article No. 171 (Compliance with Rules) FOR AGAINST
Signature . Shareholders N.I.C./P.P./Co.Reg.No.
47
Signed on this day of 2010
INSTRUCTIONS FOR THE COMPLETION OF THE FORM OF PROXY
1.
Please perfect the Form of Proxy overleaf, after filling in legibly your full name and address, by signing in the space provided and fill in the date of signature and your National Identity Card Number.
2.
The completed Form of Proxy should be deposited at the Office of the Secretaries, K H L Corporate Services Limited of No.75, Arnold Ratnayake Mawatha, Colombo 10, 48 hours before the time appointed for the holding of the meeting.
3.
If an Attorney has signed the Form of Proxy, the relative Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.
4.
If the Shareholder is a company or a corporate body, the Proxy should be executed under its Common Seal in accordance with its Articles of Association or Constitution.
5.
If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of Proxy has been completed, no vote will be recorded by the Form of Proxy.
48
Corporate Information
Name of the Company Legal form
Kotmale Holdings PLC Incorporated as a Public Company in 1967 under the provisions of the Companies Ordinance No.51 of 1938 and subsequently re-registered under the Companies Act No.7 of 2007 on 6th May 2008. In 1969 the Company was listed on the Colombo Stock Exchange. Mr. M S Jude Fernando Executive Director/CEO Mrs. Manjula Mathews - Executive Director Mr. Dinesh Schaffter - Non-Executive Director Mr. Nihara E Rodrigo - Indipendent Non-Executive Director 75, Arnold Ratnayake Mawatha, Colombo 10. Tel: 2639878 20, Sri Sumana Mawatha, New Town Mulleriyawa. Tel: 2578774 6 K H L Corporate Services Limited 75, Arnold Ratnayake Mawatha, Colombo 10. Tel: 2639807 SSP Corporate Services (Pvt) Ltd 101 Inner Flower Road, Colombo 03. Tel: 2573894 M/s Nihal Hettiarahchi & Co Chartered Accountants 622B, Kotte Road, Kotte. DFCC Vardhana Bank Hatton National Bank PLC The Hongkong & Shanghai Banking Corporation Pan Asia Banking Corporation Seylan Bank PLC
Board of Directors
Registered Office
Factory
Secretaries
Registrars
Auditors
Bankers
Produced by Copyline (Pvt) Ltd Printed by Printel (Pvt) Ltd

Annual Report 2010

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Annual Report 2010

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More than just a Brand, More than just a Taste

Annual Report 2009/10

More than just a Brand, More than just a Taste

1,348,176 288,905 (10,172) 87,061

1,352,959 257,754 (23,682) 75,557

345,242 394,344 153,239 52,187 534,159 739,586

356,098 407,266 183,666 48,244 531,454 763,364

(Rs) (Rs) (Rs) (times) (times) (times) (times)

24.75 2.09 17.01 9.56 0.10 0.04 11.8

9.50 2.02 16.93 4.19 0.09 0.04 4.7

Group Gross Turnover

Profit Before Taxation

Annual Report 2009/10 Annual Report 2009/10

CEOs Review of Operations

Kotmale Holdings PLC

CEOs Review of Operations Continued

The market capitalisation 2010

Annual Report 2009/10

CEOs Review of Operations Continued

Kotmale Holdings PLC

CEOs Review of Operations Continued

(Sgd.) Jude Fernando Director/CEO 08th July 2010

Annual Report 2009/10

Profile of the Board of Directors

Annual Report 2009/10

Kotmale, at a Glance Continued

Kotmale Holdings PLC

Kotmale, at a Glance Continued

Annual Report 2009/10

Kotmale Holdings PLC

Annual Report 2009/10

Kotmale Holdings PLC

Report of the Directors

Annual Report 2009/10

Report of the Directors Continued

Name of Company Kotmale Milk Products Limited

Transaction Details Corporate Guarantee Rs.25,000,000/-

Swiss Cheese Co (Pvt) Limited

Mrs. Manjula Mathews Mr. Dinesh Schaffter Mr. M S Jude Fernando

Director Director Director

Corporate Guarantee Rs.3,548,500/= Rs.7,299,400/=

Kotmale Holdings PLC

No. of Shares 2009 200,000 6,062,988 Nil Nil

Report of the Directors Continued

Annual Report 2009/10

(Sgd.) Jude Fernando Director/CEO

(Sgd.) Mrs. Manjula Mathews Director

Statement of Directors Responsibility

(Sgd.) K H L Corporate Services Limited Secretaries 08th July 2010

COLOMBO July 05, 2010

NIHAL HETTIARACHCHI & CO., Chartered Accountants.

Annual Report 2009/10

(09) (10) (11)

289,378,470 55,863,274 345,241,744

294,866,123 61,231,775 356,097,898

(12) (13) (14) (15)

46,707,677 208,843,401 36,890,879 30,381,922 71,520,192 394,344,071 739,585,815

51,064,756 172,559,343 44,198,135 100,482,232 38,961,877 407,266,343 763,364,241

65,327,065 102,278,840 72,286 167,678,191 383,078,251

689,333 117,827,847 67,203 118,584,383 333,984,383

314,000,000 220,159,351 534,159,351

314,000,000 217,453,809 531,453,809

314,000,000 65,905,436 379,905,436