Notes to the Financial Statements Financial Risk Management The Company has exposure to the following risks from

financial instruments: 1 Credit risk 2 Liquidity risk 3 Operational risk 4 Market risk This note presents information about the Groups exposure to each of the above risks, the Groups objectives, policies and processes for measuring and managing risk, and the Groups management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. Risk management framework The Board of Directors has overall responsibility for the establishment and oversight of the Groups risk management framework. The Board has established the Risk Management Committee, which is responsible for developing and monitoring the Groups risk management policies. The committee reports regularly to the Board of Directors on its activities. The Groups risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Groups activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group Audit Committee oversees how management monitors compliance with the Groups risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. Trade and other receivables The Groups exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Risk Management Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Groups standard payment and delivery terms and conditions are offered. The Groups review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Groups benchmark creditworthiness may transact with the Group only on a prepayment basis. Outstanding customer receivables are regularly monitored at the individual sector and GMC level. Further SLASIC cover or other forms of credit insurance is obtained for most exports or in the instance this is not obtained, specific GMC approval is gotten prior to the export.

More than 85 percent of the Groups customers have been transacting with the Group for over five years, and no impairment loss has been recognised against these customers. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties. Trade and other receivables relate mainly to the Groups wholesale customers. Customers that are graded as high risk are placed on a restricted customer list and monitored by the Risk Management Committee, and future sales are made on a prepayment basis. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. The maximum exposure to credit risk for trade and other receivables at the reporting date by Currency wise was as follows As at 1 April 2011 2013 2012 Rs.'000 Rs.'000 Rs.'000 Rupees Australian Doller Pound Sterling United States Doller Euro Thai Baht Indian Others Investments Credit risk from investments in equity market and balances with the financial institutions are managed by the Groups treasury department in accordance with the Groups policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterpartys failure. Cash and cash equivalents The Group held cash and cash equivalents of Rs. ... million at 31 March 2013 (2011/12 - 1,755,418) which represents its maximum credit exposure on these assets. Respective credit ratings of banks which group cash balances held are as follows; People's Bank AAA(lka) Standard Chartered Bank AAA(lka) Hongkong and Shanghai Banking Corporation Ltd., AAA(lka) Commercial Bank of Ceylon PLC AA+(lka) Sampath Bank PLC AA(lka) Nations Trust Bank PLC A( lka) Pan Asia Banking Corporation PLC Bank BBB( lka) Hatton National Bank PLC AA-( lka)

Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Groups reputation.

The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, and finance leases.The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. Group central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Group central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Group central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements. The monthly liquidity position is monitored. All liquidity policies and procedures are subject to review and approval by ...................... Daily reports cover the liquidity position of both the Group and operating subsidiaries . A summary report, including any exceptions and remedial action taken, is submitted regularly to .................... The table below summarises the maturity profile of the Groups financial liabilities based on contractual undiscounted payments. Year ended 31 March 2013 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives 3 to 12 months On Less than demand 3 Months 3 to 12 months 1 to 5 years >5 years Total

Year ended 31 March 2012 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives

On Less than demand 3 Months

1 to 5 years

>5 years

Total

3 to 12 months

Year ended 1 April 2011 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives

On Less than demand 3 Months

1 to 5 years

>5 years

Total

Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Groups processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Groups operations. The Groups objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Groups reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: Requirements for appropriate segregation of duties, including the independent authorisation of transactions Requirements for the reconciliation and monitoring of transactions Compliance with regulatory and other legal requirements Documentation of controls and procedures Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified Requirements for the reporting of operational losses and proposed remedial action Development of contingency plans Training and professional development Ethical and business standards Risk mitigation, including insurance when this is effective.

Market Risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise four types of risk: interest rate risk, currency risk, commodity price risk and other price risk, such as equity price risk. Financial instruments affected by market risk include loans and borrowings, deposits, available-for-sale investments and derivative financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Interest rate risk The Group adopts a policy of ensuring that between 25 percent fixed and 75 percent floating interest rate on borrowings, taking into account assets with exposure to changes in interest rates. This is achieved by maintaining proper mix of interest rate on borrowings based on the market. Foreign currency risk The Group is exposed to currency risk on sales, purchases and borrowings and net investments in foreign subsidiaries that are denominated in a currency other than the respective functional currencies of the Group , primarily the euro, US Dollars (USD) Bangaladesh Taka and Pound Sterling (GBP). The currencies in which these transactions primarily are denominated are Euro, USD, GBP, Taka and Swiss Francs (CHF). The Group hedges its exposure to fluctuations on the translation of its foreign operations by holding net borrowings in foreign currencies and by using foreign currency swaps and forwards contracts. Commodity Risk The Group is affected by the volatility of certain commodities. Its operating activities require the ongoing purchase and manufacturing process. Due to the significantly increased volatility of the price of the underlying, the Groups Board of Directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation.

Equity price risk The Groups listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Management of the Group monitors the mix of debt and equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Risk Management Committee. Capital management The Boards policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. Capital consists of share capital, reservese, retained earnings and noncontrolling interests of the Group. The Board of Directors monitors the return on capital as well as the level of dividends to ordinary shareholders. At present employees hold 9.14 percent of ordinary shares, through the share options vest and/or are exercised.

The Groups net debt to adjusted equity ratio at the reporting date was as follows 2013 2012 Rs. '000 Rs. '000 Total Liabilities Less: cash and cash cash equivalents Net Debts #VALUE! Equity Equity and net debts Gearing Ratio

2011 Rs. '000

#VALUE!

#VALUE! #VALUE!

#VALUE! #VALUE!

1 Does the Group has risk management committee? Yes No 2 Does the Group maintains credit policy and credit rating scorecard ? Yes No 3 Does the Group review the External Ratings Yes No 4 Does the Group checks the individual customer credit limits ? Yes No 5 Management committee is frequently checking the credit approval limits ? Yes No 6 Shipments to the major customers are covered by the letter of credit or any form of credit insurance ? Yes No 7 Does the Group obtain Bank reference regarding new customers ? Yes No 8 What is the current percentage of the customer have been transacting more than 5 years with the Group ? Less than 30 % 30% - 60% 60% - 90% More than 90% 9 Does the Group has graded the customers a "high risk" customer and maintaining the restricted customer list and which has monitored by the Risk Management Committee regularly ? Yes No 10 Does the Group maintain a allowance for impairment of Trade and Other Receivables and investments ? Yes No Is it based on the Individually Significant Exposure Is it based on collective loss components 11 Does the Group need to obtain the prior approval from the investment committee for the significant investments ? Yes No 11.1 The Groups treasury checked the invetment viability in accordance with the Groups policy ? Yes No 12 Does the Group check the credit ratings of counterparties before invest the funds ? Yes No

13 Board of Directors review the credit ratings of the counter parties on an annual basis ? Yes No 13.1 Does the group has a fiance committee and has it involved to the updation of credit limits of the Group?

14 Please mention other Credit Risk Management strategies if applicable , . . 15 Does the Group central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business ? Yes No 16 Does the Group central Treasury maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole ? Yes No 17 The Group Treasury is monitoring the liquidity position by, Daily Weekly Monthly Quarterly Semi Annually Annually 18 All liquidity policies and procedures are subject to review and approval by, Head of Treasury CFO Others 19 A summary report, including any exceptions and remedial action taken, is submitted by the Group Treasury to Head of Treasury CFO Others 20 Please mention other Liquidity Risk Management strategies if applicable , .. ..

21.a Does the primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit ? Yes No 21 Do you satisfy with the the Group segregation of duties and the independent authorization of transactions ? Yes No

22 Is there proper procedure to reconciliation and monitoring of transactions ? Yes No 23 Does the Group compliance with regulatory and other legal requirements ? Yes No 24 Do you satisfy about the Group documentation of controls and procedures ? Yes No 25 Are there periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified ? Yes No 26 Does the company prepare a contingency plan ? Yes No 27 Does the Group conducted training and professional development ? Yes No 28 Does the Group following ethical and business standards ? Yes No 29 What are the risk mitigation plans used by the Group ? Business Insurance Other Please state other risk mitigation plans .. .. 30 Please mention other Operational Risk Management strategies if applicable , .. ..

31 Does the Group expose to the Interest Rate Risk ? Yes No 32 What is the interest rate composition of the borrowings of Group ? 100% fixed interest rate 75% fixed and 25% floating interest rate 50% fixed and 50% floating interest rate 25% fixed and 75% floating interest rate 100% floating interest rate 33 Please mention the mechanism used by the Group to mitigate the Interest rate risk ? Interest Rate SWAPs Interest Rate Options Other Please mention other Interest Rate Risk mitigation mechanisms

34 Does the Group expose to the foreign currency risk ? Yes No 35 Does the Group has foreign subsidiaries ? Yes No 36 State the foreign currency Risk mitigation plan adopted by the Group ? Forward contract Foreign currency SWAPs Foreign currency Options Foreign currency Futures Leading and Lagging Matching assets and liabilities Matching receipts and payments Local currency invoicing Other Please mention other Foreign Currency Risk mitigation mechanisms 47.a Does the board of Directors/Treasury/Finance committee has involved to develop a risk management strategy regarding commodity price risk ? Yes No 37 Does the Group has developed and enacted a risk management strategy regarding commodity price risk and its mitigation ? Fixed price purchase agreement Forward commodity purchase contract Other Please mention other Commodity Price Risk mitigation mechanisms 38 Does the material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by, Risk Management Committee. Board of Directors Investment Committee Other Please state other authorization personnel's if applicable, 39 Management of the Group monitors placing limits on individual and total equity instruments/ the mix of debt and equity securities in its investment portfolio based on market indices. Yes No

The table below summarises the maturity profile of the Groups financial liabilities based on contractual undiscounted Less than 3 3 to 12 1 to 5 On demand Months months years >5 years Total Year ended 31 March 2013 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives Less than 3 Months 3 to 12 months 1 to 5 years -

Year ended 31 March 2012 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives

On demand

>5 years

Total

Less than 3 Months

3 to 12 months

1 to 5 years

Year ended 1 April 2011 Interest-bearing loans and borrowings Other liabilities Trade and other payables Financial guarantee contracts Financial derivatives

On demand

>5 years

Total