Annual Report 2010/11 - Colombo Stock Exchange

adicalPC House PLCANNUAL REPORT 2010-11

ContentsAbout Us 2Vision Mision & Values 2Financial Highlights 4Key Milestones 6Awards for Excellence 8Chairman’s Message 10Board of Directors 14Management Team 16Overview of IT Industry 20Management Discussion and Analysis 24Product and Service Portfolio Offered by PCH 30Risk Management 36Corporate Governance 39Sustainability Report 47Branch Network 53Financial Information 54Financial Calendar 54Director’s Report 55Board Audit Committee Report 58Remuneration & Human Resources Committee Report 59Statement of Directors’ Responsibility in Relation to Finance Statement 60Independent Auditor’s Report 61Income Statement 62Balance Sheet 63Statement of Changes in Equity 64Cash Flow Statement 65Notes to the Financial Statements 66Share and Investor Information 78Five Year Financial Summary 80Glossary of Financial Terms 81Notice of Meeting 83Notes 84Form of Proxy 87Corporate InformationInner Back Cover

1PC House PLCAnnual Report 2010-11radicalRadical - A word that denotes extreme change thatchallenges traditional convention.The microchip. A small yet radical component intechnology which was invented in 1958.Without it, the world as we know it will not be the sameand as we step into a digitised future, it has become anundeniable part of people’s lives. And with this settingcome new and unique challenges. We at PCH seechallenges as opportunities and our commitment toexpansion, sound financial stability and partnershipswithin the industry has made us unique. We valuepeople. We are a radical part of people’s lives, whetherthrough education, health or nation building. It’s who weare.

2PC House PLCAnnual Report 2010-11About UsPCH is at the forefront of Sri Lanka’s ICT industry providing computer hardware and software solutions, and is apreferred supplier for public and private sector organisations. Our strong islandwide distribution network encompassesa wide range of users across the country, leveraging on strategically located branches. We are credited with penetratingrural markets with affordable computer hardware, thereby attempting to bridge the urban-rural digital gap.The Group has now forayed into the integrated solutions arena with its wholly-owned subsidiary Greenwich Lanka(Private) Limited, which is engaged in system integration and designing IT solutions. PCH has expanded its expertisefurther, with the setting up of another subsidiary, Procifinity Limited, to engage in Business Process Outsourcing andKnowledge Process Outsourcing activities, widely seen as one of the future ICT growth areas in Sri Lanka.VisionTo be the Benchmark in ICT in Sri LankaMissionWe will passionately engage in providing customers with quality solutionsthrough innovative technology. We will provide our people with excellentgrowth opportunities and become the corporate inspiration to stakeholders

3PC House PLCAnnual Report 2010-11ValuesCustomer-Centric Service We are focused on understanding the changing needs of our clients. We give our best attention to customer service and responsiveness.Speedy Service We believe that time is an invaluable resource. We believe in speed when it comes to business decisions, activities and programs.Commitment to Excellence We endeavour to be the best in everything we do. We encourage our staff to take responsibility and strive for excellence. We value efforts that lead to high standards.Innovation and Creativity We are open to new ideas and thinking. We always look for better ways. We create a climate for innovation.Employee Growth and Well-Being Our team is treated as our most valuable asset. We give high priority to team developmentand welfare. We treat them with respect, trust and dignity.

4PC House PLCAnnual Report 2010-11Financial HighlightsFor the year ended 31st March 2011 2010Rs.’000 Rs.’000Revenue 3,796,069 3,034,288Profit before Taxation 301,545 196,864Profit after Taxation 178,930 123,897Net Financing Cost 136,342 194,874As at 31st MarchShareholders’ Fund 1,416,758 641,522Total Assets 2,677,169 1,701,884Earnings per Share (Rs.) 0.86 0.72Net Asset Value per Share (Rs.) 6.78 3.74Return on Equity 17.39% 25.8%PAT 44%The PCH Group Profit after Tax grew by a significant 44% to Rs. 179million during the financial year ended 31st March 2011 compared toRs. 124 million during the previous year.Revenue 25%The PCH Group Revenue grew by 25% to Rs. 3.8 billion during thefinancial year ended 31st March 2011 compared to Rs. 3.03 billionduring the previous year.Finance Cost 30%The PCH Group Finance cost reduced by a significant 30% to Rs. 136million during financial year ended 31st March 2011 compared to Rs.195 million during the previous year.

5PC House PLCAnnual Report 2010-11Rs. Mn4,000Revenue(As at 31st March)Group Revenue3,0002,0001,000007 08 09 10 11Hardware and Software 94%Solutions 6%Rs.7.00Net Asset Per share(As at 31st March)Rs. Mn400Profit Before Tax(As at 31st March)6.003004.002002.00100007 08 09 10 11007 08 09 10 11

6PC House PLCAnnual Report 2010-11Key MilestonesSome of the key milestones of PCH since its humble beginning in 1997 are given below;1997Established first PCH showroom with two employees1998 Signed distributor agreements with Power Tree and Phillips2000Registered as a limited liability companyForayed into corporate and public sector markets2001 Set up Head Office at No.464, Galle Road, Colombo 032002Launched Panora – Sri Lanka’s first locally innovated brand of computersAchieved Intel Premium Partner status, Microsoft, IBM and Gigabyte Partner status2003 Launched ‘IT on Wheels ‘- CSR Initiative for regional IT diffusion2004Opened fourth branch in JaffnaAwarded ISO 9001:2000 Management Quality Process CertificationAwarded Microsoft Gold System Builder status2005 Authorised partner for Optoma2006 Achieved Rs. 1 billion turnover Acquired Head Office premises at No. 451, Galle Road, Colombo 03 Appointed Sri Lanka’s first Microsoft named OEM partner Appointed authorised distributor for Kyocera Diamond Sponsors – Infotel ICT week 20062007Acquired Greenwich Lanka (Private) LimitedImplementation of Customer Relationship Management (CRM) systemGreenwich appointed as authorised distributor for BitDefenderPCH appointed as authorised distributor for Samsung and MSILaunching of Sri Lanka’s first PC manufacturing facilityISO 9001:2000 Management Quality Process for PanoraISO 14001:2001 Environment Quality Standards Process for manufacturing

7PC House PLCAnnual Report 2010-1120082009Implementation of 5S Quality Management System throughout the organisationGreenwich appointed ‘Sri Lanka Partner’ by Reliance CommunicationGreenwich appointed authorised distributor for Red Hat and JBossPCH appointed authorised distributor for Dell Inc.Greenwich appointed as Microsoft Gold Partner across three competenciesGreenwich appointed as CISCO Certified Partner in Sri LankaMicrosoft Gold Certified Partner status received by PCH and Greenwich Increased Regional Branch Network to 13 PCH appointed Intel Premium Channel Partner by Intel Corporation PCH appointed distributor for Creative Labs2010 Dell Certified Partner for Enterprise Architecture 2010 Launched new identity through the launch of new logo Listed on the Main Board of Colombo Stock Exchange as PCH Appointed authorised distributor for Belkin products from Belkin USA Appointed authorised distributor for Karbonn Mobile products from Jaina Group, India Rated among the top 100 Corporate Entities and the No.1 ICT firm of 2010 by LMD PCH subsidiary Procifinity Limited becomes Sri Lanka BOI registered BPO/ KPO Service Provider Greenwich Awarded Microsoft Gold Certified Partnership Greenwich Awarded Microsoft Voice Specialized Partner Status Appointed Value Added Reseller by Corel Corporation Launched PCH 9 to 9 Showroom2011 Appointed as Cisco Partner for Sri Lanka. Appointed Avast! Authorised Reseller by Avast Software a. s. Increased Branch Network to 20. Rated as the Most Valuable IT Brand in Sri Lanka in the BrandFinance 2011 league table with A+ Brand Rating.

8PC House PLCAnnual Report 2010-11Awards for ExcellenceThe PCH Group has been recognised and honoured by its principals as well as the ITindustry for its relentless pursuit of excellence and superior service levels. Given belowis a list of some of the awards received by the Company over the years:2004Intel Outstanding Performance Award2005Top Business Partner Reseller Award by IBM CorporateIntel Premier Partner 2005 Award2006Microsoft Sri Lanka Partner Excellence Award2007Microsoft Partner of the Year AwardMicrosoft Best Partner for Windows Desktop SalesMicrosoft Best Partner Breadth Reseller CategoryMost Proactive Business Partner Award by SamsungGold Partner for Year 2006/ 07 by WeP Peripherals2008Microsoft Competency Award for Network Infrastructure SolutionsMicrosoft Competency Award for Information Worker SolutionsBest Partner 2008 by Gigabyte Technology Co., Ltd.Most Outstanding Partner of the Year Award by Micro Star InternationalBest ‘Attached at Source’ COEM Partner Award by MicrosoftGreenwich appointed BlueCoat Certified Partner in Sri Lanka2009‘Best in Country Partner’ KYE International (Genius)Gold Award for Information & Technology Category by Sri Lanka-Malaysia BusinessCouncil‘Most Valuable Partner of the Year’ by Gigabyte Technology Co., Ltd.‘Most Valuable Partner of the Year’ by Topview LCD Co., Ltd.Greenwich appointed BlueCoat Premier Partner in Sri Lanka2010Best Partner Outside India 2010 by Corel® India.

9PC House PLCAnnual Report 2010-11

10PC House PLCAnnual Report 2010-11Chairman’s Message“A year that will go down in the annals of our history as a year ofradical change- for it marks the triumphant listing of PCH on theColombo Stock Exchange following an immensely successful InitialPublic Offering.PCH has performed exceedingly well in the year under review,with Profit After Tax growing by a significant 44.4% from Rs. 123.9million last year to Rs. 178.9 million this year. The company ispoised to almost double its revenue in 2011/12, on its way to furtherconsolidating its position as the dominant player in the IT market.”

11PC House PLCAnnual Report 2010-11It gives me immense pleasure to present the annual report and financial statements ofThe PCH Group for the year ended 31st March 2011. The period under review will godown in the annals of our history as a year of radical change - for it marks the triumphantlisting of PCH on the Colombo Stock Exchange following an immensely successful InitialPublic Offering (IPO).Profit Before Tax & Profit After TaxRs. Mn400300PCH - A Public Quoted CompanyThis proud achievement was made possible due to focussed efforts spanning over ayear, during which period the PCH team applied itself diligently to setting in place theoptimal corporate governance checks and balances that would allow us to position theorganisation as a responsible listed company. The PCH IPO was crafted with precisionand care, and the overwhelming response from investors has reinforced our faith in thebelief that the company is striding forth on the right growth trajectory.We owe the success of the IPO to the unstinted support from our most importantstakeholders - our shareholders - for the trust they have placed in us. We also owegratitude to our customers for their continued loyalty, as also a vote of thanks to our localand international partners without whom we would not have tasted this success.200100007 08 09 10 11Profit Before TaxProfit After TaxPC House Transforms into PCHAt PCH, we undertook an extensive and strategic rebranding exercise in early 2010 tochange PC House, a perceived software and hardware seller, into PCH, a provider ofa comprehensive range of IT-based products and services serving all segments of themarket. This mammoth rebranding exercise was communicated effectively both withinthe company and to the rest of our stakeholders, underscoring the renewed brand energyand strategic direction that the company would take in the near future. This rebrandingexercise paved the way for the company to unveil its eagerly anticipated IPO, which wasover-subscribed several times over.During the year 2010/2011,PCH placed great emphasison expanding its regionalnetwork by opening 6branches and implementingbest practices in its existingbranch network to cater tothe ever-increasing clamourfor PCH products andservices.Favourable Economic FactorsHaving emerged from the shadow of war, 2010 was the first year of total peace. To us,this was the right time for PCH to test its mettle by way of an IPO. Truly, Sri Lanka ispoised at a very significant juncture in its history. The end of the 30-year conflict haspresented the country with a unique opportunity to create sustained economic growthand prosperity. The outlook for the local economy remains positive, with a stable politicalenvironment and an expectation of robust growth adding to the renewed businessconfidence. Looking back at the country’s economic performance in 2009, the relativelylow GDP growth recorded was caused both by a global downturn and a slower thanexpected local response to the historic economic opportunities offered by lasting peacein the country. However, I am delighted that GDP growth has accelerated significantlyto reach the 8% mark in 2010, which indicates a strong economic recovery that shouldsustain the current growth levels through the rest of the year.

12PC House PLCAnnual Report 2010-11Chairman’s Review Contd...Group RevenueHardware and Software 94%Solutions 6%Since the IPO, thecompany's share pricehas gone up 55% toRs. 17.10 per share andour P/E ratio was 20.12times as at 31st March2011.A Powerhouse PerformancePCH has performed exceedingly well inthe year under review, with Profit AfterTax growing by a significant 44.4% fromRs. 123.9 million last year to Rs. 178.9million this year. The company is poisedto almost double its revenue in 2011/12,on its way to further consolidating itsposition as the dominant player in the ITmarket. The company’s total revenue fromhardware and software sales increasedby 28% to Rs. 3,587 million during thefinancial year under review.Software sales have two components:third party software selling and softwaredevelopment. Whilst PCH is unrivalled inthe industry for its command over thirdparty software - a booming businessarea for PCH - its expertise in softwaredevelopment has to be developed further,although the company expects to be fullygeared to make an impact in this area ofbusiness during the year 2011/12.PCH is by far the most dominant playerin the hardware segment. The hardwaresegment accounted for 71% of the entireIT market in 2010. We expect the marketto be monopolised by the hardwaresector over the next five years, showing acompound growth rate of 16%. Althoughother IT market segments will experiencegrowth, the market share of the hardwaresector is expected to be 66% at the endof five years.Meanwhile, the company continues togrow at a steady pace, consolidatingits leadership position along the way.During the year 2010/2011, PCH placedgreat emphasis on expanding its regionalnetwork by opening 6 branches andimplementing best practices in its existingbranch network to cater to the everincreasingclamour for PCH products andservices.During the year under review, we placedgreat emphasis on strengthening thefollowing key areas: the provision of ITsolutions to enterprises in the public andprivate sectors, with an emphasis on SMEsectors; IT software development; andprovision of IT-enabled services includingBusiness Process and KnowledgeProcess Outsourcing.PCH Shares Add ValueSince the IPO, the company’s shareprice has gone up 55.45% to Rs. 17.10per share as at 31st March 2011. As at31st March 2011, our P/E ratio was 20.12times. Given that the market P/E was25.73 times as at 31st March 2011 andconsidering the fact that the P/E ratio ofIT companies is usually higher than themarket average, the upward potential forour share price is evident.Our SubsidiariesGreenwich Lanka (Private) Ltd., nowrebranded as GREENWICH, is engaged inthe provision of IT solutions to enterprisesin the public and private sectors, includingthe SME sector. Further, the provision ofIT-enabled services (including BusinessProcess Outsourcing & KnowledgeProcess Outsourcing) is effected byProcifinity Limited. Greenwich andProcifinity are fully-owned subsidiariesof PCH and entities that are on the wayto benchmarking excellence in theirrespective niche areas.GreenwichRecognising the potential of Greenwich tobecome a leading player in the market, weat PCH have focussed on setting up thenecessary infrastructure within this entityfor most of the past year. We believe thatour efforts will bear fruit and the companycan make a major impact in the solutionsmarket in 2011/12 and well beyond. Thetotal revenue generated by Greenwichamounted to over Rs. 208 million.Procifinity LimitedOur newest subsidiary, Procifinity,commenced commercial operationsin March 2011. The main focus of thecompany at present is the developmentof our scanning and digitising businesswhich was previously carried out byPCH. We have also commenced theprovision of accounting BPO servicesin March 2011. Given the fact that it willbe unrealistic to expect speedy organicgrowth in accounting and related BPObusinesses, we are currently lookingat other options to jumpstart this part ofProcifinity’s business. We are cautiouslyoptimistic that we would be able toannounce exciting developments on thisfront in the near future.Mobile MarketThe mobile telecommunications segmentof the telecom sector is experiencingsignificant growth in Sri Lanka. Theinflux of smart phones, tablets, andother ICT technologies renders themobile telecommunications segment avery lucrative industry to operate in. Ourfaith in this sector spurred PCH to takea strategic decision to enter this highlycompetitive arena. Aptly, the end of 2010witnessed PCH’s successful launch ofKarbonn Mobile into the local market.The company plans to leverage on itsextensive islandwide delivery network toupscale its marketing and sales effortsaggressively to promote this marketsegment which will be another platformfor IT development in the future.People Power at PCHOur professional staff remains atthe cutting edge of technology andlends PCH a distinct advantage overcompetitors. The company’s efforts thisyear entailed a substantial investmentin additional manpower resources andin the development of our existing talent

13PC House PLCAnnual Report 2010-11Radical changes wereintroduced in our servicelevels with a viewto achieving excellence,with significantinvestments being made instaff training and inimplementing the 5Smethodologythroughout our salesoutlets and stores inColombo, with plans forimplementationthroughout PCH in thenext few months.pool through focused training sessions.Radical changes were introduced in ourservice levels with a view to achievingexcellence, with significant investmentsbeing made in staff training and inimplementing the 5S methodologythroughout our sales outlets and stores inColombo, with plans for implementationthroughout PCH in the next few months.All our employees are committed to theseinitiatives and motivated to excel in theirrespective functions as valued staff of thePCH Group.AccoladesPCH featured in Sri Lanka’s leadingbusiness magazine, LMD’s ‘100 MostRespected Entities 2010’ listing for its“outstanding contribution towards thebetterment of the ICT industry”. TheCompany was placed ahead of theonly other IT Company to figure in thisprestigious list of local blue chip andmultinational companies.Making its mark as a leading player inthe ICT arena, PCH was ranked amongstthe Top 50 in ‘Sri Lanka’s 100 MostValuable Brands for 2011’. In the recentlypublished list of Sri Lanka’s LeadingBrands, conducted by Brands FinanceLanka and Media Services, PCH madeits debut as the best-rated ICT Company- catapulting us into one of the country’smost valuable brands, judged on thebasis of performance, accountability andtransparency.Through the Looking GlassThe challenge for the company goingahead is to ensure sustainable yettransformational growth over the nextdecade or more. We will remain true toour vision to be the benchmark for ITin the country as we have done in thepast. The ability of PCH to pre-empt andkeep pace with emerging technologieswill underscore our industry leadership.In pursuant to this, the company willbe investing heavily in research anddevelopment activities to give PCH theleading edge it enjoys in the markettoday.There is little doubt that the ICT industrywill remain at the forefront of the country’seconomic growth sectors, backed stronglyby the government’s clear vision topromote the ICT sector. In fact, I foreseeSri Lanka’s ICT industry outperformingcounterparts elsewhere in the world.At PCH, we applaud the variousgovernment initiatives to● increase the ICT literacy rate to 50%by 2015 in a bid to develop Sri Lankaas a dynamic global hub serving asa key link between east and west;● restructure the public sector andtransform it into a service-oriented,transparent and efficient service;● empower the younger generationwith modern information andtelecommunication technologies;and● put ICT at the forefront ofeducation.We too believe that once achieved, thesegoals will transform Sri Lanka into a globalICT hub.In AppreciationI would like to express my deep gratitudeto the Board of Directors for theirguidance and my deep appreciation toour Shareholders and Customers for theirunstinted support as we continue ourexciting journey. We are privileged to berepresenting worldwide technology giantsin Sri Lanka and I take this opportunityWe will remain true to ourvision to be the benchmarkfor IT in the country as wehave done in the past.to thank them for their commitmentto our country as PCH looks forwardto collaborating with them in addinggreater value to our nation. I would alsolike to acknowledge the hard work andcommitment of our team of managementand employees whose dedication to ourcustomers is simply unrivalled. RadicalChange over the past year has givenPCH a new profile, which we will strive tofurther strengthen in the months ahead.S.H.M. RishanChairman/ Chief Executive Officer26th May 2011

14PC House PLCAnnual Report 2010-11Board of Directors

15PC House PLCAnnual Report 2010-11Mr. S.H.M. RishanChairman/ Chief Executive OfficerMr. Rishan is the Founder Chairman andChief Executive Officer of PCH. His visionaryleadership has enabled PCH to grow from itshumble beginnings to be one of the largestICT companies in Sri Lanka. He completed hissecondary education at Kingswood College,Kandy and commenced his career as a sailorafter graduating from the Moratuwa MarineAcademy. Mr. Rishan counts over 14 yearsof experience in the ICT industry and hasbeen awarded by many local and foreignbodies for his outstanding entrepreneurship.Mrs. Sharmila RishanNon - Executive DirectorMrs. Rishan has been serving on theBoard of PCH since 30th November 2006.Mr. Mangala BoyagodaNon – Executive DirectorMangala Boyagoda is a senior banker,possessing over 30 years experience in thefield of financial services.Mr. Boyagoda serves as Chairman, WealthLanka Management (Pvt.) Limited and Directorof South Asia Finance Excel Investments(Pvt.) Ltd, WealthTrust Securities Ltd, NewWorld Securities (Pvt.) Ltd, Asset TrustManagement (Pvt.) Ltd, PC House PLC andSierra Construction Ltd. He is a former ChiefExecutive Officer, Standard Chartered Bank,Colombo and former Managing Director/ ChiefExecutive Officer National Wealth CorporationLtd.He has also served as a Consultant to theAsian Development Bank (ADB), the WorldBank, USAID, Central Bank of Sri Lanka, theSecurities and Exchange Commissions’ of SriLanka and Bangladesh and has served as amember of the Financial Reform Committee.He is also a former President of the FOREXAssociation of Sri Lanka.Mr. Boyagoda holds a Masters Degreein Business Administration from the IrishInternational University (European Union),UK.Mr. Drayton Sarath Palitha WikramanayakeNon - Executive DirectorMr. Wikramanayake was appointed to theBoard of PCH as a Non-Executive Director in2010 and serves as the Chairman of PCH’stwo subsidiaries, Greenwich and ProcifinityLimited. He is a Chartered Accountant byprofession and brings with him a wealth ofexperience having worked with the Bank ofButterfield, an international bank based inBermuda for 19 years, where he reached theposition of Executive Vice-President. Since hisreturn to Sri Lanka, he has served as ChiefExecutive Officer of Union Assurance PLC andPresident of the Insurance Board of Sri Lankain 2002. He is currently engaged in providingconsultancy services to the financial servicesindustry. He also serves on several boardsincluding National Development Bank PLC,Aviva NDB Insurance PLC and NDB AvivaWealth Management Limited.Mr. Modarage ThilakasiriNon - Executive DirectorMr. Thilakasiri was appointed to the Board ofPCH as a Non-Executive Director in 2010.He also serves as the Chairman of the BoardRemuneration Committee of PCH. He iscurrently serving as the Head of the Schoolof Postgraduate Studies, Sri Lanka Instituteof Development Administration (SLIDA). Heholds BSc. (Hons) Mgt., (USJ), H.N. Diploma inAccountancy and MBA (Birmingham BusinessSchool, University of Birmingham, UK).Mr. Thilakasiri has 27 years of experience asa Management Consultant and a CorporateTrainer to many local and multinationalorganisations in the private sector and publicsector. He also serves as a Senior VisitingLecturer in Strategic Management for theMasters Degree programs in BusinessAdministration of University of Colombo,University of Moratuwa, University of Kelaniyaand University of Sri Jayewardenapura.He also serves as a member of the Boardof Study in Medical Administration ofPostgraduate Institute of Medicine, Universityof Colombo since 1992.Mr. Shanti Kumar NadarajahNon - Executive Independent DirectorMr. Nadarajah was appointed to the Boardof PCH as an Independent Director inMay 2010. He is a Brand and MarketingStrategy Consultant and has successfullycompleted Branding & Value Based Marketingassignments in Financial Services, Insurance,Logistics, Exports, Retail and FMCG for SriLankan & Multi National clients.Mr. Nadarajah’s wide experience inmanagement includes 5 years in a multimational advertising agency, where he wastrained in 360° Brand Stewardship andLeadership Skills and 20 years in Coca – ColaBottler Operations, where he managed theBrand Portfolio, Marketing Communications,Marketing Research & Information Systems,Supply Chain and Corporate Planning.He served in the Executive Committee of theSri Lanka Institute of Marketing for many yearsand was elected President for the period 1998-1999.He holds a Postgraduate Diploma in Marketingfrom the Chartered Institute of Marketing(CIM), UK and an Executive Diploma inBusiness Administration from the University ofColombo, Sri Lanka.Mr. Kuvera de ZoysaSenior Non - Executive Independent DirectorMr. Kuvera de Zoysa was appointed to theBoard of PCH as an independent directorin 2010. He also serves as a member of theBoard Audit and Remuneration Committeesof PCH. Mr. de Zoysa is an Attorney-at-Lawof the Supreme Court of Sri Lanka in activepractice since 1993 in the fields of Commercialand Civil Law. He holds a Masters Degree(LL.M) in International Trade Law from theUniversity of Wales. He was also awardedthe “The Young Outstanding Persons”Award , the HSBC - JCI TOYP 2007, by theJunior Chamber International Sri Lanka forLegal Accomplishment in recognition of hiscontribution to the Law field.He has served as Chairman/ Director of People’sMerchant Bank PLC and as a Director of theBoards of People’s Bank, Export DevelopmentBoard and Sanasa Development Bank. He hasalso served as Acting Chairman of People’sBank and as Chairman of the Audit, Legal andRisk Management Committees of People’sBank. He currently serves on the Boardsof many listed and non listed companies inFinancial, Power and the leisure sector as aNon Executive Independent Director.

16PC House PLCAnnual Report 2010-11Management TeamExecutive CommitteeManagement Committee1 2345678910

17PC House PLCAnnual Report 2010-11Senior Management11 12 1314 15 16Executive Committee1. Mushtaq Ahamed Ikram - Head of Group Finance2. Jude Fernando - Head of Group Human ResourcesManagement Committee3. Rizwan Anise - Head of Group Marketing4. Ravi Jayasinghe - Head of Operations5. M. Inthishar Feroz - Head of Sales6. Thufail Musadeen - Head of Retail and Regional Operations7. Nim Farzaan - Senior Accountant8. Suran Fonseka - CEO - Greenwich.9. Failan Saleem - COO - Mobile Division10. Rishan Ahamed - Manager - Sales and Operations - ProcifinitySenior Management11. Ubaidush Shakoor - Senior Manager - Consumer Sales12. Mohammed Haniffa - Senior Regional Manager13. Naleem Siddeek - Manager - Procurement and Warehouse Operations14. Waseem Hussain - Manager - Imports, Logistics and Wharf15. Mohammed Fazil - Manager - Technical16. Mohammed Ayoob - Accountant

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19PC House PLCAnnual Report 2010-11PCH Empowers the Nation’sEducation SectorRadical KnowledgePCH has been a key ICTsolutions provider inthe nation’s educationsector. In keeping with thegovernment’s vision ofempowering every studentwith IT literacy, PCH hasbeen able to supply andcommission a majorityof the IT labs in underserved schools, therebyconserving state funds.In Sri Lanka, nationalIT literacy levels haveincreased from 16% in2007 to 20.3% in 2009,while computer awarenesslevels have increasedfrom 37.1% to 43.8%between 2007 & 2009.PCH has supplied over10,000 branded PCsto national projects inaddition to hundreds ofservers, networks andsoftware solutions in orderto improve the nation’seducation system andIT infrastructure. Theseprojects have been pivotalin improving the country’seducation system andenhancing its efficiency.

20PC House PLCAnnual Report 2010-11Overview of IT IndustryIT Market PenetrationTapped 5%Untapped 95%Source: Business Monitor International Ltd. SriLanka Information Technology Report Q1 2011USD.000’8006004002000Sri Lanka IT Market GrowthProjection10 11 12 13 14 15Source: Business Monitor International Ltd. SriLanka Information Technology Report Q1 2011Sri Lanka IT MarketHardware 71%Software 12%IT Services 17%Source: Business Monitor International Ltd. SriLanka Information Technology Report Q1 2011In Sri Lanka, the Information andCommunications Technology (ICT)industry encompasses the communicationsindustry as well, however, since PCH isnot a communications service provider perse, this industry section will relate only tothe IT industry.Poised for GrowthCurrently, the IT sector is strategicallypoised to move up from its presentposition as the fifth-largest incomeearner rapidly upwards to the secondlargestincome earner position by 2012.Sri Lanka’s IT market was estimated atUS$ 308 million in 2010, according to theBusiness Monitor International (BMI) SriLanka Information Technology report Q12010, and is tipped to grow exponentiallyto reach US$ 742 million by 2014/15.Fastest Expanding IT MarketA Compound Annual Growth Rate (CAGR)of 16% is being forecast for the localIT sector in the next few years, makingSri Lanka one of the fastest-growing ITmarkets in the region, particularly at aperiod of time when growth has becomesaturated in developed IT markets.Despite these strong forecasts and thedouble digit growth, IT penetration in thecountry remains low, under 5%, indicatingrich potential for the computer hardwaremarket.Dynamic FutureThe government agency, InformationCommunication Technology Association(ICTA), has projected that the IT sectorwill achieve the highest income earnerstatus by 2015, which reflects thedynamic blueprint for growth envisionedfor the sector over the next few years,(as depicted in the Sri Lanka IT MarketGrowth Projection graph).Emerging Local TrendsIT Industry Targets Rural Sri LankaThere are great opportunities in SriLanka to bring employment to rural folkin the IT industry without them having tomove into urban areas. The governmenthas made great strides in establishingcommunications infrastructure throughoutthe country with this aim in mind. Jobssuch as graphics design, video editing,page setting will soon be carried out fromremote rural locations. The governmentshould consider incentivising employmentcreation in these areas. More IT companiesare now conducting feasibility studies onexpanding operations into rural regions.Adding Value to E WasteWith the exponential increase in the useof computing devices and peripherals, thebig challenge is what to do with the garbagein the form of used products that couldaccumulate and cause environmentalissues. Some large-sized organisationsare now getting more involved in recyclingold parts and components, or ‘recycled’and ‘re-manufactured’ products. In SriLanka, PCH is part of an initiative thatcollects and exports used ICT productsfor re-use in other countries. Sri Lankashould look at the feasibility of remanufacturinghere and creating thevalue addition component rather thanexporting it and letting the value additionhappen in another country. PCH is verymuch into green computing and will belooking at ways to help the cause as wellas create opportunities for our country tobenefit from the related value additionsthat could take place in Sri Lanka.Emerging Global TrendsMobile Computing TechnologyIn recent times, mobility has become thesingle-most important deciding factor indefining the success of new technologicalproducts. The move from stationary PCsto notebooks and on to handheld devicessuch as notepads, tablets and mobilephones, offers ample evidence. Duringthis process, miniaturisation of technologyhas also taken place.Another important development in thelast 4 to 5 years has been integration. Inthe past, we used a MP3 player for music,a mobile phone for communication, alaptop for computing needs and a digitalcamera for photography. Now all of thesefunctions can be carried out using onedevice.

21PC House PLCAnnual Report 2010-11Reasons for Strong Industry GrowthTechnological Factors Political & Legal Factors Economic Factors● Continuous developments in ICT ● Political stability in the country after ● Increasing cost of software licensingLandscape30 years is driving corporates to think ● Increasing number of internet –based● Exponential growth in Internet home of new investments in infrastructure service provider companiesand office useimplementation and in sophisticated ● Steady increase in urban personal● Outsourcing of business processes IT solutions such asdisposable incomefor international marketsEnterprise Resource Planning (ERP) ● High cost of deployment,● Growth in managed IT service sector ● Government initiative to develop the customisation and management ofin global marketsIT/ Telecommunication industry to a sophisticated systems.● Islandwide internet penetrationglobal standard● Growth of SOHO (Small Office and ● Legal pressures on software piracyHome Office) conceptespecially in corporate and publicsectors● Government promotion of ITIT MarketComputer Hardware Software Market IT ServicesAccording to the Sri Lanka informationtechnology report Q1 2011 (BMI), SriLanka’s computer hardware market isestimated at US dollars 265Mn in 2011.Approximately 400,000 computerswere sold in Sri Lanka in 2010, showingan 18% CAGR which is on the rise.This annual total could increase over650,000, with growing demand foraffordable notebooks. Sri Lanka’s ITmarket will be dominated by computerhardware, with spending on hardwareaccounting for an estimated 71% ofSri Lanka’s IT spend last year. Giventhe low level of computerisation in thecountry (below 5%), this segment offerstremendous growth potential.Spending for software remains ratherlow, reveals the Sri Lanka informationtechnology report Q1 2011 (BMI), with themarket in Sri Lanka being estimated at USdollars 47Mn in 2011. The estimated 11%share of the total IT spend on softwarereflects the relative immaturity of the ITmarket. However the domestic softwaremarket is expected to grow at a CAGR ofaround 18% over the forecast period until2014. One significant market constraint isthe high level of software piracy - with 9 outof 10 software packages in use thoughtto be unlicensed. The core businesssoftware demand is for applications suchas ERP as well as basic applicationssuch as e-mail. Local channels estimatethe presence of approximately 400 ERPinstallations in the country currently.According to Sri Lanka informationtechnology report Q1 2010 (BMI), ITservices are estimated at US dollars74Mn in 2011, accounting for about17% of Sri Lanka’s total IT spend.A market CAGR of 19% projectedfor the period through to 2014. Themarket is dominated by demand fromgovernment, finance and telecomsectors, which account for at leasthalf of total spending. The reportfurther states that the provision of ITservices is still typically built aroundhardware sales, with the growing baseof installed hardware and softwaresystems forming the foundation for anexpansion of services. The consultingelement should hopefully become moresignificant over the forecast period. Theeconomic situation and credit tighteningis likely to have an impact on projects insome key verticals.

22PC House PLCAnnual Report 2010-11Overview of Local Industry Contd...IT Market Customer SegmentsCorporate and Public SectorHigh volumes can be expected with relatively higher marginsand lead continuity in this segment. This segment consists ofthe private and public sector organisations, as they are moreor less matched when it comes to buying patterns and levelsof expectations. The customer segment sets store by productquality, after sales service and price, in order of importance.However, price does play a significant role in the eventfuldecision making process. The private sector purchasing patterndiffers slightly from the public sector interms of high prioritybeing given to brand names.Home Users-Via Retail and Regional ChannelsThis segment drives moderate margins with high cashturnovers for the industry.Research shows that the head of the family remains in controlof IT expenditure amounting to over Rs. 30,000, althoughaccessories are purchased by other family members too-withpurchase decisions being based on price and warranty. Inthis category, price remains a defining factor in IT purchasedecisions.IT Market Business ChannelsCorporate & Public SalesCorporate & Public Sales teams focus on the Corporateand Public sector organisations – managing accounts andmaintaining close relationships with clients, servicing needs ona contract basis.Retail SalesRetail sales markets products and services to the homeuser and small office customer segment. The major industryplayers have outlets spread islandwide, although a majorityof these are concentrated in the urban areas.Regional SalesRegional Sales remain an untapped channel for many industry players. Some established players have yielded good results,succeeding in establishing a branch network that not only markets products and services in far-flung towns but also focuses onoffering services for products marketed to the Direct Sales Accounts. Hence, a regional network has become a competitive strengthfor the leading players in the industry, enabling them to acquire large corporate and public sector deals due to the ability to supportproducts and services islandwide.Looking into the future, it is likely thatcomputing devices will become moreand more ‘human-like’ in interacting withpeople, for example, keyboards as weknow them are likely to disappear andsoon we will be interacting with computersthrough voice commands.It is expected that in the next few years‘table-top computers’ will be the newfrontier in IT. This is where your tablewill literally be your computer. Copyingsomething onto your mobile phone willmean placing your phone over what hasto be copied and dragging what has to becopied from the table-top to the mobilephone. This technology is also referred toas ‘multi-tap technology’.Another major development is the factthat computing devices are using less andless energy whilst becoming more andmore powerful. In fact, over the last 5-6years, the average power consumption ofPCs has reduced by approximately onethird.Given the introduction of animatedinterfaces in devices, users are no longertalking about battery life and the numberof entries an address book could hold, asanimated interfaces have become moreimportant. Although mobile devices haveshrunk in size, it becomes less practicalto integrate features such as e-booksand access to the internet within smallerdevices, which has brought about thedevelopment of larger devices such astablets and notepads.Software SolutionsIn the arena of software development,the trend in the last few years has beena move from “built to order” softwareto buying and customising softwarepackages. Moreover, we are increasinglyhearing about cloud computing, whereinspecialist companies have built massiveglobal infrastructure for storage of data tobe used by individual companies on thebasis of ‘pay per use’. This is helping tobring down operating costs dramaticallyand is a throwback to the philosophy offocusing on the core business area andoutsourcing the rest.Another phenomenon in the softwaresector is the concept of ‘Software asa Service’ (SaaS). For example, since

23PC House PLCAnnual Report 2010-11the monthly payroll is mandatory forcompanies, they can avail of payrollcomputation service providers. This haslimited applicability in Sri Lanka at presentdue to the lack of adequate privacy laws,the lack of emphasis placed on this byorganisations and individuals in protectingprivacy, and the fact that pirated softwareuse is still prevalent in the country.other countries more attractive on price.Notwithstanding this, it is expected thatthere will be a great demand for BPO andKPO services in Sri Lanka over the next10 years at least.Another related development in softwareis the concept of ‘pay-per-use”. Forexample, a company may want somethingdone once only (like converting a filefrom one format to another, for whichthere is software available that could bedownloaded and used once for a fee).Also, most software packages are nowbeing converted and adapted for use inmobile devices.Looking into the future, it is evidently clearthat computers are getting more integratedwith other devices. For instance, it will bepossible for a refrigerator to be able tokeep tab of stocks and place orders directwhen stock levels go low. Although thistype of technology is available, it is notavailable in a commercially viable formyet.IT-Enabled ServicesWhen it comes to IT-enabled services,there is a decline in the demand forconsultants where appropriate softwarecould do the job. Take, for instance, anentity offering Software as a Service orSaaS as a service. This entity will havethe expertise necessary to work with theirclient, thereby bypassing the necessity toobtain consultancy services to use suchsoftware.Evidently, the need to outsource ancillaryservices not central to businesses willalways persist. The main reason foroutsourcing is the reduction in costsbrought about by leaving these ancillaryservices to specialists who leverageon their IT expertise. It is of paramountimportance that this advantage ismaintained. However, with furthereconomic progress, our labour pricesare bound to go up, thereby making

24PC House PLCAnnual Report 2010-11Management Discussion and AnalysisRadical Change at PCHThe PCH Group occupies a uniqueposition in Sri Lanka’s IT industry asthe only organisation in the country tobe present in all the segments of the ITindustry, namely, hardware, software andIT services. PCH commenced operationsin 1997 as a seller of hardware, mainly insales of assembled computers. Althoughthe company has since diversifiedinto software solutions and IT enabledservices segments, we are proud of ourbeginnings. In fact, PCH has been creditedwith the distinction of making PersonalComputers (PCs) available to the lowerincome section of Sri Lanka’s population,thereby helping raise awareness of ITacross the country.As the leading IT Company, PCHcommands a lion’s share of the local ITmarket and is the precursor of global ITtrends in Sri Lanka. As a pioneer in theindustry, PCH has voluntarily taken on themantle of growing the industry throughknowledge sharing, updating the localIT industry and other stakeholders ofdevelopments in the fast-changing worldof IT.PCH has adapted with great agility tothe fast-evolving world of technology byconcentrating on building partnershipswith international and world-renownedmanufacturers and package developersand employing best-in-industry expertisein the form of qualified professionals inorder to help buyers customise suchproducts.Our Performance in 2010/11Our performance during the period underreview has been one of consolidatingour enviable position through thetumultuous year of 2009, during whichmany IT businesses were forced to shutdown due to the negative growth thatwas experienced between January-September 2009. PCH responded to thisturbulent period by achieving a growthin its turnover despite a slump in overallindustry turnover, largely attributable to aproactive strategy devised in restructuringthe head office and regional sales force atthe early stages of the curve.Revolutionising the IndustryPCH continued its pioneering rolethrough the year and strengthened itspresence in diversified businesses suchas computer manufacturing, hardwaretrade, office automation, audio visualsolutions, mobile, software solutions andbusiness applications. One of our greatstrengths is in our partnerships - local andinternational – and we remained focusedon adding value and reinforcing theseties.Over the past decade, PCH hasdemonstrated its brand equity bypartnering with global giants such as Dell,Samsung, Microsoft, Optoma, Kyocera,Corel, Symantec, Belkin, Karbonn andBit Defender amongst others, in a bid tobring the world’s best brands closer to ourcustomers in Sri Lanka.Business Units and SubsidiaryOperationsThe business operations of the PCHGroup are carried out through 5 StrategicBusiness Units (SBUs) of which threeare within the main company, PC HousePLC, and the other two are fully-ownedsubsidiaries of PC House PLC, namelyGreenwich and Procifinity.PC House PLC’s three SBUs arethe three sales channels used in PCH’smain line of business: Hardware andSoftware sales. Hardware and softwareaccount for over 85% of the IT industryin the country at present. In PCH too,this segment accounts 95% or Rs. 3,587million of total sales of the Group.Subsidiary OperationsOur subsidiary, Greenwich, specialises indesigning, developing and implementingenterprise systems for medium toenterprise level companies by providingthe latest technology in support of globalbusiness strategies. Thus, Greenwichis the Enterprise Solutions arm of thegroup.With an extensive range of IT solutions,Greenwich provides maximum ReturnOn Investment (ROI) with dedication,commitment, flexibility and by deliveringwithin the minimum response time. TheComputerHW and SW(PC House)Corporate &PublicRetailRegionalPCHSBUsSystemIntegration(Greenwich)BPO/ KPO(Procifinity)DealerNetworkGreenwich integrated solutions model isbuilt on the premise that all IT projectsare interrelated and that an individualtechnology decision made in one areaimpacts the overall performance of allother functional areas. The ultimatemeasure of a solution is the value itdelivers. By examining an enterprise’s ITinfrastructure using this holistic approach,Greenwich provides organisations withunique insights, tools, and procedures,as well as best-of-breed technology andportfolio management options.PCH’s other subsidiary Procifinity Limitedoperates in the BPO/KPO industry andis a BOI-approved organisation. Thecompany offers Financial and Accounting,Scanning, Indexing and Digitising,Software Development and Data EntryServices. Procifinity, the BPO and KPOarm of PCH, started its commercialoperations in the latter part of March 2011and hence will not feature in the financialanalysis in this section.Adding ValueAt PCH, we place customer satisfactionat the forefront of all our business pursuitsand every transaction is an attempttowards achieving and developing strongand sustainable relationships with oursuppliers and clients. Our efforts havebeen rewarded with countless customersrepeatedly meeting their ICT needs

25PC House PLCAnnual Report 2010-11through our products and services atthe best rates in the industry. We havebeen able to achieve this through thestrong bonds that we have createdbetween our suppliers and customers.We continuously strive to better ourvalue added services such as ICTequipment delivery, installation, serviceand maintenance, and possess yearsof expertise in ICT Consultancy to helpclientele to better align their IT to suit anybusiness environment.Quality PolicyBeing a well established service providerin the ICT industry, PCH is dedicated tosatisfying and delighting its customersby enhancing the level of reliability ofits products and services. In line withits quality policy, PCH is committed toenhance the skills of its employees bycontinuously offering training and careerguidance which would elevate the levelof service to its customers. Further,the Company follows the 5S and TQMmanagement systems in addition toadhering to ISO9001-2000, 14001-2001certifications to uplift service quality andorganisational efficiency.Strengths of PCHOver the years, PCH has built itscompetitive position as a leading ICTprovider in Sri Lanka by leveraging on thefollowing competitive strengths.●●Strong and LongstandingPartnerships with WorldRenowned IT Suppliers/BrandsPCH is associated with worldrenownedIT brands, enabling itto bring the latest technologicaldevelopments to the doorstep oflocal customers. Its wide distributionnetwork and the product portfolioenable it to satisfy the diverse ICTneeds of its customers.Deep Domain Knowledge ofProducts and ServicesPCH has developed a deepunderstanding and specialisation inproducts and services that it providesto customers as a result of its longstanding presence in the market.This deep domain knowledge has●●●●enabled the Company to reduce thetime taken for each activity and thecost involved in implementing itssolutions, thereby offering greatervalue addition to its customers.Strong and EffectiveIslandwide Branch NetworkPCH’s extensive distribution networkis spread across the country,covering every district in Sri Lanka,and facilitates the Company to reachits customers with minimum leadtimes whilst building an islandwideclient base.Staff ExpertisePCH is equipped with a wellexperienced, qualified and dedicatedteam of professionals possessingsharp business acumen in theirrespective fields. It is expectedthat their experience will enablethem to continue to take advantageof both current and future marketopportunities in the ICT industry andadd value to the Company and itsstakeholders.Financial StabilityRobust financial results of PCHhave continuously proven its strongperformance and quest to capitaliseon new investment opportunities.Over the years, it has maintainedconsistent margins together withstrong and stable cash flows.Warehousing FacilityPCH’s main warehouse whichexceeds 30,000 sq.ft. is located inMattakuliya, Colombo, whereasthe sub storage area located at theUnity Plaza premises in Colombois approximately 2,000 sq.ft. PCHalso possesses a storage facilityexceeding 3,000 sq.ft in Kandy tocater to the surrounding area andother outlets closer to Kandy. Inaddition, all the showrooms havea minimum 100 sq.ft for storagepurposes. All warehouse storagefacilities utilise latest bar-codingtechnology and web based inventorymanagement software developedin-house by Greenwich for efficientmanagement of stocks.Islandwide PresenceAmong PCH’s great strengths is itsregional presence. Business hubs havebeen strategically selected for maximumreach and islandwide presence.Presently, 20 branches island-wide and13 retail showrooms in Colombo caterto the home user, SOHO (Small OfficeHome Office), SMEs and Public Sectororganisations. Overall, the organisationcan offer services within 2 hours to almostall urban locations. Hence, our customersenjoy delivery, installation, breakdownand technical assistance with minimumlead time. PCH has restructured itsincome generating sources for maximummarket presence and just-in-time logisticsto maximum effect.Revenue AnalysisThe total revenue of the Group increasedby 25% during the year to Rs. 3.8billion, underpinned by a 28% growth inHardware and Software Revenue fromRs. 2.81 to Rs. 3.6 billion. This healthygrowth could be attributed to a numberof reasons, including the extremelyfavourable economic environment, PCH’ssuperior distribution network that extendsthroughout the country, the expansion inthe branch network during the year by 5additional branches, being competitiveon price due to excellent supplier networkand PCH’s state of the art supply chainmanagement system.During the year, the Group decided toundertake an extensive re-organisationin Greenwich, which entailed a strategicreview of the areas that needed focus andsignificant investment in personnel andtraining. As a result, the revenue from theSolutions business went down by 7% toRs. 209 million compared to the previousyear. The Group is seeing the benefitof this re-organisation and expects thatrevenue from Greenwich will more thandouble in 2011/12.

26PC House PLCAnnual Report 2010-11Management Discussion and Analysis Contd...Breakdown of revenue by SBURs. Mn.2,0001,5001,000500Revenue by SBU.2011Rs. Mn.2010Rs. Mn.Corporate & Public 1,574 1,256 25%Retail 1,190 903 32%Regional 824 652 26%Total (Hardware & Software) 3,587 2,810 28%Solutions 209 224 (7%)Group 3,796 3,034 25%%Operating Expenses0Rs. Mn.Corporate &Public20102011RetailRegionalOperating ExpensesSolutions2011Rs. Mn.2010Rs. Mn.Staff 141 110 28%Property 85 71 19%ICT 28 21 31%Selling and Distribution 48 32 52%Other 25 17 54%Group 327 251 30%%200150100500Staff20102011PropertyICTSelling andDistributionOtherWhilst total revenue increased by 25% toRs. 3.8 billion, total operating expenseswent up by 30% to Rs. 327 million.The increase in staff costs mainly reflectsthe expansion in the branch network by 6new branches during the year. Judiciouscost management kept the increase inproperty costs down to 19%. Increase inadvertising costs and sales commissionspaid caused the selling and distributioncosts to increase by 52%.Other costsincreased mainly due to the increasedcosts incurred to change and improvecorporate governance structures within theorganisation to reflect the organisation’stransition to a listed company.the same time, PCH was able to standout as one of the most price competitiveoperators in the market. This was mainlydue to the extremely close relationshipsmaintained with all its suppliers worldwide.These long-established relationshipswere leveraged upon to obtain favourablepricing on extremely attractive terms.This is one of the organisation’s primarystrengths.Trading operations posted a significant81% increase in Net Profit to Rs. 178million.The decrease in net profit inthe Solutions SBU was a result of theaforementioned conscious decisionmade by the management to reorganiseProfitabilityRs. Mn.Profitability12080400(40)2011Rs. Mn.2010Rs. Mn.Corporate & Public 100 61 63%Retail 45 21 113%Regional 33 16 109%(Total) Hardware & Software 178 98 81%Solutions 5 20 (76%)BPO (4) - -Group 179 119 50%%Corporate &Public20102011RetailRegionalSolutionsBPOPCH’s gross profit margins increasedmarginally despite a climate of fiercecompetition in the trading business. At

27PC House PLCAnnual Report 2010-11the business to enable it to reach its truepotential in the near future. The significantincreases in revenue experienced by thisbusiness in the last few months gives themanagement cause for real optimismabout its future. The Rs. 4 million lossesattributed to the BPO SBU reflects thecosts incurred in getting it ready forcommercial operations.Interest ExpenseSignificant savings were experiencedin interest costs and Interest chargesdeclined by 30% from Rs. 194.9 millionto Rs. 136.3 million, mainly due to thevery low interest rate environment thatprevailed throughout the financial year.environment exceedingly well. Most ofPCH’s present borrowings are relatedto its imports and are hence short-termin nature. The management expectsthe present low interest environmentto continue for the rest of this calendaryear.Growing Shareholder WealthThe Company is pleased to be able to paya dividend of 25 cents per share, whichwould result in a 29% dividend payoutratio for the year.2011Rs. Mn.2010Rs. Mn.AssetsFixed Assets 575 582 (1%)Inventory 1,113 391 185%Trade Recievables 771 427 80%Other Assets 219 302 (27%)Total Assets 2,677 1,702 57%Liabilities and EquityBorrowings and Overdraft 1,095 994 10%Other Liabilities 165 66 149%Equity 1,417 642 121%Total Liabilities and Equity 2,677 1,702 57%%Bright Future ProspectsThe Company is taking steps to maintainits current gross profit margin in spite of afiercely competitive marketplace. Further,steps are being taken to drive greaterefficiency derived from state-of-thearttechnology delivered by top qualitymotivated professional staff to ensure thatthe Company’s cost to income ratio is alsobrought down. All the above performanceindicators augur well for PCH in 2011/12– making it an excellent year to lookforward to for our core Hardware andSoftware trading business.Greenwich Poised for RevenueGrowthThe efforts taken to invest in reorganisingGreenwich are expected to deliver goodresults, with the Solutions businessrevenue expected to more than double in2011/12.Exciting Future for ProcifinityLastly, the BPO business is expectedto grow significantly over the next fewmonths. The Company is optimisticthat it will shortly be able to make someexciting announcements about impendingdevelopments at Procifinity in relation tothe BPO industry.The most notable aspects on the assetsside are the substantial increases inInventory and Trade Receivables of 185%to Rs. 1.1 billion and 80% to Rs. 771 millionrespectively. The increase in inventory is adirect corollary of the improved revenuesin all three trading SBUs. Perhaps, oneof the greatest achievements of the PCHmanagement has been to successfullymanage inventory levels with little or nowrite-offs as a result of obsolescence inthis fast-evolving industry.In a bid to minimise delays and defaultingof payment, timely collection of debtsreceives stringent attention at PCH, alongwith monthly reporting to the Board.Leveraging on Low InterestRatesTreasury Management is another areathat receives close attention from themanagement and the Board. PCH hastaken advantage of the low interestPCH’s Future ForecastVisionary Foresight DeliversResultsRevenues in the trading business, whichhave been growing monthly, are set tocontinue in the same vein. The Companyplans to further expand its branchnetwork in the financial year 2011/12. TheFounder Chairman’s foresight in focusingon developing a good distributionsystem over the years is now paying richdividends. PCH continued to invest instrengthening its network despite manycompetitors closing down businesses dueto difficult economic conditions during thewar. In fact, PCH has paved the way fornew entrants, offering an insight into theCompany’s cutting-edge advantage.

28PC House PLCAnnual Report 2010-11Radical Innovations toEmpower Health SectorThe government has a visionof radically improving theefficiency and productivityof the nation’s hospitalsand have taken the initiativeto set up next generationhealthcare. PCH was awardedthe first project in this arenaand successfully formulatedsystems that will not onlyspeed up operations in thehospitals but also reduceerrors, increase productivityand optimise expenses,potentially benefiting millionsof patients annually. PCH isproud to be a key partner inassisting the governmentto improve efficiency in thehealth sector.

29PC House PLCAnnual Report 2010-11

30PC House PLCAnnual Report 2010-11Product and Service Portfolio Offered by PCHPC House PLCPC House PLC in partnership with leadingbrands offers a multitude of diversehardware and software solutions whichcater to various customer needs.Branded Personal Computers(PCs), Notebooks and ServersBranded PCs, Notebooks and Serversoffered by PCH mainly comprise of thebrand Dell. Dell PCs are characterised bymore secure and durable designs, whichinclude higher memory and storagecapacity. Dell Vostro, Dell OptiPlex andDell Precision are the main range of DellPCs currently being marketed by PCHcatering to various business needs. TheDell notebook range offered by PCH isof high quality and performance and isdesigned to simplify IT management andreduce costs. Dell “Power Edge” serversinclude Tower Servers, Rack Serversand Blade Servers which are offered tosuit the requirements of small businessesand enterprise class data centers.PCH also offers the unique EquallogicStorage Solution to its clients giving vastadvantages in cost and scalability. Thelatest addition to the range of Serversis the Cisco Unified Computing Serverrange an industry leading video and voicecommunications solution that is gainingmomentum world-wide. PCH offers a widerange of Cisco products and networkingsolutions designed for Enterprises andSMB segment. Cisco’s innovation todrive the x86 Servers built on DataCenter Architecture and Virtualizationenvironment is a key area of focus.Printers and Multifunction DevicesPCH in collaboration with one of theworld’s best brands, Samsung, offers highquality network printers and multifunctiondevices which enable its clientele tomanage printing more effectively. PCH’sextensive range of printers includemonochrome laser, colour laser, multifunction printers (print/copy/scan/fax) anddot matrix printers.Office Automation ProductsPCH offers a durable and easymaintainance office automation productportfolio ranging from basic copiersto high-tech, heavy duty multifunctiondevices for the enterprise environment.Kyocera is amongst the leading brandsof copiers marketed by PCH. Heavy dutymultifunction copiers (print/copy/scan/fax) and colour multifunctional devices(print/copy/scan/fax in colour format),cash counters, laminating machinesand binders etc. are amongst the newproducts marketed by PCH.Audio Visual ProductsPCH offers a range of audio visual productsincluding multipurpose projectors andvideo conferencing devices. Projectorsinclude the Optoma brand which produceshigh quality images with high resolutionsand user friendly features that suits therequirements of businesses as well as foreducational purposes.Assembled PCs, PC Components,Accessories and Network andCommunication DevicesPCH is actively involved in assemblingPCs and trading of various types of PCcomponents such as hard disk drivers,processors, RAM (Random AccessMemory), keyboards, motherboards,speaker systems, mouse, LCD (LiquidCrystal Display) monitors, optical drivers,etc. catering to the requirements ofvarying customer segments. PCH isalso into marketing of accessories suchas webcams, adapters, cables, portablestorage devices, gaming equipment,portable music players, etc. Network andcommunication devices that are suppliedby PCH include wired and wirelessnetwork and communication devicessuch as modems, routers, hubs, switchesand bridges.Power Protection SystemsPCH provides power protection solutionsto both households and corporate clients.The power protection solutions include awide range of line interactive and onlineUPS (Uninterrupted Power Supply)

31PC House PLCAnnual Report 2010-11systems ranging from 650VA up to moresophisticated power systems such as100kVA that are suitable for a gamut ofvarious power needs.Operating Systems, ProductivitySoftware and Antivirus SoftwareIn addition to the abovementionedhardware solutions, PCH offers an array ofsoftware including Microsoft applicationsranging from basic operating systems tocomplex server operating systems withmodern technology to facilitate betterdeployment of corporate resources.Microsoft Windows Vista, Microsoft Office2007 and Microsoft Servers (MicrosoftServer 2003/2008, Microsoft Exchange2007, Microsoft Internet Security andAcceleration Server 2006, etc.) aresome of the operating systems softwarecurrently offered by PCH. PCH alsosupplies BitDefender, one of the mosteffective lines of internationally certifiedsecurity software to cater for servers,desktops and mobile computing whichconfer reliability and fast response timeto new electronic threats. This antivirussoftware could be configured to integrateperfectly with software applications.Portfolio, Trading and RiskManagement SystemsPCH takes its expertise to the nextlevel by introducing Misys SophisPortfolio Management System to localorganisations. The System includes 3packages, iSophis - a powerful solutionthat provides integrated portfolio andand risk management services through asimple ASP model, Misys Sophis Value -which includes investment management,risk management, middle/back officeand accounting and Misys SophisRisque - is a cross-asset portfolio andrisk management solution that enablesinvestment banks to implement trueStraight Through Processing all alongtheir trading activity.Mobile Handset and OtherCommunication DevicesThe latest addition to the PCH productportfolio - mobile handsets has shownrapid growth since its launch inSeptember 2010. PCH markets KarbonnMobile handsets, an Indian brand withthe objective to tap the vast Value forMoney customer segment. Presentlyover 100,000 unbranded mobiles are soldannually island-wide and PCH looks toconvert a large potion of this towards itsmodern, feature-full range of multimediaphones. Sri Lanka is also witnessing ahigh growth in number of Dual Sim usersand PCH has successfully positionedKarbonn Dual Sim Mobiles to suit theneeds of the consumers. In the nearfuture the company will be adding arange of brands and related products toits portfolio.ServicesIn addition to hardware and software,engineering services are also offered to itsretail and corporate clientele through theengineering division of PCH. The serviceportfolio of the division consists of annualmaintenance contracts, networkingsolutions, security and antivirus solutions,ICT equipment upgrade, ICT solutions,internet related services, data backup,storage backup and data recovery. Thedivision is operated by a well trained staff,who are geared to serve the growingclientele. Through this division customersenjoy after sales services such as repairs,advising on upgrades and matchingspecifications to requirements. PCH isplanning to extend services through aResearch and Development (R&D) teamin order to meet customer requirementsmore comprehensively in the future.Greenwich Lanka PrivateLimitedGreenwich is the enterprise solutionsarm of the PCH Group, encompassingthe functions of Business Applications,Enterprise Systems Integration andInfrastructure Solutions, thereby extendinggroup expertise and competencies.Greenwich SolutionsGreenwich was set up with the aimof becoming a physical infrastructuresolutions provider, offering a rangeof services including Access Control,Time & Attendance, Payroll Systems,

32PC House PLCAnnual Report 2010-11Product and Service Portfolio Offered by PCH Contd...Barcode Reading, Physical Security andSurveillance, HRM Solutions and so on.The company’s unique offering is its abilityto customize solutions to fit customerrequirements suitably. Greenwich beginsconsulting from the customer’s standpointand blends a wealth of expertise,knowledge, skill and professionalismgained over the years, in tandem withstrategic global technological alliances,to enable and empower clients to realisetheir specific business and technologicalneeds.Key Outsourcing Services Offered● Finance and Accounting● Archiving – Scanning and Indexing● Managed Services – e.g. datacenters, disaster recovery sites● Development of Software● Data Conversion● Data Entry● Related Consultancy – e.g. reengineering,end to end solutions● Related IT Enabled Services● EscrowRealising that the dynamic nature oftechnology impacts business situations ofclients differently, Greenwich engendersbest practices and disciplines withincustomers’ organisation to ensure thatthe company not only keeps pace withtechnology but also addresses theirwants. The following practice areas arethe core building blocks of the soughtafterGreenwich solution, and constitutethe service portfolio on which Salesand Marketing, Engineering and Projectmanagement services by Greenwich willleverage:● Microsoft Services & Compliance● Virtualisation & Storage● Software Development● Software Quality Assurance● Business Intelligence● HRM Solutions● SAGE ERP Services & Compliance● Unified Communications● Physical Infrastructure● Network Communications &Information Security● Annual Maintenance SLAsProcifinity LimitedProcifinity Limited specialises in offeringtailor made outsourcing solutionscustomized to reflect accuracy, qualityand integrity with regard to all parties anddata concerned.

33PC House PLCAnnual Report 2010-11PCH Partner BrandsGreenwich Partner BrandsPCH partners with the best of brands from around the world in each product category to bring the best in technology to itscustomers and the nation.

34PC House PLCAnnual Report 2010-11

35PC House PLCAnnual Report 2010-11Radical GovernancePCH assists in StreamliningPublic AdministrationIf a developing countryis to accelerate itsgrowth rate, it needs toleverage on the benefitsof ICT. The governmenthas initiated projects tofacilitate this and PCH,once again is proud to beinvolved in helping SriLanka progress towards acentralized identificationsystem, where all datarelating to an individualwill be centrally stored.

36PC House PLCAnnual Report 2010-11Risk ManagementIn this report, we detail all the risksthat we believe affect our business andexplain how we mitigate and managethese potential risks in the best possiblemanner.Risks Relating to Political,Technological andMacroeconomic FactorsPolitical and Economic RisksThe Company’s business and financialperformance could be affected by politicalinstability in the country and the region,which could reduce the economic growthof the country and, consequently, thedemand for ICT-related products/servicesand infrastructure. Although this is a riskthat all businesses have to take intoaccount, PCH foresees a peaceful andstable political future for the country,backed by economic policies that willstimulate economic activity and enhancethe country’s growth rate.Furthermore, disposable incomes ofindividuals and earnings of corporateswould affect the businesses of PCH, sinceaffordability of ICT products/serviceslargely depend upon the income levels ofindividuals and corporates. However, thestrong growth evident in the country pointsto accelerated overall economic growth inthe country, leading to the creation of jobsand greater cash flow. The anticipatedimprovement in disposable income isfurther supported by per-capita incomegrowth estimates, projected to grow toUS$ 4,470 by 2016.Since import costs of PCH arepredominantly transacted in USD,exchange rate fluctuations may have animpact on pricing of products/servicesand, thereby, on the financial results. ATreasury Division, whose responsibilitiesinclude the management of currencyfluctuations, has been set in place.Furthermore, considering the currenteconomic conditions such as improvedreserve position of the Central Bank ofSri Lanka (CBSL), International MonetaryFund (IMF) loans and expected ForeignDirect Investments (FDIs), the Rupee maybe strengthened in the future- resulting ina possible reduction in the import costs.PCH currently has a significant amount ofboth short term debt and long term debtto finance its working capital requirement.An increase in interest rates in the futurewould increase the interest payable byPCH, affecting its profitability adversely.Any additional borrowings by thecompany to finance its existing businessoperations and potential new businesswould further expose the company tothe risk of an increase in interest ratesin the future. This risk is controlled andmitigated through very active and robustTreasury Management proceduresthat are reviewed and approved by theBoard.Technological obsolescenceTechnological obsolescence couldadversely affect companies operatingin the ICT sector, due to the rapidtechnological advancements, renderingexisting inventories obsolete. However,PCH, having been in the industry formore than a decade, has masteredthe inventory process to carry outuninterrupted operations while copingwith the technological changes ofproducts and services that PCH offers,thereby mitigating any potential adverseimpact due to technological obsolescenceon PCH. Also, any major changes intechnology would be known in the marketover for some time, especially during thetesting period. This period allows PCHadequate time to adjust its inventory levelsand reduce the risk of obsolescence.Low IT literacySri Lanka’s computer literacy rate standsat just above 20% - according to a surveyconducted by the Department of Censusand Statistics in 2009. The envisaged riskis that the current level of computer literacycould stagnate at these levels withoutany progress. The present low level ofcomputer literacy in Sri Lanka signifiesenormous scope for improvement. TheGovernment has identified this potentialas one of its top priorities and has alreadyinitiated programmes to raise awarenessand increase the computer literacy rate.It is expected that the current level ofcomputer literacy would increase toapproximately 50% by the end of year2015. This would directly help computerpenetration levels to improve in the future- from the prevailing low penetration levelof 5%- benefiting companies such asPCH in the future.ICT Infrastructure: Availability ofConnectivity/Speed affecting BPOand IDC operationsReliable connectivity and consistenthigh data speeds are critical to theenvisaged BPO and IDC operationsof PCH. Interruptions to those wouldnegatively affect customer satisfactionand in turn the business, in terms of lossof potential as well as existing clientele.However, PCH as an ICT company thathas achieved benchmark company statuswill always equip itself with state-of-thearttechnologies and concepts such asbackup time and disaster recovery inorder to provide continual and reliableservices to its valued customers.Changes in the ICT sectorregulationsThe operations of PCH may be sensitiveto any changes in the ICT sectorregulations imposed by the Government.The Company does not envisage anychanges in the near future which mayhave any adverse material effect onits business prospects and results ofoperations.Duty structures on importsThe government could alter/introduceduties on imported computer hardwareand software that may affect theoperations of PCH adversely. However,given the emphasis on the sector by thegovernment and lack of local supplies, theCompany does not foresee any changein the existing very low duty structuresthat may have an adverse impact on theoperations of the business.Risks Relating to the Company’sBusinessStaff RetentionPCH presently possesses a skilledand well-experienced team, driving itsoperations successfully. There is a riskof PCH losing its key personnel in themedium to long term. However, PCH

37PC House PLCAnnual Report 2010-11has introduced adequate HR initiativestowards empowering and retaining its keypersonnel by offering relevant training,attractive remuneration and other fringebenefits. In addition, a second layer ofskilled personnel is being developedin order to reduce the risk of losing theexisting key personnel.Supply of IT personnelAt present, there is high level of demandfor qualified and skilled IT professionalsin the industry. Supply of skilled ITprofessionals to PCH is critical for thesmooth functioning of the business.The Company is continuously lookingfor talented young professionals tobecome part of its skilled workforce.PCH usually sources its professionalsthrough IT faculties in state-run and otheruniversities. It is noteworthy that thegovernment has been steadily increasingthe student intake into state universitiesfor IT-related programmes year-onyear,with the expectation of catering tothe expected demand by the ICT sectorof Sri Lanka in the future. Hence, it isbelieved that it would not be difficult forPCH to source the level of professionalswith required skills in order to facilitatethe smooth operation of its businessactivities.Dependence on third party vendorsIn the normal course of business, PCHenters into contracts with its clientele whomay require or depend on supplies ofproducts and/or services from third partyvendors. Delivery of defective suppliesand delays by such third party vendorscould adversely affect the business andthe reputation of PCH and its operations.However, PCH, which has been in thebusiness for a substantial period of time,is confident and has been careful enoughto source its supplies from reputed globalplayers who are capable of providing therequired quality standards in a timelymanner. In the event of any potentialmonetary loss arising out of such deliveryof defective supplies and delays couldbe indemnified through the warrantiesgranted by the global suppliers, thusminimising the risk to PCH.Risks related to competition inthe ICT sectorThe retail and regional segments in theIT infrastructure business, which catersto the price sensitive retail clientele, ishighly competitive, mainly as a result ofa large number of small players operatingin the market due to the low barriers toentry. However, due to its stability andconsistent delivery, the Company hasbeen successful in this business formore than 13 years - making PCH oneof the most sought after suppliers inthis segment. With its current level ofoperations and the strong balance sheetto support a business of this nature, PCHis confident about facing any competitionthat may emerge in the future. In addition,the Company is of the view that theeconomies of scale currently enjoyedby PCH (through its 13 retail outlets),geographical diversification (through the20 regional branches) and the streamlinedafter sales service capabilities, whichare its major strengths compared tosome of the other smaller players in themarket, would enable it to overcome anycompetition effectively. Furthermore,considering the level of IT penetration inthe country, the Company is of the viewthat there would be adequate space formore players to establish themselvesin the market. Hence, it is believed thatthe risk of competition in the retail andregional segments is reduced to a greaterextent.The corporate and public segments of theICT market is more concerned about thecredentials, quality of service and aftersales support offered by the suppliers.Large projects are generally offered basedon a tender process for public sectorand a bidding process for corporates.A considerable level of competitionis imposed by the established largeplayers possessing superior financial,technological and marketing strength.PCH, as an established player in thissegment, has confronted the competitionsuccessfully in recent years and isconfident of doing the same in the futureas well. In addition, subsequent to PCHbecoming a listed entity, the Companyis enjoying better brand visibility andacceptance compared to the competitors,which it has successfully leveraged inthese segments.Security risks related tocomputer systemsSecurity risks related to computersystems are a major concern for PCHin the IT sector. The security risksconcerning PCH’s operations are mainlytwo-fold:security risks related to internalcomputer systems and security risksrelated to computer systems implementedby PCH for its clients.●Security risks related to internalcomputer systemsBreach of security in the internal computersystems would result in a loss/modificationof confidential information adverselyimpacting the operations of PCH. However,PCH has implemented the necessaryfirewalls and upto-date antivirus softwarefor all its internal computer systems andapplications in order to protect the samefrom any unforeseen eventualities. Also,PCH has adopted adequate systemsand taken steps to educate all itsemployees,enforcing certain restrictionswith regard to the use of the Company’sIT infrastructure.●Security risks related to computersystems implemented by PCH forits clientsBreach of security in computer systemsimplemented by PCH for its clientswould result in tarnishing of brandimage, payment of damages and lack ofconfidence, which would be detrimentalto future business activities of PCH. Inmost instances, PCH would enter into anagreement with its clients, highlighting theclients’ responsibility and the obligation toprotect systems as well as information ina bid to minimise the undue risks to PCH.However, not relying on these agreementsalone, PCH is aware of its obligations andis well experienced in designing systemsand implementing appropriate controlmechanisms through a dedicated team ofprofessionals to avoid/mitigate potentialrisk of breach of security.

38PC House PLCAnnual Report 2010-11Risk Management Contd...Risk related to Intellectual Property Rights(IPR) violationsPCH’s operations include sale of softwareand customising of off-the-shelf opensource software catering to particularrequirements of customers. PCH is notinvolved in any form of illegal copyingof software and has implementedstrict control procedures to prevent itsemployees from carrying out any suchactivities. All the software sold by PCHis original software obtained from globalvendors and hence the risk of any IPRviolations are minimisedNatural DisastersDespite all the precautionary measuresundertaken by the Company to safeguardand protect its systems and businessoperations, vulnerability to natural andmanmade disasters always exist. TheCompany has obtained the requiredinsurance covers to mitigate the risks ofdamage to property and any businessinterruptions caused by such disasters,thereby ensuring business continuity.Risk relating to accounting policychangesThe Company and its subsidiaries may,from time to time, consider changes toaccounting policies and methods as andwhen deemed appropriate. This in turnmay have an impact on the recognition ofincome, expenses, assets and liabilitiesin the respective financial statements.As a result, the earnings and net assetvalue of the Company could be affected,especially in the year of such changescoming into effect.Credit RiskThe non-collection of debts could havea material impact on the financial resultsof the Group. The bulk of the Group’sbusiness is conducted on a cash basis. Incases where credit is extended, mainly todistributors and the public and corporatesectors, a comprehensive credit appraisaland approval process is in place. Specialemphasis is placed on ensuring that alldebts are collected on a timely basis.Age analyses of debtors are producedand monitored on an ongoing basisand reported to the Board on a monthlybasis.

39PC House PLCAnnual Report 2010-11Corporate GovernancePCH remains committed to the higheststandards of integrity, ethical values andprofessionalism in all its activities. Theprocess of strengthening our CorporateGovernance systems commenced mid-2009 in anticipation of our proposed InitialPublic Offering (IPO) in (August)2010.Ourendeavour is to continue strengtheningour Corporate Governance structure,which we consider to be the system bywhich we are directed and controlled,thereby, ensuring regulatory complianceand accountability. Corporate Governancehas been institutionalised at all levelsin the Group through a strong set ofcorporate values which are adhered toby the Senior Management and Boardof Directors in the performance of theirofficial duties and in other circumstanceswhich could affect the Group image. Thefollowing report sets out the steps takenby PCH in complying with principles andprovisions of the Code of Best Practiceson Corporate Governance.Board of DirectorsThe Group is led and controlled by avery professional Board who are highlyexperienced and possess a wide rangeof expertise as set out on pages 14 and15. The Board currently consists of 7members comprising of:●●●●4 Non-Executive Directors1 Non-Executive IndependentDirector1 Senior Non-ExecutiveIndependent Director1 Executive Director, who is theChairman and Chief ExecutiveOfficerThe Board meets monthly. A broadoutline of the Board’s functions and how itoperates is given below:●●●●●Establishes strategic direction.Reviews and approves all businessplans.Reviews operational issues.Approves interim and full yearfinancial statements and annualbudgets.Reviews profitability and liquidityforecasts and monthly managementaccounts●●●●Provides advice and guidelines toSenior Managers through the CEO.Provides and circulates timely andperiodic reports to shareholders.Sanctions major investments.Adopts annual and interim reportsbefore they are published.Ultimately, the Board is responsible forthe Group’s financial performance.The Company Secretaries areresponsible for ensuring that Boardprocedures are followed and that allDirectors have access to the CompanySecretaries, Seccom (Pvt) Ltd, 1E – 2/1,De Fonseka Place, Colombo 05. TheSecretaries provide support to the Boardon all corporate governance matters andfacilitate compliance with applicable rulesand regulations.All Directors have received appropriatetraining relevant to their experience andposition within the Company.Composition of the BoardName of DirectorMr. S.H.M. RishanMrs. S. Rishan(Alternate, Mr. Mushtaq Ikram)Mr. Mangala BoyagodaMr. Sarath WikramanayakeMr. Modarage ThilakasiriMr. Kuvera de ZoysaMr. Shanti NadarajahBoard BalanceWith the success of the IPO, the PCHGroup went from being a privately-heldentity, where the founding Chairman, Mr.Rishan and Mrs. Rishan owned 100% ofcompany shares, to a listed company with25% of its shares now being held by thepublic. Given the key role that Mr. Rishanhad played in the enormous success ofthe Group, it was unanimously agreedby the Board that in order to ensure theGroup’s continued success, it was vitalfor Mr. Rishan to continue to be the ChiefExecutive Officer in addition to beingChairman.As a result PCH has appointed a SeniorNon Executive Director in adherence tothe Code of Ethics of the Colombo StockExchange.Directors are provided with monthlyreports of performance and minutes ofthe Board Meetings and are given thespecific documentation necessary, inadvance of such meetings.The Chairman ensures all Directors areadequately briefed on issues arising atmeetings.CapacityChairman and Chief Executive OfficerNon Executive DirectorNon Executive DirectorNon Executive DirectorNon Executive DirectorSenior Independent Non Executive DirectorIndependent Non Executive Director

40PC House PLCAnnual Report 2010-11Corporate Governance Contd...Frequency of Board MeetingsTotal Number of 10 Board Meetings has been held for the financial year ending 31st March 2011 and Directors attendance is shownbelow.Name of DirectorMeeting Attendance1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10thMr. S.H.M. Rishan Y Y Y Y Y Y Y Y Y YMrs. S. Rishan (Alternate, Mr. Mushtaq Ikram) Y Y Y Y Y Y Y Y Y YMr. Mangala Boyagoda Y Y Y Y N Y Y Y Y YMr. Sarath Wikramanayake Y Y Y Y Y Y Y Y Y YMr. Kuvera de Zoysa Y Y Y Y N Y Y Y Y YMr. Modarage Thilakasiri Y Y Y Y Y Y Y Y Y YMr. Shanti Kumar Nadarajah Y Y Y Y Y Y Y Y Y YProcedure for Directors toObtain Professional Advice andFinancial AcumenThe Directors obtain independent andprofessional advice whenever neededwith regard to decision-making to performtheir duties to the fullest.The Board includes a Senior CharteredAccountant and a leading consultant inthe Financial Services field who possessthe necessary knowledge to offer theBoard guidance on matters of finance.Board CommitteesThe Board has delegated some of itsfunctions to Board Committees whileretaining final decision rights pertainingto matters under the purview of thesecommittees. The composition of thecommittees are as follows:Board Audit Committee● 1 Non-Executive IndependentDirector●BoardBoard Remuneration Committee● 1 Non-Executive IndependentDirector●1 Senior Non-Executive IndependentDirector● 1 Non-Executive Director ● 1 Non-Executive DirectorAudit CommitteeThe Group’s Chairman/CEO, the GroupChief Financial Officer, the ExternalAuditors’ representative and the GroupInternal Auditor join the meetings of thecommittee by invitation by its members.The following is a checklist of theresponsibilities and duties of the AuditCommittee:Financial Reporting● Review the financial statementsand the annual report in order tomonitor the integrity of the financialstatements● Review and recommend thequarterly financial statements forpublication purposes● Make recommendations on theapplication of relevant accountingstandards● Obtain representations fromthe management that adequateprovisions have been made for allpossible liabilities● Review financial statements toensure preparation, presentationand adequacy of disclosures, inaccordance with SLAS, CompaniesAct, CSE Listing Rules and SECrequirements●1 Senior Non-Executive IndependentDirectorAssess the company’s ability tocontinue as a going concern, in theforeseeable futureInternal Controls● Review the External Auditor’smanagement letter and managementresponses● Ensure that the company’s internalcontrols and risk managementprocedures are adequate to meetthe requirements of the SLASInternal Audit● Review and approve the InternalAudit Plan● Review and assess the performanceof the Internal Audit department● Review the structure resourcesand functions of the Internal Auditdepartment and ensure that it isindependent of the activities itaudits● Recommend any appointment andtermination of the Head of InternalAudit and outsourced serviceproviders to the Internal AuditdepartmentExternal Auditors● Make recommendations on theappointment of the External Auditorsincluding audit fees● Review and monitor the ExternalAuditor’s independence andobjectivityCommunications● Review the BAC terms of referenceannually, or as and when the needarises● Meet separately with the Head ofInternal Audit and External Auditorswithout key management to discussany concerns, reservations andrestrictions arising during audits● Ensure the details of the BAC’sactivities are properly disclosed inthe annual report, including details ofattendance of committee members● Regular reporting to Board ofDirectors through the circulation ofBAC minutes

41PC House PLCAnnual Report 2010-11Total Number of 3 Board Audit CommitteeMeetings has been held for the financialyear ending 31st March 2011 andDirectors attendance is shown below.Name of DirectorAttendance1st Meeting 2nd Meeting 3rd MeetingMr. Sarath Wikramanayake, Chairman Y Y YMr. Kuvera de Zoysa Y Y YMr. Shanti Nadarajah Y Y YThe Audit Committee report is given onpage 58.Board Remuneration CommitteeThe Board Remuneration Committee,which met regularly during the periodunder review comprises of one NonExecutive Director, one Senior Non-Executive Independent Director and oneNon-Executive Independent Director.The Remuneration Committee isresponsible for setting up the remunerationpolicy and making recommendations tothe Boards on;● Remuneration framework and levelsof the Senior Management● Senior Management performanceand equity-based remunerationplans including performanceincentives and hurdles● Remuneration of Executive Director● Human Resource PolicyTotal Number of 2 Board RemunerationCommittee Meetings has been held forthe financial year ending 31st March2011. The Directors’ attendance is shownbelow.Name of DirectorAttendance1st Meeting 2nd MeetingMr. Modarage Thilakasiri, Chairman Y YMr. Kuvera de Zoysa Y YMr. Shanti Nadarajah Y YThe detailed Remuneration CommitteeReport is given on page 59 of the AnnualReport.Group Executive CommitteeThe day-to-day affairs of the Groupare carried out by the Group ExecutiveCommittee chaired by the Chairman/CEO and consisting of Subsidiary,Divisional and Departmental Heads. TheGroup Executive Committee meets everyweek to review Corporate, Divisionaland Departmental performances againstpredetermined Annual Business Plansand Budgets.This Committee formulates strategy,business plans and budgets and seeksBoard approval for these plans andstrategies and implements them within thepolicy framework, which demands bestpractice in dealing with stakeholders.Another major focus of this Committeeis the constant search for productivityenhancements, process improvementsand cost efficiencies within a frameworkof better teamwork.Shareholder ValueThe Board views its primary role is toenhance value for shareholders, whoare responsible for building this winningorganisation. The Board also recognisesthe vital need to enhance and optimise theneeds of all other stakeholders, includingcustomers, employees, partners,suppliers, banks and other institutions,and the community in attaining its primaryrole of enhancing shareholder value.Report to the Shareholders andPublicThe Board considers the Annual GeneralMeeting as a prime opportunity tocommunicate with shareholders, andencourages their participation.The Group published and circulatedQuarterly Accounts in a timely manneras its principal communications withshareholders and others. This enables thestakeholders to make a rational judgmentof the Company.Going ConcernThe Board of Directors, after reviewingthe financial position and the cash flowof the Company, are of the belief thatthe Company has adequate resourcesto continue operation well into theforeseeable future. Therefore, the Boardadopts the going concern basis inpreparing financial statements.AccountabilityThe Board places greater emphasison complete disclosure of Groupfinancial information within the boundsof commercial reality and has takennecessary steps to ensure the integrityof the Group’s accounting and financialreporting systems and internal controlsystems and also reviewed and monitoredthe same on a periodic basis.Ethical StandardsIt is our policy to conduct the affairs of ourGroup to the highest standard of ethics.This policy has been communicated toall our employees and we ensure theirconduct is based on such values. Wecompete for business only on the basis ofquality, price and service to customers.Compliance with LegalRequirementsThe Board is conscious of its responsibilityto the shareholders, the governmentand the society in which it operates andis committed to upholding the higheststandards of ethical behavior in conductingits business. The Board via the Groupoperating structures strives to ensure thatthe Company and all of its subsidiariescomply with the laws and regulations ofthe countries in which they operate.

42PC House PLCAnnual Report 2010-11Corporate Governance Contd...Corporate Social ResponsibilityRights and claims of StakeholderGroups such as employees, consumers,clients, partners, suppliers, creditors, thegovernment and the community at largeare also considered important, apart fromthe Company’s shareholders.We believe that in the long term we cansustain our profitability and growth onlyby taking into consideration how ourbusiness decisions affect the society weoperate in.The Group acknowledges the issuesfacing the environment and makes everyeffort to adopt a responsible attitude whilstmeeting all of its business objectives. TheGroup’s policy is to recycle waste materialand conserve water and energy whereverpossible.A full report on how we deliver on ourCorporate Social Responsibility is givenon pages 47 to 49 of this Annual Report.Self Governance Practices bythe CompanyThe New rules of Corporate Governanceand disclosure requirements for listedcompanies, as mandated by the SecuritiesExchange Commission of Sri Lanka andalso in the requirements of the listingrules of the Colombo Stock Exchange arecomplied with.

43PC House PLCAnnual Report 2010-119 to 9 – A right dealat the right timePCH, while setting the benchmark in the IT industry, has also created a novel conceptin establishing an IT supermarket at the head office premises. Identifying a gap in themarket that caters to accessibility and variety, the store has large show room space,housing many brands and is open 365 days from 9 am to 9 pm. Providing an outletfor those who would purchase their tech needs after work and during holidays, PCHhas created a space in which all IT needs are fulfilled at the customer’s convenienceand the results have been extremely good with positive feedback on the products andservices provided at this location.

44PC House PLCAnnual Report 2010-11Increasing IT literacyPCH played a pivotal role in various government projects to deploy over 6,000 school ITlabs and ‘Nenasalas’ islandwide. PCH has also implemented many higher education ICTprojects - installing servers, software, Local Area Networks, and cabling and configuringentire university labs in many leading national universities. Over the past year, PCH hassupplied its products and services to Sabaragamuwa, Wayamba and Rajarata universitiesamongst others. SEMP (Secondary Education Modernisation Project), SEMP II and EKSP(Education for Knowledge Society Project) are some of the education ministry projectsthat PCH has played leading roles in commissioning successfully.

45PC House PLCAnnual Report 2010-11A complete hospitalmanagement systemPCH is nearing completion of a turnkey Hospital Management System at the SriJayewardenapura Hospital. This will be the first governmental hospital to install anERP system that will enable the hospital to store and manage all necessary datafrom the moment a patient enters the hospital till she/he receives medication and isdischarged. In addition, the hospital can be better managed through the proposed HRM(Human Resource Management) Software, Accounting and Administration applicationsby reducing time and money spent on traditional means. Hardware, software andintegration requirements of the project are completely handled by PCH.

46PC House PLCAnnual Report 2010-11Digitising a nationPCH together with the Ministry of Public Administration to facilitate the nation’s progress toachieve e-Governance - ‘eBMD’ (Electronic Birth, Marriage & Death Certificate) Project. Theproject involves scanning, indexing and digitising Birth, Marriage and Death Certificates ofall nationals. PCH has scanned, digitised and indexed Birth, Marriage and Death certificatesof over 9 million people, spanning 11 District Secretariats and 57 Divisional Secretariatsincluding the North and East. As a result, Sri Lankans can obtain original certified copies oftheir birth marriage or death certificates over the counter.

47PC House PLCAnnual Report 2010-11Sustainability ReportCORPORATE SOCIALRESPONSIBILITY“Our sustainability philosophy is tobecome a responsible and highly regardedcorporate citizen in Sri Lanka.”We have given extensive thought tothe impact of our business operationson all stakeholders in developing oursustainability strategy. As a result of theinspirational faith placed in us by ourstakeholders, the company has embraceda genuine culture of ‘Doing the right thing’by all its stakeholders. Our commitmentto our corporate responsibility extendsto every stakeholder within our ambit,including customers and society.As the leading corporate entity in thecountry’s IT industry, PCH has sought toexpand and strengthen its reputation as aresponsible corporate citizen that servesthe society in a meaningful manner. Thegroup has set out a sustainable CSRpolicy that delves into both the internaland external aspects of CSR in themanner befitting a responsible corporate.Transparency and ethical dealings are thepillar of our good governance policy. OurCSR philosophy has been distilled afterclose consultations with our employeesto ensure that every single team memberis committed to our social objectives asmuch as they are to achieving financialtargets. As a result, PCH staff is deeplyengaged in all our social initiatives andfrequently volunteer to raise funds oreven donate a portion of their salaryfor community projects that they arepassionate about.Our Approach1. To attain transparency in all businessaspects: Transparency follows as anatural corollary in all aspects of ourdealings, since PCH as a businessentity adheres to social and ethicalbest practices in all our transactions.Responsible organisations globallyare widening their transparencyand accountability objectives ascustomers are increasingly evincinginterest to collaborate only withresponsible organisations.2. Good business rules drive improvedpositive customer perception: Byadopting a genuine culture of ‘Doingthe right thing’ which percolatesto every layer in the company,our employees feel good aboutthemselves and the organisationthey work for. This confidenceempowers them to become‘ambassadors’ for the company,extending care and respect to allour other stakeholders, who in turndevelop a lasting admiration for thecompany and its staff.3. Make existing staff feel good byinvolving them in a culture of‘giving’: pay-roll donations, fundraising activities and communityvolunteering. By engendering aculture of sharing and giving tothe less fortunate in society, PCHhas strengthened and promotedemotional bonding amongst staff asthey participate selflessly in a widevariety of community projects thatare benefitted by their largesse.4. Brand differentiation: Over time, wehave discovered that many of ourCSR projects are creating a distinctperception of PCH in the minds ofour customers and partners. Thisrevelation has boosted furtherinvestment in significant CSRprojects, succeeding in driving adistinct identity for brands in ourportfolio. Despite the fact thatfinancing major CSR projectscan sometimes be a mammothchallenge, PCH calls forth itsingenuity to fulfil these projects andgain customer loyalty as a welcomeunsolicited by-product.People SustainabilityInternally, we focus on employees’well-being and as a result employeesparticipate in our shared values of sociallyresponsible behaviour. Our internal CSRprogramme is based on our 3 Cs policy -Conservation, Cleanliness and Care.Conservation focuses on preservingboth the natural environment and builtenvironment. We adopt practices inconserving energy and water resourcesas also the judicious use of paper andrecycling.Cleanliness is practised in our officeenvironment and in locations where ourevents are held. This is to support healthand hygiene and avoid contaminationand disease in order to maintain a healthyworkforce.Care refers to our policy of encouragingdiversity and tolerance, where weencourage caring for peers and thosearound us in this multi-ethnic, multireligiousenvironment.Partner SustainabilityOur external CSR policy focuses on twomain areas that we are passionate aboutand are relevant to the fields we operatein:●●Educational projectsWe believe that education is a vitalelement for the development of anation and that in this informationage education plays a pivotal role. Asa company with a significant stake inthe IT industry, we are committed tofurthering the computer literacy andknowledge gathering efforts of theyounger generation by supportiveinitiatives in the education sector.Health and Safety projectsOur commitment to healthcare isborn out of our vision for a healthynation and a vibrant workforce.Our deep understanding of thehealthcare industry has providedus with the resources to assistdeserving projects to care for thesick and preserve the health of ourpeople.

48PC House PLCAnnual Report 2010-11Sustainability Report Contd...OUR SUSTAINABILITYPHILOSOPHY IN ACTIONHealth SectorDonation to Maharagama CancerHospital Children’s WardPCH conducted a ‘children’s fun day’ atthe children’s ward of the MaharagamaCancer Hospital along with entertainmentby an ITN celebrity. Our staff donated toysand gift packs to the children, dry rations totheir mothers and some essential medicalequipment for the ward. The outcome ofthe programme was extremely rewardingand offered us an opportunity to perceivelife in a more objective and a positivemanner. The company plans to make thisan annual event in its CSR calendar.Donation of computer system tothe Neurosurgery DevelopmentFoundationPCH donated a computer system to theNeurosurgery unit 2 of the ColomboNational Hospital. The system connectsward 12 and 64, the accident service,intensive care unit and the neurosurgeryoperating theatre. The system will bemainly used to create and maintain adatabase on patients who seek treatmentat Neurosurgery unit 2 to facilitate thesmooth operation of follow-up proceduresand aftercare.Education SectorPCH sponsors ICT development inthe educational sector together withUCSC and SLAASPCH came forward as the main sponsorfor a workshop for teachers organisedby the Sri Lanka Association for theAdvancement of Science (SLAAS).The workshop held in collaboration withthe University of Colombo School ofComputing (UCSC) was an awarenessbuilding programme for the IT syllabusfor GCE O/L teachers in Colombo Districtand was aimed at upgrading the skills ofteachers of selected schools and to armthem with the latest IT expertise.Contributing to the University ofMoratuwa (UOM) to Promote ITEntrepreneurshipPCH joined hands with the UOM, one ofthe most prestigious universities in thecountry, as the sponsor for a seminaron IT competency and resource buildingtargeted at IT professionals, industryleaders and students, titled ‘Beyond thecode: IT Entrepreneurship’. A brainchildof the Computer Science and EngineeringSociety of the UOM, this programme isconsidered one of the most prestigiousevents organised by the university. Theobjective of the seminar was to inspireupcoming IT professionals by giving theman opportunity to interact with industrypioneers and professionals in sharingtechnical expertise and knowhow.Green ProjectsEarth Hour 2011Earth Hour is a global movement thatjoins millions of people from community,business and government all over theworld in switching off the lights for anhour in show of support for environmentalaction. This year, PCH was an activeparticipant in Earth Hour 2011 andturned off all non-essential lights in all itsshowrooms island-wide, such as nameboards, showroom lights and other nonessentialelectronic items such as PCs,printers, copiers and projectors at all PCHbranch and showroom locations.Conserving ResourcesIn addition, PCH has introduced manyinitiatives for saving paper, electricity, fueland water through simple yet effectiveprogrammes across the organisation.Employees are constantly reminded ofthe value of recycling, reusing and reduceusage of paper and related material.Electricity is better managed througha tactical programme that ensures thatthe optimal amount of light is maintainedand Personal Computers and other ICTequipment are programmed for lowestpossible power usage.Reaching Out to Flood Victims inAnuradhapuraPCH sustains relationship buildinginitiatives with the society at differentlevels, demonstrating its capacity to lookbeyond balance sheet considerations.The company’s latest CSR effortattempted to restore normalcy in thelives of Anuradhapura NabadawewaMahaVidyalaya students, an isolatedschool located 25 kilometres from thenearest town of Horowpathana and about45 kilometres from Anuradhapura.The school, which is an essential sourceof education for students from Grade 1-9in the area, suffered greatly during therecent floods and was submerged forfive days. This disastrous state of affairscaused a great deal of damage to theproperty and destroyed school books andother stationery items. In addition to this,many students and teachers in the schoollost essential resources, as the village toowas submerged under water for almostfive days - forcing students to resort todesperate means to bring the school backto an operational level.Having identified the immediate needsof the school, PCH offered its assistanceby supplying essential stationary andequipment to the students and the school.Aided by the Disaster ManagementCentre of Anuradhapura, PCH supplied

53PC House PLCAnnual Report 2010-11Branch NetworkMannarColombo(13 RetailShowrooms)NelliadyJaffnaNegomboGalleKilinochchiVavuniyaAnuradhapuraKurunegalaRatnapuraMataraKandyTrincomaleeKaduruwelaBadullaBandarawelaHambantotaPCH 9 to 9451, Galle Road,Colombo 03Ampara2nd Floor, TKS Building,D. S. Senanayake Veediya,AmparaAnuradhapuraNo C5,William Building,Main Street,AnuradhapuraBadullaNo. 18,Cocowatte Road,BadullaBatticaloaAmparaBandarawelaNo.339,Main Street,BandarawelaBatticaloaNo 81,Trincomalee Road,Batticaloa.GalleNo 124B,Wakwella Road,Galle.HambantotaNo 33/H,Tissa Road,HambantotaJaffnaNo. 01, K, Stanely Road,JaffnaKaduruwelaNo. 399/5,Main Street,KaduruwelaKandy136,D. S. SenanayakeVeediya,Kandy6 Branches added in 2010-1120 Regional Branches Island-wide13 Retail Showrooms in ColomboKilinochchiNo.497,Pillaiyar Arul VannasoolaiA-9 Road,KilinochchiKurunegalaNo. 151/1,Wickrama Building,Colombo Road,KurunegalaMannarNo 07 ,Hospital Road(Stadium Juntion),MannarMataraNo. 2,Kalidasa Road,MataraNegomboNo.347/1,Main Street,NegomboNelliadyNo. 36,Main Street,Pillaiar Stores,NelliadyRatnapuraNo.237/C,Main Street,RatnapuraTrincomaleeNo. 24,Sea View Road,TrincomaleeVavuniyaNo. 210,Kandy Road,VavuniyaPCH Regional & Retail ReachPCH expanded its’ network to Nelliady, Kilinochchi, Mannar, Batticaloa, Hambantota and Galle. All PCH branchesare strategically located to maximise reach, provide easy access and ensure penetration into rural areas of thecountry thereby ensuring that IT products and services are available to the whole of Sri Lanka.

54PC House PLCAnnual Report 2010-11Financial InformationFinancial Calendar 2010-11Audited Financial Statements signed on 26th May 2011Annual General Meeting to be held on 30th June 2011Cents 25 Per share Final Dividend for 2010/11 payable on or before 16th June 2011(Exdividend date 6th June 2011)Interim Financial Statements published in terms of Rule 7.4 of Colombo Stock Exchange1st Quarter Interim Results released onN/A2nd Quarter Interim Results released on 01st November 20103rd Quarter Interim Results released on 3rd February 20114th Quarter Interim Results released on 30th May 2011Financial ContentDirector’s Report 55Board Audit Committee Report 58Remuneration & Human Resources Committee Report 59Statement of Directors’ Responsibilityin Relation to Finance Statement 60Independent Auditor’s Report 61Income Statement 62Balance Sheet 63Statement of Changes in Equity 64Cash Flow Statement 65Notes to the Financial Statements 66

55PC House PLCAnnual Report 2010-11Director’s ReportThe Directors of PC House PLC havepleasure in presenting to the memberstheir Report and the Audited ConsolidatedFinancial Statements for the year ended31st March 2011.Principal ActivitiesPC House Group consists of a portfolioof diversed business operations in thecommercial market today by continuouslyexpanding in all business segments inline with the core strategy of creatingwealth for all stakeholders.The principal activities of PC HousePLC and performance during the yearare described in the Group Chairman’sReview on pages10 to 13 of this report.Review of business and futureDevelopmentThe Group is looking for new opportunitiesand diversify into new business activities.Group TurnoverThe turnover of the Group for thisfinancial year was increased by 25% toRs. 3,796 Mn as compared with 3,034 Mnin the previous year.Gross ProfitThe Group Gross Profit for the yearincreased by 20% to Rs. 758 Mncompared with the Group Gross Profit ofRs. 631 Mn for the previous year.Group InvestmentsThe Group Capital Expenditure during theyear for Property, Plant and Equipmentother than investments in subsidiariesamount to Rs. 12 Mn.Finance CostThe Group Finance Cost has reduced by30% to Rs. 136 Mn as compared with 195Mn in the previous year. Thus the interestcoverage increased to 3.2 from 2.0 duringthe previous year.Property, Plant and EquipmentInformation relating to the movement inproperty, Plant and Equipment is give inNote 12 of this financial statements.Stated CapitalThe Stated Capital of the company asat the date of this Report is Rs. 801 Mnwhich consists of 228,933,334 ordinaryshares.ReservesThe total Group Reserves as at 31stMarch 2011 amounts to Rs. 615 Mn ascompared with Rs. 470 Mn in the previousyear.TaxationA provision has been made for incometax in PC House PLC amounting to Rs.118 Mn for the current year, as comparedto Rs. 61 Mn in the previous year. Theprovision for taxation for the Group isRs. 123 Mn as compared with Rs. 73Mn in the previous year. Taxation hasbeen provided at the appropriate ratesindicated in Note 10.Final DividendDirectors have recommended a finaldividend of 25 cents per share on 26thMay 2011. XD date is 6th June 2011 anddate of dispatch of dividend payment ison or before 16th June 2011.As required by Section 56 (2) of theCompanies Act No 7 of 2007, the Boardof Directors have confirmed that theCompany satisfies the solvency test inaccordance with Section 57 CompaniesAct No 7 of 2007 and will be obtaininga certificate from the Auditors, prior todistribution.Under Article 12 (3) of the Articles ofAssociation of the Company - TheApproval of the shareholders by anordinary resolution or otherwise shallnot be require before a distribution ismade whether such distribution is a finaldividend or not. Such distribution may beapproved and authorised by the Board.Shareholdings/ ShareInformationThe market value of an ordinary share ofthe Company as at 31st March 2011 wasRs 17.10.The number of shareholders as at 31stMarch 2011 was 8,795. As analysis ofshareholders based on shares held andthe distribution of ownership are providedon pages 78 to 79.ShareholdersIt is a Group policy to treat its shareholdersequitably and maximize shareholderwealth.Events Occuring After theBalance Sheet DateNo circumstances have arisen since theBalance Sheet date that will require anadjustment in the Financial Statements.Employment PoliciesThe Group employment policies respectsthe individuals and offers equal careeropportunities, regardless of sex, race orreligion and consider the relationship withthe employees to be good. The numberof persons employed in the Companyand its subsidiaries as at 31st March2011 was 445 compared to 397 as at 31stMarch 2010.The company promotes a culture ofteamwork, integrity and dedication andremuneration is linked to performanceby annual appraisals of both qualitativeand quantitative performance of allemployees.CustomersThe Group firmly believes in investing timeand effort in discovering exactly what thecustomer wants and then giving it to themat the best price and building relationshipand loyalty by supplying the demand inthe best manner possible. In other words,we believe in selling customer excellence.In addition the Company also carriesout customer awareness programmesand customer service campaigns. TheCompany deals with both corporate andretail customers.Supplier PolicyThe Group places great emphasis on theimportance of suppliers to the Group andbuilding loyalty and ensure payments

56PC House PLCAnnual Report 2010-11Director’s Report Contd...promptly. Further a clear method ofcommunicating the terms of payment aspart of commercial agreements is beingmaintained.Statutory PaymentsDirectors, to the best of their knowledgeand belief are satisfied that all statutorypayments in relation to employees andthe Government have been made up todate.CompanyFor the year ended 31st March 2011Rs.000’2010Rs.000’Profit for the year 178,266 98,273Retained profit brought forward from previous year 204,411 147,920Gratuity provision - (3,782)Dividend paid - (38,000)IPO Expenses (33,259) -Retained profit carried forward 349,418 204,411Environmental ProtectionIt is the Group policy to keep adverseeffects on the environment to a minimumand to promote co-operation andcompliance with the relevant authoritiesand regulations.DirectorateThe Directors of the company during theyear in review are as follows:NameCapacityMr. Edinadura Kuvera Isuru de ZoysaSenior Non-Executive IndependentDirectorMr. Shanti Kumar NadarajahNon-Executive Independent DirectorCorporate Governance andInternal ControlThe information called for by this itemwith respect to the practice followed bythe Group is set out in the CorporateGovernance Statement on Pages 39 to42.Going ConcernAs in the Statement Director’sResponsibilities given on page 60the Directors have adopted the goingconcern basis in preparing the FinancialStatements.Profit and AppropriationsFinancial Results,Mr. Saheedul Hijiry Mohamed RishanChairman/Chief Executive OfficerMrs. Sithy Sharmila RishanNon-Executive DirectorMr. Ekanayake MudiyanselageMangala BoyagodaNon-Executive DirectorMr. Drayton Sarath PalithaWikramanayakeNon-Executive DirectorMr. Modarage ThilakasiriNon-Executive DirectorGroupFor the year ended 31st March 2011Rs.000’2010Rs.000’Profit for the year 178,929 123,896Retained profit brought forward from previous year 230,034 147,920Gratuity provision - (3,782)Dividend paid - (38,000)IPO Expenses (33,259) -Retained profit carried forward 375,704 230,034Directors MeetingThe Directors conduct board meetingson a monthly basis. Board decisionsare resolved by resolutions at meetings,by circulation and also through circularboard papers which are approved andsigned by all the directors and tabled atthe Board Meetings. The Minutes of theBoard Meetings, the agenda for the nextmeeting and the monthly managementReports are circulated to all directors inadvance to the meetings.Re-Election of DirectorsIn accordance with the provisions of theArticles of Association of the company.Board CommitteeThe Board has established committeesfor better monitoring and guidance ofdifferent aspects of operations andcontrol.Audit CommitteeThe members of the audit committee areas follows● Mr. Drayton Sarath PalithaWikramanayake - Chairman● Mr. Shanti Kumar Nadarajah -Non-Executive IndependentDirector● Mr. Edinadura Kuvera Isuru deZoysa - Senior Non-ExecutiveIndependent Director

57PC House PLCAnnual Report 2010-11The Report of the audit committee is givenon page 58 of the annual report.Remuneration CommitteeThe members of the RemunerationCommittee are as Follows● Mr. Modarage Thilakasiri –Chairman● Mr. Shanti Kumar Nadarajah – Non-Executive Independent Director● Mr. Edinadura Kuvera Isuru deZoysa - Senior Non-ExecutiveIndependent DirectorThe Report of the Remunerationcommittee is given on page 59 of theannual report.Interest RegisterThe Directors have made the declarationsrequired by the companies Act no. 7 of2007. These have been entered into theInterest Register which is maintained bythe Company.The company carried out transactionsin the ordinary course of business withentities in which Directors of the companyare also Directors. The transactions withentitles where a Director of the Companyeither has control or exercises significantinfluence have been classified as relatedparty transactions and disclosed in Note22 to the Financial Statements.The Directors have no direct or indirectinterest in any other contract or proposedcontract with the company.Directors ShareholdingThe Directors interests in shares as at31st March 2011 were as follows:-Remunerations of DirectorsThe remuneration of the Directors aredisclosed in Note 22(a) to the FinancialStatements.List of Major ShareholdersThe list of 20 major shareholders and thepercentage held by each at 31st March2011 is given on page 78 of the AnnualReport.Subsidiary Companies andDirectorsThe Directors of Subsidiaries as at 31stMarch 2011 are given under CorporateInformation in the inner back cover.Accounting PoliciesThe Accounting Policies adopted in thepreparation of the financial statements aregiven on pages from 66 to 68. There wereno changes in the accounting policiesadopted in the previous year.Annual ReportThe Board of Directors approvedconsolidated financial statements on 26thMay 2011. The appropriate number ofcopies of this report will be submitted tothe Colombo Stock Exchange.Annual General MeetingThe annual General Meeting will be heldat the Earls Court of Cinnamon LakeSide 115 Sir Chittampalam A GardinerMawatha, Colombo 02 on Thursday 30thof June 2011 at 10.00 am. The Notice ofthe Annual General Meeting is given onpage 83.AuditorsAn Auditor of a company is deemed tobe re-appointed at the Annual GeneralMeeting of the company under Section158 of the Companies Act No. 7. Aresolution authorizing the Directors to fixthe remuneration of the Auditors Messrs.SJMS Associates, Chartered Accountantsfor the ensuing year will be proposed atthe Annual General Meeting.The fees paid to auditors are disclosed inNote 8 to the financial statements. As faras the Directors are aware, the Auditorsdo not have any relationship (other thanthat of an Auditor) with the company orany of its subsidiaries other than thosedisclosed above. The Auditors also do nothave any interest in the Company or anyof its group of Companies.For and behalf of the Board.S.H.M. RishanChairman/ CEOMushthaq Ahmed IkramDirectorSeccom (Private) LimitedCompany Secretaries26th May 2011No. of Shares as atName 31st March 2011Mr. Saheedul Hijiry Mohamed Rishan 154,505,000Mrs. Sithy Sharmila Rishan 17,170,000Mr. Mushthaq Ahmed Ikram (Alternate Director to Mrs. Sharmila Rishan) 14,500Mr. Ekanayake Mudiyanselage Mangala Boyagoda 16,800Mr. Drayton Sarath Palitha Wikramanayake 83,800Mr. Edinadura Kuvera Isuru de Zoysa 13,200Mr. Shanti Kumar Nadarajah 2,500

58PC House PLCAnnual Report 2010-11Board Audit Committee ReportCompositionThe Audit Committee, appointed by andresponsible to the Board of Directors,comprise of three members, one NonExecutive Director (who is the Chairman),the Senior Independent Director and oneIndependent Director.The Chairman and Chief ExecutiveOfficer together with the Chief Accountantattends all meetings of the Committeeby invitation. The Internal and ExternalAuditors are requested to be presentwhen required.External AuditorsThe Committee met with the ExternalAuditors in relation to the scope of the auditand also to discuss their ManagementLetter for the previous financial year.Mr. Sarath WikramanayakeChairman26th May 2011MeetingsThe Audit Committee had three (3)meetings during the year under review.The minutes of the Audit Committee arecirculated among the Board.Financial ReportingThe Committee oversees the Company’sfinancial reporting on behalf of the Boardof Directors as part of its responsibility andhave reviewed the Quarterly and AnnualFinancial Statements and recommendedthem to the Board for its deliberationsprior to their issuance.The Committee reviewed the AuditedFinancial Statements for the year ended31st March 2011 to ensure consistencyof the accounting policies and theircompliance with the Sri Lanka AccountingStandards.Internal Audit and Review ofControls and RisksDuring the year a comprehensive reviewof the Company’s Internal Controls wasundertaken by a leading InternationalAccounting Firm in Sri Lanka. As a resultof this review a risk-based Internal AuditPlan has been drawn up. This review alsoentailed the establishment of a DetailedInternal Audit Programme. The Companyis currently in the process of revampingits Internal Audit Department by recruitinga suitable Head for the Department.

59PC House PLCAnnual Report 2010-11Remuneration & Human Resources Committee ReportThe Remuneration and Human ResourcesCommittee during the year 2010/2011comprised one Non-Executive Directorand two independent Non-ExecutiveDirectors of the Board.The Remuneration and HumanResources Committee is chaired by Non-Executive Director Mr. M. Thilakasiri asthe Management expert.This Committee is responsible formaintaining PCH’s performance andmarket-oriented remuneration and humanresource policies enabling PCH to attractthe best talent and create incentives forstaff through remuneration.The Committee reviewed and agreed onthe remuneration of the Executive, Non-Executive Directors, and Consultants, andevaluated the performance of key positionsof the Senior Management against setgoals and targets and determined thebasis for revising remuneration, benefitsand other payments.The remuneration of the ExecutiveChairman/ CEO, in his capacity of anemployee, comprises of salary and othercustomary benefits as appropriate. Thesalary reviews took into account themarket rates and the performance ofindividual and company.The Committee discussed significanthuman resource policy issues at itsmeetings and reviewed the current HRpolicies of PCH.A total of Rs. 6,850,000 was paid to theDirectors as emoluments for the financialyear.The Committee held two (02) meetingsduring the financial year ended 31 March2011 and the attendance of the Committeemembers is as follows:Name of the Director Attendance Percentage ofAttendanceMr. M. Thilakasiri02/02 100(Non-Executive Director) ChairmanMr. E. Kuvera I. De Zoysa(Senior Independent-Non-Executive Director) 02/02 100Mr. Shanti Kumar Nadarajah(Independent Non-Executive Director) 02/02 100The Executive Chairman / CEO attendedthose meetings upon invitation to brief theCommittee on specific issues.The minutes of the Committee weremade available to the Board of Directorsfor information and necessary action.M. ThilakasiriChairmanBoard, Remuneration &Human Resource Committee26th May 2011The remuneration of Non-Executive andIndependent Directors comprises of amonthly allowance paid in accordancewith the number of meetings attendedduring the year 2010-2011.The decisions of the Committee wererecommended to the Board of directorsfor their approval.

60PC House PLCAnnual Report 2010-11Statement of Directors’ Responsibility in Relation to Finance StatementThe Financial Statements are preparedin compliance with the Sri LankaAccounting Standards (SLAS) issued bythe Institute of Chartered Accountants ofSri Lanka(ICASL) and the requirementsof the companies Act, No. 7 of 2007.The accounting policies used in thepreparation of the financial statements areappropriate and are consistently applied,unless otherwise stated in the notesaccompanying the financial statements.The Board of Directors and theManagement of the Company acceptresponsibility for the integrity andobjectivity of these Financial Statements.The estimates and judgments relating tothese financial statements were madeon a prudent and reasonable basis, inorder that the financial statements reflectin a true and fair manner, the form andsubstance of transactions and that thecompany’s state of affairs is reasonablypresented. To ensure this, the Companyhas taken proper and sufficient care ininstalling a system of internal control andaccounting records, for safeguardingassets and for preventing and detectingfrauds as well as other irregularities,which is reviewed, evaluated andupdated on an ongoing basis. Our internalAuditors have conducted periodic auditsto provide reasonable assurance that theestablished policies and procedures ofthe company were consistently followed.However, there are inherent limitationsthat should be recognised in weightingthe assurances provided by any systemof internal controls and accounting.The Financial Statements were auditedby Messrs SJMS Associates (CharteredAccountants), the Independent Auditors.The Audit Committee of the Companymeets periodically with the InternalAuditors and External Auditors to reviewthe manner in which these Auditors areperforming their responsibilities, and todiscuss auditing, internal controls andfinancial reporting issues. To ensurecomplete independence, the ExternalAuditors and the Internal Auditors havefull and free access to the members of theAudit Committee to discuss any matter ofsubstance.We confirm that the Company hascomplied with all applicable laws andregulations and guidelines.By Order of the Board PC House PLCSeccom (Private) LimitedCompany SecretariesColombo26th May 2011

61PC House PLCAnnual Report 2010-11Independent Auditor’s ReportTO THE SHAREHOLDERS OFPC HOUSE PLCReport on the Financial StatementsWe have audited the accompanyingfinancial statements of PC House PLC,the consolidated financial statements ofthe Company and its subsidiaries whichcomprise the balance sheet as at 31stMarch 2011, and the income statement,statement of changes in equity and cashflow statement for the year then ended,and a summary of significant accountingpolicies and other explanatory notes.Management’s Responsibility forthe Financial StatementsManagement is responsible for thepreparation and fair presentation ofthese financial statements in accordancewith Sri Lanka Accounting Standards.This responsibility includes: designing,implementing and maintaining internalcontrol relevant to the preparation andfair presentation of financial statementsthat are free from material misstatement,whether due to fraud or error; selecting andapplying appropriate accounting policies;and making accounting estimates that arereasonable in the circumstances.Scope of Audit and Basis ofOpinionOur responsibility is to express an opinionon these financial statements basedon our audit. We conducted our auditin accordance with Sri Lanka AuditingStandards. Those standards requirethat we plan and perform the audit toobtain reasonable assurance whetherthe financial statements are free frommaterial misstatement.An audit includes examining, on atest basis, evidence supporting theamounts and disclosures in the financialstatements. An audit also includesassessing the accounting principlesused and significant estimates made bymanagement, as well as evaluating theoverall financial statement presentation.We have obtained all the information andexplanations which to the best of ourknowledge and belief were necessaryfor the purposes of our audit. Wetherefore believe that our audit provides areasonable basis for our opinion.OpinionIn our opinion, so far as appears from ourexamination, the Company maintainedproper accounting records for the yearended 31st March 2011 and the financialstatements give a true and fair view ofthe Company’s state of affairs as at 31stMarch 2011 and its profit and cash flowsfor the year then ended in accordancewith Sri Lanka Accounting Standards.In our opinion, the consolidated financialstatements give a true and fair view ofthe state of affairs as at 31st March 2011and the profit and cash flows for the yearthen ended, in accordance with Sri LankaAccounting Standards, of the Companyand its subsidiaries dealt with thereby, sofar as concerns the shareholders of theCompany.Report on Other Legal andRegulatory RequirementsIn our opinion, these financial statementsalso comply with the requirements ofSection 153(2) to 153(7) of the CompaniesAct No. 07 of 2007.SJMS ASSOCIATESChartered AccountantsColombo,26th May 2011

62PC House PLCAnnual Report 2010-11Income StatementGroupCompanyFor the Year Ended 31st March 2011 Note 2010/2011 2009/2010 2010/2011 2009/2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Revenue 6 3,796,069 3,034,288 3,587,367 2,810,245Cost of sales (3,038,036) (2,403,024) (2,890,434) (2,257,820)758,034 631,264 696,933 552,425Other income 7 7,340 6,129 7,340 6,129Negative Goodwill 5,218Selling and distribution expenses (54,993) (42,516) (53,207) (41,274)Administrative expenses (272,493) (208,356) (221,727) (164,385)Profit from operating activities 8 437,887 391,738 429,339 352,896Finance costs 9 (136,342) (194,874) (133,239) (193,407)Net profit before tax 301,545 196,864 296,099 159,489Income tax expense 10 (122,616) (72,968) (117,833) (61,216)Net profit for the year 178,930 123,897 178,267 98,274Attributable to:Equity holders of the parent 178,930Minority interests178,930Earnings per share 11Basic (Cents per share) 0.86 0.72 0.85 0.57The significant accounting policies and notes to the accounts which appear on pages 66 to 77 form an integral part of these financialstatements.

63PC House PLCAnnual Report 2010-11Balance SheetGroupCompanyAs at 31st March 2011 Note 31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000ASSETSNon-Current AssetsProperty, plant & equipment 12 574,631 581,554 571,819 580,521Deferred tax assets 10 39,600 51,371 39,600 51,371Investment in subsidiaries 16 - - 15,409 5,409614,231 632,925 626,828 637,301Current AssetsInventories 13 1,112,791 390,783 1,080,441 382,112Trade and other receivables 14 770,780 427,316 727,148 388,752Deposits & prepayments 15 119,521 81,879 119,521 75,632Current investments 20,000 3,935 - 3,935Cash in hand and at bank 17 39,846 165,047 32,239 164,5282,062,938 1,068,959 1,959,349 1,014,958Total Assets 2,677,169 1,701,884 2,586,177 1,652,259EQUITY AND LIABILITIESCapital and ReservesStated capital 18 801,267 171,700 801,267 171,700Revaluation reserve 239,787 239,787 239,787 239,787Retained earnings 375,704 230,034 349,418 204,4111,416,758 641,522 1,390,472 615,898Non-Current LiabilitiesBorrowings 19 36,221 206,055 36,221 206,055Retirement benefits obligation 20 7,698 4,714 5,344 4,71443,920 210,769 41,565 210,769Current LiabilitiesBorrowings 19 935,559 610,072 926,559 610,072Commissioner General of Inland Revenue 10 130,444 46,866 120,198 36,881Trade and other payables 21 27,270 14,965 10,869 11,312Bank overdraft 123,217 177,690 96,513 167,3261,216,491 849,593 1,154,140 825,592Total Equity and Liabilities 2,677,169 1,701,884 2,586,177 1,652,259The significant accounting policies and notes to the accounts which appear on pages 66 to 77 form an integral part of these financialstatements.I certify that the Financial Statements comply with the requirements of Companies Act No 07 of 2007.AccountantThe Board of Directors is responsible for the preparation and presentation of these financial statements. The financial statementshave been approved by the Board on 26th May 2011.Signed for and on behalf of the Board by:DirectorDirector

64PC House PLCAnnual Report 2010-11Statement of Changes in EquityFor the Year Ended 31st March 2011 Stated Revaluation Retained Total equitycapital Reserve ProfitRs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000GroupBalance as at 01.04.2009 171,700 - 147,919 319,619Assets revaluation surplus - 239,787 - 239,787Gratuity provision - - (3,782) (3,782)Profit for the year - - 123,897 123,897Dividend paid - - (38,000) (38,000)Balance as at 01.04.2010 171,700 239,787 230,034 641,522Issue of ordinary shares 629,567 - - 629,567IPO expenses - - (33,260) (33,260)Profit for the period - - 178,930 178,930Balance as at 31.03.2011 801,267 239,787 375,704 1,416,758CompanyBalance as at 01.04.2009 171,700 - 147,919 319,619Assets revaluation surplus - 239,787 - 239,787Gratuity provision - - (3,782) (3,782)Profit for the year - - 98,274 98,274Dividend paid - - (38,000) (38,000)Balance as at 01.04.2010 171,700 239,787 204,411 615,898Issue of ordinary shares 629,567 - - 629,567IPO Expenses - - (33,260) (33,260)Profit for the period - - 178,267 178,267Balance as at 31.03.2011 801,267 239,787 349,418 1,390,472The significant accounting policies and notes to the accounts which appear on pages 66 to 77 form an integral part of these financialstatements.

65PC House PLCAnnual Report 2010-11Cash Flow StatementGroupCompanyFor the Year Ended 31 St March 2011 31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Cash Flow from Operating ActivitiesNet profit before taxation 301,545 196,864 296,099 159,489Adjustments for -Depreciation 25,303 19,751 24,539 19,125Profit on disposal of property and equipment (515) (2,802) (515) (2,802)Gratuity provision 3,425 1,070 1,070 1,070Negative goodwill - (5,218) - -Interest on finance leases 297 3,316 297 3,316Interest income (5,919) (3,327) (5,919) (3,327)Interest expense 136,046 194,874 132,943 193,407460,181 404,528 448,514 370,278Changes in Operating Assets and LiabilitiesIncrease in inventories (722,009) 90,062 (698,329) 95,692Increase in trade and other receivables (381,106) (151,752) (382,285) (118,780)Increase in trade and other payables 12,305 1,488 (442) 2,005Cash generated from operations (630,628) 344,326 (632,543) 349,195Income taxes paid (27,267) (5,942) (22,745) (3,142)Interest paid (136,046) (194,874) (132,943) (193,407)Gratuity paid (441) (138) (441) (138)Interest received 5,919 3,327 5,919 3,327Net cash flow from operating activities (788,463) 146,700 (782,753) 155,836Cash Flows from Investing ActivitiesInvestment of shares - - (10,000) (5,409)Proceeds from disposal of investments - 21,000 - 21,000Investment in deposits (20,000) - - -Proceeds from maturity of deposits 3,935 4,036 3,935 4,036Proceeds from disposal of property and equipment 1,080 39,510 1,080 39,510Purchase of property and equipment (11,645) (285) (9,102) (221)Net cash used in investing activities (26,630) 64,261 (14,087) 58,916Cash Flows from Financing ActivitiesLease rentals paid (1,416) (4,950) (1,416) (4,950)Proceeds from issue of shares 629,567 - 629,567 -IPO expenses (33,260) - (33,260) -Dividends paid - (38,000) - (38,000)Net borrowings 149,473 (105,597) 140,473 (105,495)Net cash flows from financing activities 744,364 (148,547) 735,364 (148,445)Net increase in cash and cash equivalents (70,728) 62,414 (61,476) 66,307Cash and cash equivalents at the beginning of the year (12,643) (75,057) (2,799) (69,105)Cash and cash equivalents at the end of the year (83,372) (12,643) (64,274) (2,799)Cash and Cash Equivalents at the End of the Year Comprise of:Bank and cash balances 39,846 165,047 32,239 164,528Bank overdraft (123,217) (177,690) (96,513) (167,326)(83,372) (12,643) (64,274) (2,799)The significant accounting policies and notes to the accounts which appear on pages 66 to 77 form an integral part of these financialstatements.

66PC House PLCAnnual Report 2010-11Notes to the Financial StatementsFor the Year Ended 31 March 20111. Corporate Information1.1 General InformationPC House PLC is a Public LimitedLiability Company, incorporated anddomiciled in Sri Lanka. The Company isre-registered under the Companies Act,No. 07 of 2007 and its ordinary sharesare quoted in the main board of ColomboStock Exchange. The registered officeof the Company and the principal placeof business are located at #451, GalleRoad, Colombo 3.In the separate financial statements,‘the Company’ refers to PC House PLCas the Holding Company, and in theconsolidated financial statements, ‘theGroup’ refers to PC House PLC and itssubsidiaries. The principal activities andnature of operations of the subsidiariesare described in note 1.2.1.2. Principal Activities and Natureof OperationsCompanyThe principal activities of the Companyare import, assembling and distributionof all types of Computers and electronicequipments.Greenwich Lanka (Private) LimitedGreenwich Lanka (Private) Limited isa fully owned subsidiary of PC HousePLC that provides consulting, designing,developing and implementing ITsolutions/systems for enterprises.Procifinity LimitedProcifinity Limited is a fully ownedsubsidiary of PC House PLC. Beinga BOI approved business venture,Procifinity Limited develops software andprovides other Information Technology(IT) enabled services including all typesof outsourcing services to local andinternational markets.Date of Authorisation for IssueThe Financial Statements of theCompany for the year ended 31st Mach2011 were authorised for issue by theDirectors on 26th May 2011.2. Critical Judgements andKey Sources of EstimationUncertaintyIn the selection and application of theGroup’s accounting policies, whichare described in note 04, the directorsare required to make judgments andassumptions, and use assumptions inmeasuring the items reported in thefinancial statements. These estimatesare based on management’s knowledgeof current facts and circumstances,and assumptions are based on suchknowledge and expectations of futureevents. Actual results may always differfrom such estimates.The estimates and underlyingassumptions are reviewed on an ongoingbasis. Revisions to accounting estimatesare recognised in the period in which theestimate is revised or in the period of therevision and future periods, only if therevision affects both current and futureperiods.2.1 Key Sources of EstimationUncertaintyThe following are the key assumptionsconcerning the future, and other keysources of estimation uncertainty,that have a significant risk of causinga material adjustment to the carryingamounts of assets and liabilities withinthe next financial year. The following arethose items that the directors considerparticularly susceptible to changes inestimates and assumptions.ItemNoteDepreciation 4.1Defined benefit plan 4.8.23. Preparation of FinancialStatements3.1 Statement of ComplianceThe Balance Sheet, Income Statement,Changes in Equity and Cash Flows,together with Accounting Policies andNotes (the “financial statements”) havebeen prepared in accordance with SriLanka Accounting Standards and therequirements of the Companies Act No.07 of 2007.3.2 Basis of PreparationThe financial statements have beenprepared on the historical cost basisexcept for the revaluation of certainnon-current assets. Historical cost isgenerally based on the fair value of theconsideration given in exchange forassets.3.3 Basis of ConsolidationThe consolidated financial statementsincorporate the financial statements ofthe Company and entities controlled bythe Company (its subsidiaries). Controlis achieved where the Company hasthe power to govern the financial andoperating policies of an entity so as toobtain benefits from its activities.The results of subsidiaries acquired ordisposed of during the year are includedin the consolidated income statementfrom the effective date of acquisitionor up to the effective date of disposal,and where necessary, adjustments aremade to the financial statements ofsubsidiaries to bring their accountingpolicies in line with those used by othermembers of the Group.All intra-group transactions, balances,income and expenses are eliminated infull on consolidation.4 Summary of SignificantAccounting Policies4.1 Property and EquipmentLand and buildings held for use inthe production or supply of goods orservices, or for administrative purposes,are stated in the balance sheet at theirrevalued amounts less any subsequentaccumulated depreciation andsubsequent accumulated impairmentlosses. Revaluations are performed withsuch sufficient regularity that the carryingamounts do not differ materially fromthose that would be determined usingfair values at the balance sheet date.Any revaluation increase arising on therevaluation of such land and buildingsis credited in equity to the propertiesrevaluation reserve, except to the extentthat it reverses a revaluation decrease

67PC House PLCAnnual Report 2010-11for the same asset previously recognisedin profit or loss, in which case theincrease is credited to profit or loss tothe extent of the decrease previouslycharged. A decrease in the carryingamount arising on the revaluation ofsuch land and buildings is charged toprofit or loss to the extent that the lossexceeds the balance, if any, held in theproperties revaluation reserve relating toa previous revaluation of that asset.Upon disposal or retirement of arevalued property, any correspondingrevaluation surplus remaining istransferred to retained earnings. Notransfer is made from the revaluationreserve to retained earnings exceptwhen an asset is derecognised.Fixtures and equipment are stated atcost less accumulated depreciation andaccumulated impairment losses.Depreciation is charged to profit andloss account so as to write off the cost orvaluation of assets, other than freeholdland, over their estimated useful lives,using the straight-line method. Theestimated useful lives, residual valuesand depreciation method are reviewedat each year-end, with the effect of anychanges in such estimates accounted forprospectively.The estimated useful lives of depreciableassets are as follows:AssetsYearsBuildings 40Motor vehicles 08Electrical equipment 06-07Office equipment 04Computer software 04Fixtures & fittings 204.2 Trade and Other ReceivablesTrade and other receivables are statedat the amounts they are estimated torealise net of provision for bad & doubtfuldebts.4.3 InventoriesInventories are stated at the lower ofcost and net realisable value. Costs,including an appropriate portion of fixedand variable overhead expenses, areassigned to inventories by the methodmost appropriate to the particular classof inventory, with the majority beingvalued on a first-in-first-out basis. Netrealisable value represents the estimatedselling price for inventories less allestimated costs of completion and costsnecessary to make the sale.4.4 LeasingLeases are classified as finance leaseswhenever terms of the lease transfersubstantially all the risks and rewards ofownership to the lessee. All other leasesare classified as operating leases.4.4.1 Finance LeasesAssets held under finance leases areinitially recognised as assets of theGroup at their fair value at the inceptionof the lease or, if lower, at the presentvalue of the minimum lease payments.The corresponding liability to the lessoris included in the balance sheet as afinance lease obligation.Lease payments are apportionedbetween finance charges and reductionof the lease obligation so as to achieve aconstant rate of interest on the remainingbalance of the liability. Finance chargesare charged directly to profit or loss.Contingent rentals are recognised asexpenses in the periods in which theyare incurred.4.4.2 Operating LeasesOperating lease payments arerecognised as an expense on a straightlinebasis over the lease term, exceptwhere another systematic basis is morerepresentative of the time pattern inwhich economic benefits from the leasedasset are consumed. Contingent rentalsarising under operating leases arerecognised as an expense in the periodin which they are incurred.4.5 Cash and Cash EquivalentsCash and cash equivalents comprisecash in hand and demand deposits, andshort-term highly liquid investments,readily convertible to known amounts ofcash and are subject to an insignificantrisk of changes in value.For the purpose of cash flow statement,cash and cash equivalents consist ofcash in hand and deposits in banksnet of outstanding bank overdrafts.Investments with short maturities i.e.three months or less from the date ofacquisition are also treated as cashequivalents.4.6 Foreign Currency TransactionsThe financial statements of the Groupare presented in Sri Lanka rupees, whichis also the Group’s functional currency.All transactions in currencies otherthan the functional currency arerecorded in Sri Lanka rupees, using theexchange rates prevailing at the timethe transactions were effected. At eachbalance sheet date, monetary assetsand liabilities denominated in foreigncurrencies are re-translated to Sri Lankarupee equivalents at the exchange rateprevailing on the balance sheet date.Non-monetary assets and liabilitiesdenominated in foreign currencies arenot re-translated. Exchange differencesarising on settlement of monetary itemsand re-translation of monetary items, arerecognised in profit or loss in the year inwhich they arise.4.7 Income TaxesIncome tax expense represents the sumof taxes currently payable and deferred.4.7.1 Current TaxesCurrent tax is based on the elements ofincome and expenditure as reported inthe financial statements but is computedin accordance with provisions of InlandRevenue Act No. 10 of 2006 and itssubsequent amendments.However, Procifinity Limited, which is asubsidiary, is exempt from income taxas per the agreement with the Board ofInvestment of Sri Lanka (BOI) dated July01, 2010, and would be entitled for a taxholiday of five years .

68PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd...For the Year Ended 31 March 20114.7.2 Deferred TaxesDeferred tax liabilities are generallyrecognised for all taxable temporarydifferences, and deferred tax assets aregenerally recognised for all deductibletemporary differences to the extentthat it is probable that taxable profitswill be available against which thosedeductible temporary differences canbe utilised. Such assets and liabilitiesare not recognised if the temporarydifference arises from goodwill orfrom initial recognition (other than inbusiness combination) of other assetsand liabilities in a transaction thataffects neither the taxable profit nor theaccounting profit.The carrying amount of deferred taxassets is reviewed at each balance sheetdate and reduced to the extent that it isno longer probable that sufficient taxableprofit will be available to allow all or partof the deferred tax asset to be utilised.Current and deferred tax relating toitems recognised directly in equity arerecognised in equity.Deferred tax assets and liabilitiesare measured at the tax rates thatare expected to apply in the periodin which the liability is settled or theasset realised, based on tax rates (andtax laws) that have been enacted orsubstantially enacted by the balancesheet date.Deferred tax assets and liabilities areoffset when there is a legally enforceableright to set off current tax assets againstcurrent liabilities and when they relateto income taxes levied by the sametaxation authority and intends to settlethem on a net basis.4.8 Employee Retirement Benefits4.8.1 Defined Benefit Plan – GratuityThe CompanyThe Company is liable to pay gratuityin terms of the payment of Gratuity ActNo. 12 of 1983, according to which anobligation to pay gratuity arises onlyon completion of 5 years of continuedservice. A provision for the company’sobligations under this Act is determinedbased on an actuarial valuation, usingthe Projected Unit Credit Method,carried out by a professional actuary inevery three years. The obligation is notexternally funded.SubsidiariesThe subsidiaries are liable to pay gratuityin terms of the payment of Gratuity ActNo. 12 of 1983, according to which aliability to pay gratuity arises only oncompletion of 5 years of continuedservice.4.8.2 Defined Contribution Plan -Employees’ Provident Fundand Employees’ Trust FundEmployees are eligible for Employees’Provident Fund contributions andEmployees’ Trust Fund contributionsin line with respective statutes andregulations. The company contributesthe defined percentages of grossemoluments of employees to theEmployees’ Provident Fund and to theEmployees’ Trust Fund respectively.4.9 RevenueRevenue is measured at the fair value ofthe consideration received or receivable,net of trade discounts and sales relatedtaxes.Sale of GoodsRevenue from the sale of goods isrecognised when all the followingconditions are satisfied:a) The Company has transferredsignificant risks and rewards ofownership of the goods to thebuyer.b) The Company retaining, neither acontinuing managerial involvementto the degree usually associatedwith ownership, nor an effectivecontrol over the goods sold.c) The amount of revenue canbe measured reliably and it isprobable that the economic benefitsassociated with the transaction willflow to the entity; andd) The costs incurred or to be incurredin respect of the transaction can bemeasured reliably.Other IncomeOther income is recognised on anaccrual basis.4.10 Expenditure RecognitionExpenses are recognised in the incomestatement on the basis of a directassociation between the cost incurredand the earning of specific items ofincome. All expenditure incurred inrunning the business and in maintainingproperty, plant and equipment in a stateof efficiency has been charged to theincome statement.For the purpose of presentation ofthe income statement, the “function ofexpenses” method has been adopted,on the basis that it presents fairly theelements of the Company’s performance.4.11 Gains and LossesNet gains and losses of a revenuenature arising from the disposal ofproperty, plant and equipment andother non-current assets, includinginvestments, are accounted for in theincome statement, after deducting fromthe proceeds on disposal, the carryingamount of such assets and the relatedselling expenses.Gains and losses, arising fromactivities incidental to the main revenuegenerating activities or those arising froma group of similar transactions which arenot material, are aggregated, reportedand presented on a net basis.4.12 Warranty ProvisionExpenses incurred for the settlement ofdefective products are reimbursed by theoriginal supplier. As a result, a provisionfor warranty costs is not recognized atthe date of sale of the relevant product.Excess costs incurred for the settlementof defective products are directlycharged to the income statement in theperiod in which they are incurred.

69PC House PLCAnnual Report 2010-11GroupCompany2010/2011 2009/2010 2010/2011 2009/2010Rs.’000 Rs.’000 Rs.’000 Rs.’0006. RevenueRevenue 3,800,344 3,074,088 3,591,641 2,850,046Less: Sales return (4,274) (39,801) (4,274) (39,801)3,796,069 3,034,288 3,587,367 2,810,2457. Other IncomeInterest income from fixed deposits with banks 536 920 536 920Interest income from savings deposits 1,597 2,407 1,597 2,407Profit on sale of property & equipment 515 2,802 515 2,802Rent income 3,786 - 3,786 -Other interest income 905 - 905 -7,340 6,129 7,340 6,1298. Profit from Operating Activities isStated after Charging the Following Expenses:Directors’ emoluments 6,850 1,200 6,850 1,200Staff cost 8.1 109,057 101,015 71,954 65,568Depreciation 25,303 19,751 24,539 19,125Auditors’ remuneration 1,100 1,141 1,100 1,0898.1 Staff CostsSalaries 96,479 88,641 62,271 57,016Contribution to defined contribution plan 12,579 12,374 9,683 8,552109,057 101,015 71,954 65,5689. Finance CostsInterest on bank overdrafts 12,788 19,742 11,067 18,581Interest on loans and leases 109,000 168,963 107,873 168,963Other interest expenses 14,554 6,169 14,299 5,863136,342 194,874 133,239 193,40710. Taxation10.1 Income Tax Recognised in Profit or LossTax expense comprises:Current tax 109,207 71,866 104,494 60,288Social Responsibility Levy 1,638 1,078 1,567 904Deferred tax 11,771 23 11,771 23122,616 72,968 117,833 61,216Current income tax charge for the yearcan be reconciled to the accounting profit as follows:Profit from operations 301,545 191,646 296,099 159,489Income tax expense 102,103 67,076 98,699 55,821Allowances and deductions in determining the taxable profits (9,798) (11,644) (9,777) (11,624)Effect of expenses that are not deductible indetermining taxable profit 15,888 15,270 14,560 14,926Other adjustments 14,422 2,266 14,351 2,092Current income tax expense 122,616 72,968 117,833 61,216

70PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd...For the Year Ended 31 March 2011GroupCompany2010/2011 2009/2010 2010/2011 2009/2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘00010.2 Current Tax Assets/LiabilitiesBalance at the beginning of the year 46,866 (20,268) 36,881 (21,169)Current income tax expense 110,845 72,944 106,062 61,193Income tax paid (8,000) (2,668) (4,000) -Income tax paid-prior year under-provisions 3,800 - 3,800 -Withholding tax receivables (11,071) (1,595) (11,071) (1,595)Economic Service Charge receivables (11,996) (1,547) (11,474) (1,547)Balance at the end of the year 130,444 46,866 120,198 36,881Deferred Tax Liabilities/AssetsThe gross movement on thedeferred income tax account is as follows:Balance at the beginning of the year 51,371 51,394 51,371 51,394Origination / reversal of temporary differences (11,771) (23) (11,771) (23)Balance at the end of the year 39,600 51,371 39,600 51,371Deferred tax asset comprises of :Property and equipment 41,763 58,506 41,763 58,506Gratuity 1,496 1,650 1,496 1,650Finance leases (3,659) (8,785) (3,659) (8,785)39,600 51,371 39,600 51,37111. Earnings Per ShareBasic Earnings Per ShareThe earning and weighted average number of ordinary shares used in the calculation of basic earning per share are as follows.GroupCompany2010/2011 2009/2010 2010/2011 2009/2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Profit for the year attributable to equity holders of the parent 178,930 123,897 178,267 98,274Weighted average number of ordinary shares for thepurposes of basic earning per share (all measured)209,019 171,700 209,019 171,7000.86 0.72 0.85 0.57

71PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd...As at 31st March 2011GroupCompany2010/2011 2009/2010 2010/2011 2009/2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘00012. Property and equipmentFreehold Property Note 12.1 & 12.3.1 552,389 553,729 549,578 552,695Leasehold Property Note 12.2 & 12.3.2 22,241 27,825 22,241 27,825574,631 581,554 571,819 580,52112.1 Property & equipment - FreeholdGroupCost or ValuationBalance at theBalancebeginningat the endAssets of the year Additions Disposals of the year 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Land 289,693 - - 289,693 289,693Buildings 232,307 - - 232,307 232,307Furniture and fittings 19,844 899 - 20,743 19,844Electrical equipment 5,616 - - 5,616 5,597Office equipment 8,469 50 - 8,519 8,488Computer equipment 3,374 3,901 - 7,276 4,105Motor vehicles 5,918 - - 5,918 5,918Fixtures and fittings 22,286 6,795 - 29,081 22,286Other assets 2,694 - - 2,694 2,694Software 1,846 - - 1,846 1,115Name board 1,817 - - 1,817 1,817593,866 11,645 605,510 593,866Accumulated depreciationBalance at theBalancebeginning Charge at the endAssets of the year for the year Disposals of the year 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Buildings 707 5,808 - 6,515 707Furniture and fittings 10,179 2,286 - 12,465 10,179Electrical equipment 3,330 996 - 4,326 3,330Office equipment 8,322 150 - 8,471 8,322Computer equipment 4,105 750 - 4,855 4,105Motor vehicles 5,115 548 - 5,664 5,115Fixtures and fittings 5,269 1,234 - 6,503 5,269Other assets 2,160 457 - 2,617 2,160Software 558 347 - 905 558Name board 392 409 - 800 39240,137 12,984 - 53,121 40,137Carrying amount 553,729 552,389 553,72912.2 Property and equipment - LeaseholdGroupCost or ValuationBalance at theBalancebeginning at the end TotalAssets of the year Additions Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Motor vehicles 78,425 7,300 (1,130) 84,595 78,425Electrical equipment 10,952 - - 10,952 10,95289,378 7,300 (1,130) 95,548 89,378

72PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd...As at 31st March 2011Accumulated depreciationBalance at theBalancebeginning Charge at the end TotalAssets of the year for the year Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Motor vehicles 54,627 10,556 (565) 64,618 54,627Electrical equipment 6,925 1,764 8,689 6,92561,552 12,319 (565) 73,306 61,552Carrying amount 27,825 22,241 27,82531-03-2011 31-03-2010Rs. ‘000 Rs. ‘00012.3 Property and equipmentFreehold Property Note 12.3.1 549,578 552,695Leasehold Property Note 12.3.2 22,241 27,825571,819 580,52112.3.1 Property & equipment - FreeholdCompanyCost or ValuationBalance at the Balance Totalbeginningat the endAssets of the year Additions Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Land 289,693 - - 289,693 289,693Buildings 232,307 - - 232,307 232,307Furniture and fittings 19,457 734 - 20,191 19,457Electrical equipment 5,581 - - 5,581 5,581Office equipment 7,753 50 - 7,802 7,753Computer equipment 3,374 3,901 - 7,276 3,374Motor vehicles 3,956 - - 3,956 3,956Fixtures and fittings 22,286 4,416 - 26,703 22,286Other assets 2,694 - - 2,694 2,694Software 911 - - 911 911Name board 1,817 - - 1,817 1,817589,829 9,102 - 598,931 589,829Accumulated depreciationBalance at theBalancebeginning Charge at the end TotalAssets of the year for the year Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Buildings 707 5,808 6,515 707Furniture and fittings 9,908 2,189 12,096 9,908Electrical equipment 3,313 996 4,310 3,313Office equipment 7,753 6 7,759 7,753Computer equipment 3,374 750 4,124 3,374Motor vehicles 3,899 58 3,956 3,899Fixtures and fittings 5,269 1,206 6,475 5,269Other assets 2,160 457 2,617 2,160Software 359 341 701 359Name board 392 409 800 39237,134 12,219 49,353 37,134Carrying amount 552,695 549,578 552,695

73PC House PLCAnnual Report 2010-1112.3.2 Property & equipment - LeaseholdCost or ValuationBalance at theBalancebeginning at the end TotalAssets of the year Additions Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Motor vehicles 78,425 7,300 (1,130) 84,595 78,425Electrical equipment 10,952 - - 10,952 10,95289,378 7,300 (1,130) 95,548 89,378Accumulated depreciationBalance at theBalancebeginning Charge at the end TotalAssets of the year for the year Disposals of the year 31.03.2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Motor vehicles 54,627 10,556 (565) 64,618 54,627Electrical equipment 6,925 1,764 8,689 6,92561,552 12,319 (565) 73,306 61,552Carrying amount 27,825 22,241 27,825GroupCompany31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘00013. InventoriesFinished goods & accessories 1,112,791 390,783 1,080,441 382,11214. Trade and Other ReceivablesTrade receivables 770,780 424,523 686,674 385,959Due from related parties (Note 22) - 2,793 40,474 2,793770,780 427,316 727,148 388,75215. Deposits & PrepaymentsLease prepayments 2,742 2,742 2,742 2,742Security deposits 14,267 11,226 14,267 11,226Rent deposits 20,132 18,852 20,132 18,852Bank guarantee margin 35,831 8,125 35,831 5,625Other advances 529 529 529 529Building advances 23,750 19,850 23,750 19,850Interest income receivable 119 119 119 119VAT receivable 21,783 17,092 21,783 16,434Refundable deposits 367 3,345 367 255119,521 81,879 119,521 75,63216. Investment in SubsidiariesInvestment in shares - - 15,409 5,40917. Cash and Bank BalancesCash in hand 21,681 85,927 21,651 85,425Cash at Bank 18,164 79,119 10,588 79,10339,846 165,047 32,239 164,528

74PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd.As at 31st March 2011GroupCompany31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘00018. Stated CapitalIssued and fully paid ordinary shares 801,267 171,700 801,267 171,70019. BorrowingsNon-Current LiabilitiesFinance lease liabilities (Note 23) 5,784 - 5,784 -long-term loans 30,438 206,055 30,438 206,05536,221 206,055 36,221 206,055Current LiabilitiesShort-term borrowings 126,246 109,043 117,246 109,043Import loans 780,166 356,954 780,166 356,954Bills payable 27,971 143,297 27,971 143,297Finance lease liabilities (Note 23) 1,175 778 1,175 778935,559 610,072 926,559 610,072Total borrowings 971,781 816,127 962,781 816,12719.1 Details of Bank SecuritiesBank name Facility name Outstandingbalance Rs. ‘0001. Commercial Bank Overdraft(5,779)Securitiesa) Charles Circus, Colombo 3-Personal asset of ManagingDirector, Mr.S.H.M. Rishan and (b) below.PD(9,443)b).Joint & several guarantee for Rs.360mn signed byMr.S.H.M.Rishan & Mrs.S.S.Rishan, Directors of thecompany and (a) above.Letter of CreditRevolving importloan (sub limit)Term loan(sub limit)2. People’s Bank Letter of creditOverdraftRevolving importloan (Sub limit)Term loan171,23813,600(10)105,1946,875(c)No. 136 D.S Senanayaka Street, Kandy- PC Houseproperty.No, 30 1/3 Glen Arbour Place, Colombo 3- Personal assetof Managing Director, Mr. Rishan.Lien over funds lying in the savings accountNo.71030009518 & 8030016113.a) Stock Mortgageb) Indemnityc) Personal Guarantee of Directors, Mr. Rishan. & Mrs.Rishan.d) 110% cash margin for LCsTR Documents, Rs.2.25mn per month and Joint &Several Guarantee of Directors, Mortgage Bond forRs.106mn over stocks at warehouse in Mattakkuliya,Unity Plaza & Majestic City at the rate of 19%.(15% atregular)No. 13/5, Bodiraja Mawatha, Nadimala, Dehiwala -Personal asset of Managing Director, Mr.S.H.M Rishan.No. 98/3, Sri Kotagama Vachissara Mawatha, Kalubowila,Dehiwala -Personal asset of Managing Director, Mr.S.H.MRishan.

75PC House PLCAnnual Report 2010-11Bank name Facility name Outstandingbalance Rs. ‘0003. NDB Overdraft(2,777)Securitiesa) Mortgage over stock - Mattakkuliya4. DFCC VardhanaBankRevolving importloan (Sub limit)Term loan(Sub limit)Import LoanTerm LoanOverdraft5. Union Bank Import loanOverdraft6. HNB Overdraft facilityRevolving importloan ( Sub limit)187,48451,25098,2422,700(3,139)9,859(50)(50,549)173,110b) 347/1 Main Street, Negombo- PC Housec) Joint & several guarantee for Rs.135mn signed by Mr.S.H.M. Rishan & Mrs. S.S. Rishan, Directors of thecompany.d) “Samsung” stock and Book debts Rs.75mn.e) Receivable Finance Agreement.f) Post-dated cheques.a) Mortgage over stockb) Personal Guarantee of Directors, Mr.Rishan & Mrs.Rishan.a) Mortgage over stock.b) Joint & several guarantee for Rs.25mn signed byMr.S.H.M.Rishan & Mrs.S.S.Rishan, Directors of thecompanya ) No 451, Galle Road, Colombo 03.b) Joint & several guarantee for Rs.100mn signed by eachMr.S.H.M.Rishan & Mrs.S.S.Rishan, Directors of thecompany.7. BOC Revolving importloan ( Sub limit)35,377 No. 176,178,180,182,184 & 186 Church Road, Mattakkuliya,Colombo 15 - PC House property.8. Seylan Overdraft 224Primary Mortgage over immovable property.20. Defined Benefit PlansThe most recent actuarial valuations of the defined benefit obligation were carried out on 31st March 2010 by Mr. M. Poopalanathanof Actuarial and Management Consultants (Pvt) Limited. The present value of the defined benefit obligation and the related currentservice cost were determined by the directors.Principal assumptions used for the purpose of the actuarial valuation were as follows:2009/2010Discount rate 11%Staff turnover rate 2%Expected rate(s) of salary increase 7.5%Retirement age 552010/2011Rs. ‘000Amounts recognised in profit and loss account in respect of these defined benefit plans are as follows: 1,070

76PC House PLCAnnual Report 2010-11Notes to the Financial Statements Contd...As at 31st March 2011GroupCompanyCurrent service cost 31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Prior service cost 4,714 3,782 4,714 3,782Current service cost 3,425 1,070 1,070 1,070Benefit paid (441) (138) (441) (138)Balance at the end of the year 7,698 4,714 5,344 4,714GroupCompany31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘00021. Trade and Other PayablesSundry creditors 14,393 2,412 599 -Accruals 12,877 12,553 10,270 11,31227,270 14,965 10,869 11,31222. Related Party TransactionsThe company carries out transactions in the ordinary course of its business with parties who are defined as related parties in SriLanka Accounting Standard 30 “Related Party Disclosures (revised 2005)”. The details of such tranasactions are reported below.Due from related companiesGroupCompany31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Procifinity Limited - - 3,152 -Greenwich Lanka (Pvt) Ltd - - 37,322 -PC Pharma (Pvt) Ltd - 2,793 - 2,793- 2,793 40,474 2,793(a) Compensation of Key Management PersonnelThe remuneration of directors and other members of key management during the year was as follows:GroupCompany2010/2011 2009/2010 2010/2011 2009/2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Short-term benefits 6,850 1,200 6,850 1,200Consultancy fee 2,722 - 2,722 -(b) Transactions with Related EntitiesThe Company carries out transaction in the ordinary course of business on an arm’s length basis with entities where the Chairman ora Director of the Company is a director of such entities as detailed below:

77PC House PLCAnnual Report 2010-11Company Directors Nature oftransactionProcifinity LimitedS.H.M.RishanD.S.P.WikramanayakeMangala BoyagodaM.ThilakasiriKuvera de ZoysaGreenwich Lanka (PVT) Ltd. S.H.M.RishanD.S.P.WikramanayakePC Pharma (Pvt) Ltd.South Asia Finance ExcelInvestments (Pvt) LtdWealth Lanka Management(Pvt) LtdNational Development BankPLCS.H.M.RishanMrs.S.RishanMangala Boyagoda31-03-2011Rs. ‘000Group31-03-2010Rs. ‘00031-03-2011Rs. ‘000Company31-03-2010Rs. ‘000Operational expenses - - 3,152 -Working capital - 37,322 -Rent receivedInterest incomeWorking capitalLoan obtainedInterest paid3,786814-82,0007,175--2,793--3,786814-73,0006,318--2,793--Mangala Boyagoda Consultancy fee 1,288 - 1,288 -D.S.P.Wikramanayake Import loanTerm loanLease creditorBank overdraft187,48451,2501492,777----187,48451,2501492,777----Director of PC House PLC D.S.P.Wikramanayake Consultancy fee 2,722 - 2,722 -23. Obligations under Finance LeasesLeasing AgreementsFinance leases relate to motor vehicles with a maximum lease term of 5 years. The company has the option to purchase the motorvehicle for a nominal amount at the conclusion of the lease agreement. The company’s obligation under finance leases is secured bythe lessor’s title to the leased assets.Finance Lease LiabilitiesPresent Value ofMinimum Lease PaymentsMinimum Lease PaymentsGroup Company Group Company31-03-2011 31-03-2010 31-03-2011 31-03-2010 31-03-2011 31-03-2010 31-03-2011 31-03-2010Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000Not later than 1 year 1,935 864 1,935 864 1,175 778 1,175 778Later than 1 year andnot later than 5 years 7,188 7,188 5,784 5,7849,123 864 9,123 864 6,959 778 6,959 778Less: Future finance charges (2,164) (86) (2,164) (86)Present value ofminimum lease payments 6,959 778 6,959 778Included in thefinancial statements as:Current borrowings 1,175 778 1,175 778Non-current borrowings 5,784 5,7846,959 778 6,959 77824. Events after the Balance Sheet DateAll the materials events after the balance sheet date have been considered and appropriate adjustments / disclosure have beenmade where necessary.25. Contingencies and CommitmentsThere were no material commitments outstanding as at the balance sheet date. No provision is recognized in the balance sheet forpossible claims on warranties provided, as these expenses are borne by the suppliers.

78PC House PLCAnnual Report 2010-11Share and Investor InformationTop 20 Shareholders as at 31st March 2011No of %Shareholder’s Name Ordinary Shares HoldingMR. S.H.M. RISHAN 154,505,000 67.5%MRS. W.M.M.S. SHARMILA 17,170,000 7.5%DR. T. SENTHILVERL 2,322,800 1.0%MRS. L.S.A. SERESINHE 2,190,600 1.0%MR. D. KOTTHOFF 1,200,000 0.5%PAN ASIA BANKING CORPORATION PLC/MR. H.N.DE SILVA 1,025,000 0.4%SRI LANKA INSURANCE CORPORATION LTD-LIFE FUND 876,700 0.4%MR. K.O.D. JAYARATNE 778,700 0.3%PAN ASIA BANKING CORPORATION PLC/MS. L.S.A.SERESINHE 748,000 0.3%MR. T.L.M. IMTIAZ 691,400 0.3%MR. M.N. SINGA LAXANA 542,700 0.2%MR. M.K. DE VOS 500,000 0.2%MR. M.M. FUAD 452,300 0.2%MR. R.M.A. KEERTHIRATNE 350,000 0.2%FIRST CAPITAL MARKETS LIMITED/MR. B.M.C.JAYALAL 320,000 0.1%MACKSONS HOLDINGS ( PVT ) LTD. 315,000 0.1%SEYLAN BANK PLC/JAYANTHA DEWAGE 300,000 0.1%MR. M.M.M. MIZVER 300,000 0.1%MRS. L.E.M. YASEEN 292,200 0.1%MR. P.V.T. JAYASEKERA 284,400 0.1%TOTAL 185,164,800 80.88%Directors and Chief Executive Officer’s ShareholdingNo ofShares Held asat 31st March 11Saheedul Hijiry Mohamed RISHAN Chief Executive Officer 154,505,000Sithy Sharmila Rishan Non Executive Director 17,170,000Mr. M A Ikram (Alternate Director to Mrs S S Rishan) Alternate Non Executive Director 14,500Mr. E M Mangala Boyagoda Non Executive Director 16,800Mr. D Sarath P Wikramanayake Non Executive Director 83,800Mr. M Thilakasiri Non Executive Director 0Mr. E Kuvera I de Zoysa Senior Independent Non Executive Director 13,200Mr. Shanti K Nadarajah Independent Non Executive Director 2,500171,805,800Total Ordinary Shares in Issue 228,933,334Percentage of Foreign Shareholding : Local ShareholdingAs at 31st March 2011 No of No of %Shareholders Shares HoldingForeign Shareholding 46 3,290,100 1%Local Shareholding 8,749 225,643,234 99%Total Shareholding 8,795 228,933,334 100%Public Shareholding 8,788 57,127,534 25%

79PC House PLCAnnual Report 2010-11Distribution of Ordinary Shares as at 31st March 2011Category No of ShareHolders Holdings % Holding(Nos) (Shares) (%)1 - 250 1,145 156,309 0.07%251 - 500 1,120 495,050 0.22%501 - 1,000 1,960 1,857,215 0.81%1,001 - 2,000 1,265 2,232,598 0.98%2,001 - 5,000 1,852 6,101,293 2.67%5,001 - 10,000 695 5,507,103 2.41%10,001 - 20,000 348 5,343,175 2.33%20,001 - 30,000 146 3,740,900 1.63%30,001 - 40,000 60 2,129,790 0.93%40,001 - 50,000 53 2,478,501 1.08%50,001 - 100,000 83 6,272,400 2.74%100,001 - 1,000,000 62 14,205,600 6.21%1,000,001 - 99,999,999 6 178,413,400 77.93%TOTAL 8,795 228,933,334 100.00%

80PC House PLCAnnual Report 2010-11Five Year Financial SummaryFor the year ended 31st March 2011 2010 2009 2008 2007Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Operating ResultsRevenue 3,796,069 3,034,288 2,526,804 2,546,423 3,031,317Finance Cost 136,342 194,874 217,505 184,990 140,991Depreciation 25,303 19,751 17,287 21,165 19,516Profit berfore interest 437,887 391,738 244,608 213,445 170,307Profit berfore Tax 301,545 196,864 27,103 28,455 29,315Profit after Tax 178,930 123,897 19,275 12,845 17,920Asset EmployedProperty Plant and Equipment 574,630 581,554 396,346 419,845 439,894Deferred Tax 39,600 51,371 51,394 50,148 58,754Current Assets-Liability 846,447 219,365 2,230 (18,773) (2,110)Sharholders FundStated capital 801,267 171,700 171,700 171,700 171,700Revaluation reserve 239,787 239,787 - - -Retained earnings 375,704 230,034 147,919 128,644 115,799Non Current Liabilities 43,920 210,769 130,352 150,876 209,039Rs. Rs. Rs. Rs. Rs.Market Value Per share 17.10Net Asset Per share 6.78 3.74 1.86 1.75 1.67Net Dividend Per share 0.23 0.20 - - -

81PC House PLCAnnual Report 2010-11Glossary of Financial TermsAccounting PoliciesThe specific principles, bases,conventions, rules and practices adoptedby an enterprise in preparing andpresenting Financial Statements.Accrual BasisRecognising the effects of transactionsand other events when hey occur withoutwaiting for receipt or payment of cash orcash equivalent.AmortisationThe systematic allocation of thedepreciable amount of an intangibleasset over its useful life.Basic Earnings Per ShareProfits attributable to ordinaryshareholders divided by the weightedaverage number of ordinary shares inissue.BorrowingsAll interest bearing liabilities.Capital ReservesReserves identified for specific purposesand considered not available fordistribution.Cash EquivalentsShort-term, highly liquid investments thatare readily convertible to known amountsof cash and which are subject to aninsignificant risk of changes in value.Contingent LiabilityA possible obligation that arises frompast events and whose existence will beconfirmed only by the occurrence or nonoccurrenceof one or more uncertainfuture events not wholly within thecontrol of the enterprise.Current RatioCurrent assets divided by currentliabilities.Cost MethodCost method is a method of accountingfor an investment whereby theinvestment is recognized at cost. Theinvestor recognizes income from theinvestment only to the extent that theinvestor receives distributions fromaccumulated profits of the investeearising after the date of acquisition.Distributions received in excess of suchprofits are regarded as a recovery ofinvestment and are recognized as areduction of he cost of the investment.Deferred TaxationSum set aside for tax in the FinancialStatements that will become payable ina financial year other than the currentfinancial year.DepreciationThe systematic allocation of thedepreciable amount of an asset over itsuseful life.Dividend CoverProfit attributable to ordinaryshareholders divided by dividend.DividendsDistribution of profits to holders ofequity investments in proportion to theirholdings.EquityShareholders’ funds.GroupA group is a parent and all itssubsidiaries.GearingProportion of borrowings to capitalemployed.Interest CoverProfit before tax plus net finance costdivided by net finance cost.InvestmentAn investment is an asset held by anenterprise for the accretion of wealththrough distribution.Market CapitalisationNumber of shares in issue multiplied bythe market value of a share at thereported date.Minority InterestThat part of the net results of operationsand of net assets of a subsidiaryattributable to interests which are notowned, directly or indirectly throughsubsidiaries, by the parent.Net Assets Per ShareEquity attributable to equityholders ofthe Company divided by the weightedaverage number of ordinary shares inissue.Net Realisable ValueThe estimated selling price in theordinary course of business less theestimated costs of completion and theestimated costs necessary to make thesale.Operating ProfitProfit before tax, share of profit of equityaccounted investees and net financecost.Price Earnings RatioMarket price of a share divided byearnings per share as reported at thatdate.ParentA parent is an entity that has one ormore subsidiaries.Related PartiesParties who could control or significantlyinfluence the financial and operatingpolicies of the business.Revenue ReservesReserves considered as being availablefor distributions.SegmentDistinguishable component of anenterprise grouped in terms of similarityof operations and location.

82PC House PLCAnnual Report 2010-11Glossary of Financial Terms Contd...Solvency TestThe Company is deemed to havesatisfied the solvency test if -(a) It is able to pay its debts as theyfall due in the normal course ofbusiness; and(b) The value of its assets is greaterthan the sum of the value of itsliabilities and its stated capital.Stated CapitalStated capital in relation to a companymeans the total of all amount received bythe company or due and payable to thecompany -(a) In respect of the issue of shares;and(b) In respect of call on shares.SubsidiaryA subsidiary is an entity, includingan unincorporated entity such as apartnership, that is controlled by anotherentity (known as the parent)Working CapitalCapital required to finance the day-todayoperations computed as the excessof current assets over current liabilities.

83PC House PLCAnnual Report 2010-11Notice of MeetingNOTICE IS HEREBY GIVEN that the ELEVENTH Annual General Meeting of the Shareholders of PC HOUSE PLC will be held onThursday 30th June 2011 at Earls Court - Cinnamon Lakeside Colombo, 115, Sir Cyril A. Gardiner Mawatha, Colombo 02 at 10 a.m.The business to be brought before the Meeting will be :Agenda1. To receive and adopt the Report of the Directors, the statement of Audited Accounts for the year ended 31 st March 2011 andthe Report of the Auditors thereon.2. To authorise the Directors to determine the remuneration payable to the Auditors SJMS Associates, (Chartered Accountants)3 To authorise the Directors to determine contributions to charities4. To transact any other business of which due notice has been given.By Order of the Board PC HOUSE PLCSeccom (Private) LimitedCompany SecretariesColombo1st June 2011

84PC House PLCAnnual Report 2010-11Notes

85PC House PLCAnnual Report 2010-11Notes

86PC House PLCAnnual Report 2010-11Notes

87PC House PLCAnnual Report 2010-11Form of ProxyFor Annual General Meeting of PC HOUSE PLCI/ We ................................................................................................... (Folio No. ................................................................................ OrCDS No ......................................................) of ......................................................................................................................... being amember/ members * of the Company hereby appoint ............................................................... of ......................................................or failing him.Saheedul Hijiry Mohamed RISHAN of Colombo or failing himSithy Sharmila RISHAN of Colombo or failing himEkanayake M Mangala BOYAGODA of Colombo or failing himDrayton Sarath Palitha WIKRAMANAYAKE of Colombo or failing himModarage THILAKASIRI of Colombo or failing himEdinadura Kuvera Isuru de ZOYSA of Colombo or failing himShanti Kumar NADARAJAH of Colombo or failing himMushtaq Ahamed IKRAM of Colombo or failing himas my/ our Proxy to represent me/ us and to vote for me/ us on my/ our behalf at the Eleventh Annual General Meeting of theCompany to be held on Thursday 30th June 2011 at Earls Court - Cinnamon Lakeside Colombo, 115, Sir Cyril A. Gardiner Mawatha,Colombo 02 at 10 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof.I/ We the undersigned, hereby direct my/our proxy to vote for me/us and on my/our behalf on the resolutions set out in the Noticeconvening the meeting by an “X” in the appropriate space given below.ForAgainstTo receive and adopt the Report of the Directors, the statement of Audited Accounts for the year ended31 st March 2011 and the Report of the Auditors thereon.To authorise the Directors to determine the remuneration payable to the Auditors SJMS Associates,(Chartered Accountants)To authorise the Directors to determine contributions to charities...........................................Signature ofShareholder/sDatedNotes:1. Please delete the inappropriate words2. Instructions as to completion are enclosed.

88PC House PLCAnnual Report 2010-11Form of Proxy Contd...INSTRUCTIONS AS TO COMPLETION1. To be valid, this form of proxy must be deposited at the Registered Office,451, Galle Road, Colombo 3 not later than 48 hours before the time appointedfor holding the meeting.2. In perfecting the form of proxy please ensure that all details are legible.3. Please indicate with an ‘X’ in the relevant space given against each resolutionhow your proxy is to vote on the resolution. If no indication is given the proxyin his discretion will vote as he thinks fit.4. In the case of a Company/Corporation, the Form of Proxy must be under itsCommon Seal which should be affixed and attested in the manner prescribedby its Articles of Association5. In the case of a proxy signed by an attorney, the power of attorney must bedeposited at the Registered Office for Registration.6. In the case of non-resident Shareholders, the stamping will be attended to, onreturn of the completed form of proxy to the Registered Office of the Companyin Sri Lanka.REQUEST TO SHAREHOLDERSShareholders are kindly requested to indicate the Folio No appearing in the addresslabel pasted on the envelope, which contains the Annual Report in CD-FORM, inthe space provided for “ Folio No “ in the Form of Proxy, for the convenience of theCompany Secretaries. Please note that non- indication of the “Folio No” will notinvalidate the form of Proxy, under any circumstances.

Corporate InformationName of the CompanyPC HOUSE PLCCompany Registration NoPV 1827 PB /PQDate of IncorporationFebruary 2, 2000Legal FormA Public Quoted Company with Limited LiabilityBoard of DirectorsSaheedul Hijiry Mohamed RISHANSithy Sharmila RISHAN(Alternate Director - Mushtaq Ahmed IKRAM)Ekanayake Mudiyanselage Mangala BOYAGODADrayton Sarath Palitha WIKRAMANAYAKEModarage THILAKASIRIEdinadura Kuvera Isuru De ZOYSAShanti Kumar NADARAJAHChairman and CEONon Executive DirectorNon Executive DirectorNon Executive DirectorNon Executive DirectorSenior Non Executive Independent DirectorNon Executive Independent DirectorCompany SecretarySeccom (Private) Limited, (Company Secretaries)1E - 2/1, De Fonseka Place, Colombo 5T Phone 2590 176 Fax 2581 618E_Mail kmaahamed@hotmail.comHead Office451 Galle Road, Colombo 3T Phone 4 724242 Fax 4 724343Web Site www.pch.lkE_Mail Info@pch.lkSubsidiary CompaniesGreenwich Lanka (Pvt) LimitedBoard of DirectorsDrayton Sarath Palitha WIKRAMANAYAKESaheedul Hijiry Mohamed RISHANProcifinity LimitedBoard of DirectorsDrayton Sarath Palitha WIKRAMANAYAKESaheedul Hijiry Mohamed RISHANEkanayake Mudiyanselage Mangala BOYAGODAModarage THILAKASIRIEdinadura Kuvera Isuru De ZOYSAAuditorsSJMS Associates (Chartered Accountants)2, Castle Lane, Colombo 4Legal AdvisorsF J & G de Saram - Attorney-at-Law216, De Saram Place, Colombo 10BankersCommercial Bank of Ceylon PLCNational Development Bank PLCPeople’s BankHatton National BankDFCC Vardhana BankUnion BankBank of CeylonProduced by Copyline (Pvt) Ltd.Printed by Gunaratne Offset Ltd.

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