Report Approach…Setting Tone and Tenor

We continue with the trend of integrated reporting as we have done in our last two Annual Reports. The value that the Company delivers to its constituent stakeholders and the value of those stakeholders to the Company in driving its future earnings are considered to be two sides of the same coin. While the former is the sustainability part of the story, the latter becomes the capital formation part of the story. Both financial capital and non-financial capital formation are considered along with their relationship to each other. Non-financial capital is referred to as intellectual capital and encompasses our customers, human resources, business partners, institutional integrity, community and environment.

The information contained in this report, as in the past, is in compliance with all applicable laws and regulations.

Following convergence with the International Financial Reporting Standards, Dimo adopted the new Sri Lanka Accounting Standards (known as SLFRSs and LKASs) from 1st April 2012. Financial Statements up to 31st March 2012 were prepared in accordance with Sri Lanka Accounting Standards which were in effect up to that date. Accordingly, the Financial Statements for the previous year has been restated as per the new SLASs.

Further, we are in compliance with the laws and regulations of the Companies Act No. 07 of 2007 and subsequent amendments and the Listing Rules of the Colombo Stock Exchange (CSE). We continue to follow requirements of the Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka (ICASL) and the Securities and Exchange Commission of Sri Lanka (SEC). The extent and manner in which we have complied with the code are detailed in this report. This also comprises a Communication on Progress (COP) for United Nations Global Compacts’ ten principles. As before, the various metrics regarding our performance on sustainability are aligned with the Global Reporting Initiative (GRI) G3.1 guidelines at an application level of ‘A+’. The GRI Content Index is given elsewhere in this report. We have used the Greenhouse Gas Protocol Corporate Standard to measure and report on our carbon footprint.

This Annual Report pertains to activities of Diesel and Motor Engineering PLC and its subsidiaries, collectively referred to as the Dimo Group, spanning a 12-month period ended 31st March 2013. There have been no changes in reporting scope and/or boundaries from the previous year. Non-financial information in this report pertaining to the previous year has not been restated, unless otherwise stated. Dimo is one of the 85 organisations participating in a Pilot Programme of the International Integrated Reporting Council (IIRC) that seeks to develop an international integrated reporting framework.

Mapping

We begin our mapping process in the context of our eight strategic imperatives. Then, we map identified stakeholders against the characteristics shown in the diagram.

Basis for Engagement

Plotting the results as above allows us to home in on an order of priority, as detailed below, which prepares the ground for stakeholder engagement.

• Those who exhibited all three of the identified characteristics are regarded as the most important for engagement (A)
• Those who exhibited any two of the identified characteristics are regarded as the next most important for engagement (B, C and D)
• Those who exhibited only one or none of the identified characteristics are not, as a rule, considered for engagement (E, F, G, and H)

Stakeholder Engagement

The table below illustrates how we engage with our important stakeholder groups.

STAKEHOLDERS	PROCESS OF ENGAGEMENT	Period of engagement
Shareholders Owners Providers of capital	One-to-one interview (by independent parties ) Annual General Meeting  provides an opportunity to review the past year’s performance and engage in discussions with the management Annual Report Quarterly reports provide a quarterly review of Performance. Company Website	Once every 3 years Once a year    Once a year Once every quarter On line
Employees The key resource for competitive advantage and sustainable growth	One-to-one interviews (by independent parties ) Focus groups discussion ( by independent parties) Employee Council meetings Employee Portal of the company network accessible to every employee. Annual strategic planning meeting Company’s ‘Open Door’ policy encourages direct employee – management dialogue. Annual Employee Surveys - voluntary and confidential. Employee Portal HR Clinics – Bi annually Individual Performance Reviews – bi-annually Employee Reward & Recognition	Once every 3 years Once every 3 years Once a month Continuous   Once a year Continuous Once a year On line Bi annual basis across all business units. Continuous
Customers Principal source of sustenance	One-to-one interview Customer Relationship Management process (CRM) enables keeping in touch with the customer on a daily basis. It helps to respond to queries and problems from the customer. ‘Problem solving’ for challenges the customer faces is also done through the CRM process. A Customer Satisfaction Index maintained by each department provides an assessment of satisfaction levels and helps to improve problem solving capacities within the Company. DIMO “Fleet Owners Clubs” for Loyalty Customers  “Mercedes Club” 24hour roadside assistance	Once every 3 years 24 hours, 7 days     Once a month Continuous Continuous 24 hours, 7 days
Business Partners & Suppliers Critical component of the Value chain	One-to-one interview (by independent parties ) A high speed 24 x 7 on line link enables constant dialogue with principals. Issues discussed include product quality, marketing, customer satisfaction, ‘problem solving’ and employee motivation. On site visits from principals and on site visits to principals’ location facilitate engagement.	Continuous Continuous
Community Local immediate communities Stakeholders in Sustainable development	One-to-one interviews (by independent parties ) Focus groups discussion ( by independent parties) Dialogue with Religious Dignitaries Written & oral communications initiated by stakeholders Company website	Once every 3 years Once every 3 years Continuous Continuous On line
Regulatory and government agencies	One-to-One Interview	Once every 3 years

The following diagram illustrates the methodology we adopt to manage stakeholder issues.

Materiality of Stakeholder Issues

Arising from our stakeholder engagement process, the issues raised are rated, assigned and prioritised.

Emissions, effluents & waste Technical education for youth Customer health & safety Economic performance Employee training & education Occupational health & safety Labour/management relations Compliance Raw material consumption

Corruption Diversity & equal opportunity Investment and procurement practices for local suppliers Anti-competitive behaviour Customer privacy Ethical marketing communications Local communities Carbon footprint

Mutually beneficial relationships with suppliers Energy consumption Employee benefits Product & service labeling

Status of material issues

Out of a total of 111 responses received through the engagement process, 75 were positive and 36 were negative.

We have brought the materiality analysis up to date by adding key inputs and replacing outdated information based on feedback from stakeholders.

The said analysis traces the issues raised, their materiality status (whether increased, decreased, unchanged from previous year, or newly identified in current year), reasons for shift of status and the Company’s response.

Material Issue	Status of Material Issues	Possible reason for the shift	Response/How you intend to respond
Emissions, Effluents & Waste	★	Its an issue requires continuous attention in the industry	We have an Environment Management system accredited by ISO 14001 where we follow stringent guidelines to ensure we meet the requirements of our EMS (Management Approach - Environment)
Technical Education for Youth	★	This issue will remain same as there is a lack of skill labour with relation to paint and tinkering jobs in the industry	we have and will continue to encourage trainees from vocational training institutes to receive on the job training at no cost
Customer Health & Safety	★	Its an issue requires continuous attention in the industry	We represent world class brands where our Principles ensure all measure are taken with regard to customer H&S. as a voluntary initiative we have also communicated to customers about the hazards of used CFLs if not disposed properly. In addition safety measures are taken at all are Workshop to ensure customer H&S.
Economic Performance	★	Shareholders are concerned about the ROI as the company has not performed as expected during the year. However this concern will remain high materiality as funds are critical for a business
Employee Training & Education	▲	Due to continuous training and development programs conducted for the employees the materiality of the issue has decreased to moderate level. Positive feedback received from independent employee engagement with regard to T&D	Training hours have increased by 33% from the previous year (Management report on employees pg)
Occupational Health and Safety	★	The nature of the business requires continuous attention in the workplace	GAP Analysis for OHSAS completed. ISO18001 to be obtained during the 2013-2014 FY (Objective Table)
Labour/Management Relations	▲	Employees are satisfied with the procedures and opportunities provided for them to reach immediate and top management. Feedback received from employee independent survey	Whistle Blower policy was implemented during the year
Compliance	★	The company needs to continuously be on alert with regard to compliance matters	The centralised group legal division will develop a compliance register to ensure all government acts and regulations pertaining to the business is maintained and periodic reviews will be conducted as per the register (Objective Table)
Raw Material consumption	★	Continuous monitoring is essential with regard to raw material consumption	Optimizing the use raw material and continuous monitoring
Corruption	★	This is a critical issue for any organisation hence the company needs to be on alert at any given time	The employee code of conduct is in place where all employees are expected to read and sign that they
Diversity & Equal Opportunity	▲	Employees and other stakeholder believe that the company gives opportunities regardless of race, religion or other background details (Independent Employee survey results)	All employees are given opportunity regardless of age, gender, religion or cast. A new female batch will be absorbed by the DATS training school to encourage female technicians/mechanics in the Workshops
Investment and Procurement Practices for Local suppliers	■	Suppliers are not aware of the content of supplier code prepared by the company (Identified through the feedback survey of suppliers)	Will be conducting Workshops for suppliers to introduce the supplier code during the year
Anti-competitive behavior	★	Requires our continuous attention	We ensure we do not get involved in anti-competitive practices
Customer Privacy	★	Customer privacy is a very sensitive area, hence forth at any given time the company should be on alert	A secure database management system meeting Daimler requirements are in place to ensure customer data is secured
Ethical Marketing Communications	▲	no hindrance to the society in terms of ethical marketing practices (Response receive through Stakeholder feedback survey)	A communication policy has been established by the organisation to ensure all marketing communication activities adhere to the policy. in addition we also follow guidelines given under the ICC code of advertising and marketing communications
Local Communities	★	The nature of our business needs to give the local community priority with regard to our on-going operations and when setting up new workshops	We conduct an assessment before setting up workshops to ensure that the local communities are not affected. In addition we will identify and implement a process to asses both social and environment factors affecting the local communities
Carbon Footprint	★	The nature of our business requires to monitor our carbon foot print continuously	During the year the CFP has decreased due to turnover drop and efficient use of fuel
Mutually beneficial relationships with suppliers	★	To continue with our nature of business, mutual beneficial relationships with our suppliers are very important	Business performance report is submitted to principles to evaluate performance
Energy Consumption	★	This is a critical factor across the industry	Energy saving measures is implemented across the organization. New initiatives will be taken during 2013-2014 FY
Employee Benefits	▲	Employees are satisfied with the benefit provided for them (Response from the Independent Employee survey)	Employees are given a wide variety of benefits. During the year the organization has gone beyond its responsibility to support employees at times of need
Product & service labeling	๐	Sufficient information about products/services is not explained to the customer. New concern raised through the customer survey	We have conducted many training sessions on product knowledge to ensure sales staff has adequate knowledge of the products we offer. More sessions will be organized during next year to improve the knowledge of sales staff

■ Materiality of issues increased    ▲ Materiality of issues decreased    ★ Materiality of issues remains same    ๐ New Issues identified