for value creation or value creation€¦ · for value creation our potential or value creation...

Commercial Leasing & Finance PLCAnnual Report 2016/17

Expanding... our potential for value creation

our potential for value creation

It’s been an excellent year, and at Commercial Leasing & Finance PLC (CLC), we have much to celebrate, as the pages of this report will show. A year of commitment and hard work has paid off yet again, for our year-end results are stronger than ever before. We were pleased to see a strong performance in our Microfinance sector while our customer base doubled and deposits and profitability saw significant growth, as a result of true teamwork and the overall excellence of your company.

This report is another record of immense success; a success we measure by the continuing satisfaction of the diverse stakeholders we serve. The year ahead will see us continue to gain ground in the competitive industry sector we operate within, making our mark, exploring and expanding our potential to create value for the

many stakeholders we partner.



It’s been an excellent year, and at Commercial Leasing & Finance PLC (CLC), we have much to celebrate, as the pages of this report will show. A year of commitment and hard work has paid off yet again, for our year-end results are stronger than ever before. We were pleased to see a strong performance in our Microfinance sector while our customer base doubled and deposits and profitability saw significant growth, as a result of true teamwork and the overall excellence of your company.

This report is another record of immense success; a success we measure by the continuing satisfaction of the diverse stakeholders we serve. The year ahead will see us continue to gain ground in the competitive industry sector we operate within, making our mark, exploring and expanding our potential to create value for the

many stakeholders we partner.

To soar into the future, giving wings to the dreams, hopes and aspirations of our people and everyone who has a stake in the success of our enterprise.

To forge ahead to reach new frontiers, to touch new horizons, seeking new challenges and exploring new opportunities.

Together with our people with diverse strengths, committed to achieving personnel excellence and the continuous growth of our enterprise.

To serve our customers with utmost care.

To serve our customers professionally.

To do work with utmost integrity.

Be performance driven.

To work as a team and treat fellow colleagues as one family.

In order to make our vision a reality, we always strive:

To provide innovative financial solutions of highest possible quality at an optimum value.

To ensure utmost customer focus and dedication to superior

customer service.

To provide best returns to our stakeholders through the strength of our customer, strategic partner and employee satisfaction.

VISION

MISSION

VALUES

Commercial Leasing & Finance PLC | Annual Report 2016/172

Corporate Information

ABOUT USCommercial Leasing & Finance PLC (CLC) is one of Sri Lanka’s leading Non Banking Financial Service Providers offering solutions ranging from leasing, fixed deposits, savings, loans, flexi cash, microfinance, Islamic finance, to factoring. With 61 customer touch points spread across the country, CLC has become a trusted brand, synonymous with stability and dependability, playing an invaluable role as a key catalyst in financial empowerment.

CLC will continue to grow and expand with its unique operating philosophy “Hithawathkama” which encapsulates how the trust and progress of all our stakeholders will continue to be the priority in our hearts and minds.

NAME OF THE COMPANYCommercial Leasing & Finance PLC

COUNTRY OF INCORPORATIONSri Lanka

LEGAL FORMA quoted public company with limited liability

DATE OF INCORPORATION22nd April 1988

COMPANY REGISTRATION NO.PQ 131/PB/PQ

STOCK EXCHANGE LISTINGThe ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 5th June 2012.

CREDIT RATINGICRA Lanka assigned the company an issuer rating of (SL) A (Stable).

REGISTERED OFFICE AND HEAD OFFICENo. 68, Bauddhaloka Mawatha, Colombo 04. Tel: 0114526500/526Fax: 0114526559Website: http://www.clc.lk

DIRECTORSMr. I C Nanayakkara - Non-Executive Chairman (r.w.e.f 16.06.2017)Mr. W D K Jayawardena - Non-Executive Director(r.w.e.f 16.06.2017)Mrs. K U Amarasinghe - Non-Executive Director (r.w.e.f 16.06.2017)Mr. P D J Fernando - Senior Independent DirectorMr. L Jayaratne – Independent Non Executive Director (a.w.e.f. 22.03.2017)Mr. D M D K Thilakaratne - Executive Director/ CEO

SECRETARIESLOLC Corporate Services (Private) Limited100/1 Sri Jayawardenapura Mawatha, RajagiriyaTel: 011 5880354/7 0115880880 (general)

AUDITORSKPMG, Chartered Accountants

LAWYERSJulius & Creasy, Attorneys-at-LawNithya Partners

REGISTRARSPW Corporate Secretarial (Private) LtdNo. 3/17 Kynsey Road, Colombo 8. Tel: 011 4897733-5

PRINCIPAL ACTIVITIESDuring the year the principal activities of the Company comprised provision of leasing, loans, mobilising of fixed and savings deposits, Islamic financing and micro financing.

BANKERSBank of CeylonCiti Bank N AHatton National Bank PLCHongkong and Shanghai Banking Corporation LtdDeutsche BankNation Trust Bank PLC Commercial Bank of Ceylon PLC NDB BankSeylan Bank PLC MCB BankSampath Bank PLC DFCC Vardhana BankUnion Bank of Colombo PLC People’s BankHabib Bank

3

Contents

http://www.clc.lk/InvesterRelations

Scan the QR Code with

your smart device to

view this report online.

Corporate Information / 2Financial Highlights / 4Chairman’s Review / 6Director’s Review / 8Chief Executive Officer’s Review / 10Board of Directors / 12Management Team / 15Regional Management Team / 19Management Discussion & Analysis / 22Branch Network / 30Financial Review / 31Our Human Capital / 35Report on Corporate Governance / 38Enterprise Risk Management / 72Report of the Board of Directors / 76Report of the Audit Committee / 80Report of the Integrated Risk Management

Committee / 81Report of the Remuneration Committee / 82Report of the Nomination Committee / 83Report of the Related Party Transaction

Review Committee / 84Directors’ Statement on Internal Control over

Financial Reporting / 85Chief Executive Officer’s and Chief Financial

Officer’s Responsibility Statement / 86Independent Auditors’ Report / 87Statement of Profit or Loss and Other

Comprehensive Income / 88Statement of Financial Position / 90Statement of Changes in Equity / 92

Statement of Changes in Equity / 94Statement of Cash Flows / 96Notes to the Financial Statements / 98Shareholder Information / 184Summarised Quarterly Statistics / 186Ten Year Summary / 188Sources and Distribution of Income / 190Statement of Value Added / 191Glossary Terms / 192Notes / 196Notice of Meeting / 198Form of Proxy / 199


Financial Highlights

For the year ended 31 March 2013 2014 2015 2016 2017

Performance indicators (Rs. 'Mn)Interest income 5,996 7,514 7,590 8,110 10,898

Interest expense 2,515 3,039 2,406 3,373 6,126

Net interest income 3,481 4,475 5,184 4,738 4,772

Other income 209 253 579 1,281 2,331

Profit before tax 1,603 1,289 1,728 2,008 2,205

Profit after tax 1,168 936 1,426 1,574 1,686

New executions (leases and loans) 11,232 18,593 22,762 31,986 32,833

Factoring funds in use 2,859 2,231 2,778 5,085 6,547

Financial position (Rs. 'Mn)Total assets 27,229 32,934 42,385 84,359 77,761

Net lending portfolio 24,985 27,570 32,982 46,793 53,904

Outstanding borrowings 14,660 14,369 20,095 58,051 45,742

Deposits from customers 2,962 7,534 9,381 12,348 15,936

Shareholders funds 7,837 8,856 10,115 11,797 14,176

Key financial indicatorsEarnings per share (Adjusted) (Rs. per share) 0.18 0.15 0.22 0.25 0.26

Net asset value per share (Adjusted) (Rs. per share) 1.23 1.39 1.59 1.85 2.22

Interest cover (times) 1.63 1.42 1.72 1.59 1.36

Debt to equity ratio (times) 2.25 2.47 2.91 6.43 4.75

Return on capital employed (%) 16.01 11.21 15.03 14.37 12.99

Return on average total assets (%) 5.98 4.28 4.59 3.16 2.08

Non performing ratio 2.98 2.44 2.74 1.09 1.93

Capital adequacyCore capital ratio (%) minimum 5% 29.53 27.63 28.27 20.22 21.11

Total risk weighted capital ratio (%) minimum 10% 29.53 27.63 25.57 18.42 19.49

Core capital (Rs.Mn) minimum 400 7,576 8,404 10,119 11,627 13,300

5

2013 2014 2015 2016 20170.0

0.5

1.0

1.5

2.0

2.5

NET ASSET VALUE PER SHARE AND EARNINGS PER SHARE

Net Asset per share Earnings per share

Rs.

2013

Net Lending portfolio Total Asset

2014 2015 2016 20170

20,000

40,000

60,000

80,000

100,000

NET LENDING PORTFOLIO TO TOTAL ASSETSRs. Mn

0

5,000

10,000

15,000

20,000

CUSTOMER DEPOSITS AND LIQUID ASSETS

2013 2014 2015 2016 2017

Customer deposits Liquid assets

Rs. Mn

2,205 1,686Profit Before Tax (Rs. Mn) Profit After Tax (Rs. Mn)

2012/13 2013/14 2014/15 2015/16 2016/170

5,000

10,000

15,000

20,000

25,000

30,000

35,000

NEW EXECUTIONSRs. Mn


I take pleasure in welcoming you to the 25th Annual General Meeting of Commercial Leasing & Finance PLC (CLC) and sharing with you an exceptional performance as CLC continued to keep expanding its horizons. Its excellent financial performance was also combined with a vibrant level of expansion of its portfolio, market presence and reach. The Company’s profitability (PBT) grew by 10% to Rs.2.2Bn while turnover grew by 34% during the year; supported by all its business channels.

Sri Lanka’s economic activity began to gather momentum and showed signs of stabilisation as the year 2016 left behind some

DEAR STAKEHOLDER,

Chairman’s Review

of the policy uncertainties that characterised the preceding year of elections and transitions. Unfavourable weather conditions and a sluggish global economic recovery however, caused the economy to grow at a slower 4.4% in real terms in comparison to 4.8% in the previous year although a steady acceleration in quarterly growth was observed from the second quarter of the year amid tightened fiscal and monetary policies. Several gradual monetary policy tightening steps by the Central Bank of Sri Lanka, combined with the gradual decline in excess liquidity contributed to a considerable rise in both lending and deposit rates during the year. The Average Weighted Deposit Rate (AWDR) increased to 8.17 % by end 2016 from 6.20 % at

7

many synergies for win-win solutions. The Company will thus expand in the micro and SME sectors in the next few years and capitalise on the numerous opportunities that still remain untapped.

CLC will also look to expand its customer base with an objective of expanding its total customer base by 200,000 by the end of the next financial year. Based on a strong platform with the most comprehensive product portfolio in Sri Lanka’s NBFI sector, CLC will strive to continue exceeding expectations and enhance the value it creates for its diverse stakeholders in the years ahead.

ACKNOWLEDGEMENTSI would like to convey my sincere appreciation to my colleagues on the Board for their guidance, continual support and the confidence placed in me, and to the team at CLC for enabling an exceptional performance. My sincere gratitude also extends to our customers, funding partners, Business Introducers, shareholders, and all other stakeholders for their constant support as we look to the year ahead with much optimism, reenergised by the vibrant pace we have kept.

Ishara NanayakkaraChairman

end 2015, while the Average Weighted Fixed Deposit Rate (AWFDR) also increased to 10.46 % by end 2016 from 7.57 % at end 2015. Interest rates offered on new deposits also increased substantially during the year. The rise in rates in turn increased your Company’s cost of borrowing. The Loan-to-Value (LTV) ratio regulatory requirement introduced by the authorities in 2016 also had a negative impact on the credit growth of the Company. Moreover, two natural disasters which affected the country, namely floods at the beginning of the year and the drought conditions thereafter, also had adverse impacts on the repayment capacities of clients; thus exerting pressure on recoveries by the Company.

CLC ventured into Islamic Finance as well as Microfinance in 2016, becoming a One Stop Shop in financial services. It is most heartening and commendable that both these new business segments achieved significant growth and exceeded our expectations in its first full year of operations. The Microfinance business established a portfolio of Rs. 2.8 Bn and contributed 5.2% to CLC’s profitability. The Islamic Finance Division was able to establish a portfolio of Rs. 2.2 Bn and establish itself among the top players in Sri Lanka’s Islamic Finance industry with a comprehensive portfolio of products and a wide distribution channel which encompasses CLC’s entire branch network.

OUR PEOPLEOne of CLC’s key strengths has been the talents, commitment and tireless efforts of its entire team which enable excellent performances and help sustain that performance. The year under review, also saw a recruitment drive in line with the expansion of the Company’s portfolio and reach.

LOOKING AHEADThe continuing rise in interest rates remains a key area of concern, due to its impact on our Company’s cost of borrowings. A high interest rate scenario generally results in the tapering off of customers’ repayment capacity. CLC has thus adopted special measures to ensure a close monitoring of collections and to enhance the Company’s Savings Deposit base, which is a relatively low cost funding.

CLC will look to harness the tremendous potential in the investments it has made in Microfinance, Islamic Finance, Factoring and SME finance. The venture into Microfinancing well augments CLC’s strengths in this sector and will create

The Company’s profitability (PBT) grew by 10% to Rs.2.2Bn whilst Turnover grew by 34% during the year; supported by all its business channels


CLC, a turnaround case study since it was acquired by the LOLC Group in 2008, continued on its excellent growth trajectory during the year, with a vibrant performance across all spheres. The Company was able to grow its portfolio and expand its reach and customer base; supported by all business segments and technological innovation. It is also significant that the Company was able to maintain its NPL ratio well below the industry average at less than 2%, despite the strong growth in portfolio during the year and the environmental factors such as floods and droughts which challenged the repayment capacities of our clients.

DEAR SHAREHOLDER,

Director’s Review

The Company’s progress in its two new areas of business has been remarkable and exceeded all expectations. The Microfinance business, in just its first full year of operations was able to contribute 5.2% to CLC’s portfolio. The other new business unit, Islamic Finance, was also able to achieve a growth of 111% in its portfolio to reach Rs. 2.2 Bn in value. The Savings and Deposits business unit also grew its deposit base by 30%.

The Company has established strong partnerships over the past few years with leading funding agencies, and these international institutions now notably account for 41% of CLC’s

9

funding. This is a significant endorsement of the role we play in Sri Lanka’s economic progress and the high standards of governance and management to which the Company adheres.

CLC, with a comprehensive portfolio of financial services, brims with tremendous potential, and the performance of its Microfinance and Islamic Banking businesses which just completed their first full year of operations augments the buoyant outlook we have for the Company to keep harnessing and expanding its potential.

The myriad new strategic initiatives that CLC has taken during the past few years, combined with its strong capital base, funding structure and pipelines, partnerships, management processes, and technology and procedures, see it well poised for sustained growth with considerable resilience to external environmental challenges.

ACKNOWLEDGEMENTS I would like to convey my sincere appreciation to our Chairman and my colleagues on the Board for their guidance and to the entire team at CLC for their unreserved effort and commitment which keep driving the Company to surpass expectations. In conclusion, I thank all our customers, funding partners, shareholders, and other stakeholders for their constant support and confidence in brand CLC.

Kapila JayawardenaDirector

The Microfinance business, in just its first full year of operations was able to contribute 5.2% to CLC’s portfolio. The other new business unit, Islamic Finance, was also able to achieve a growth of 111% in its portfolio to reach Rs. 2.2 Bn in value. The Savings and Deposits business unit also grew its deposit base by 30%


Chief Executive Officer’s Review

CLC had an exceptional year in 2016/17 on all fronts. We are most satisfied with the performance of the new business initiatives such as Microfinance, Islamic Finance and Saving and Deposits. With each passing year, CLC has been improving its top-line, bottom-line and portfolio numbers - and this year too was no exception.

During the year under review, CLC’s balance sheet was further strengthened, with top-line growing by 34% and the portfolio expanding by 15% reflecting our emphasis on topline growth over portfolio growth which is significant in increasing net interest margins. Our product performance has been exceptional, with Savings and Deposits growing by approximately 30%, Factoring by as much as 24% and the bottom-line reflecting an increase of 10%.

MICROFINANCE EXCEEDS EXPECTATIONS The Company derived immense satisfaction with the level of progress made in critical areas of the business, especially Microfinance and Islamic Finance. Despite the year under review being the first full year of operations, the Microfinance arm managed to build a portfolio of Rs. 2.8 Bn which made a contribution of 5.2% to the total portfolio of the Company.

Significantly, we ended the year as at 31st March 2017 with a Microfinance customer base of 60,000 within one year, which will be the feeder customer base for future growth. Currently, our Microfinance customer base is growing by over 10,000 every month, which reflects the vast future possibilities. We expect this area of business to play a key role in the organisation’s future performance and strategy.

11

Special measures are being taken by CLC to concentrate closely on collections while enhancing our savings account deposit base, which is relatively low cost funding.

Finally, CLC is geared to face any challenges in the future due to its strong fundamentals, its low overhead model and exceptional staff.

APPRECIATIONI would like to place on record my gratitude to the Board of Directors. My heartfelt appreciation goes to all our internal and external stakeholders, comprising of employees, valued shareholders, business partners, funding agencies, banks and other financial institutions, and the regulators for their unstinted support and encouragement.

Krishan ThilakaratneDirector / Chief Executive Officer

ISLAMIC BUSINESS DIVISION GARNERS NEW CUSTOMERSWe are equally elated with the performance of our Islamic Business Division (IBD), which recorded a portfolio growth of 111% to end the year with Rs. 2.2 Bn. We have been able to make a significant impact on the Islamic Finance landscape in Sri Lanka as the new active player. CLC now boasts a wide portfolio of Islamic Finance financial instruments, namely, “Ijarah, Murabaha, Mudaraba, Musharaka and Wakala” based products. Further, Islamic Finance is now being offered out of all our branches, an aspiration we fulfilled during the period under review. The full Islamic Finance product range together with the wide distribution channel that CLC holds makes us one of the top players in the Islamic Finance space.

The rapid inroads that CLC IBD has made in the Islamic Finance landscape is evident by the fact that we were awarded the Gold Award for the ‘Emerging Islamic Finance Entity of the Year 2016’ at the 6th Sri Lankan Islamic Banking and Finance Industry Awards (SLIBFI) 2016.

EXPANDING OUR INFLUENCEThe Savings and Deposits business unit too made a valuable contribution throughout the year in addition to significant deposit base growth. We have been able to expand the CEFTS and SLIPS service to our customer base who have benefitted with these two banking platforms. Further, the CLC platform allows our customers to pay over 50 utility bill payments, thereby offering unparallelled convenience. CLC was also awarded the runner up award for the most customer convenient online platform in the NBFI sector due to this advanced technology at the LankaPay Technnovation Awards 2017.

Moving ahead, the Company will try to maximise and expand further on the investments that have already been made in the Microfinance, Islamic Finance, Factoring and SME finance, together with popularising the online banking platforms for deposit clients. We are also keen on growing our customer base rapidly to build a sound foundation for future growth.

I have confidence that CLC’s client base will exceed 200,000 by end of 2017/18.

With regards to the industry, the rising interest rates are definitely an area of concern, especially since it increases our cost of borrowings. The high interest rate scenario generally results in adversly affecting customers’ repayment capacity.

Going ahead, the company will try to maximise and expand further on the investments that have already been made in the Microfinance, Islamic Finance, Factoring and SME finance, together with popularising the online banking platforms for deposit clients.


Board of Directors

1 2

3 4

5 6

13

1. ISHARA NANAYAKKARAChairman/ Non Executive DirectorMr. Ishara Nanayakkara is a prominent entrepreneur serving on the Boards of many corporates and conglomerates in the region. He initially ventured into the arena of financial services with a strategic investment in Lanka ORIX Leasing Company PLC and was appointed to the Board in 2002. Today, he is the Deputy Chairman of LOLC and the Executive Deputy Chairman of LOLC Finance PLC, holding directorships in many of its subsidiaries and associate companies.

Backed by over a decade of professional experience in the industry, Mr. Nanayakkara holds the role of Chairman of Commercial Leasing & Finance PLC, one of Sri Lanka’s leading financial service providers for over 28 years, as well as LOLC Life Assurance Limited. He is also Deputy Chairman of Seylan Bank PLC, a premier commercial bank in the country. His vision to cater to the entire value chain of the finance sector manifested in the development of Microfinance, Islamic Finance, factoring through LOLC Factors, LOLC Life & General Insurance Companies and stock broking through LOLC Securities Ltd.

Leveraging LOLC Group’s expertise in the SME sector, the expansion into the Micro Sector was spearheaded by Mr. Nanayakkara, who is the Chairman of their Micro Credit Companies: LOLC Micro Credit Company Ltd, the only private sector Microfinance institution in the country with foreign equity, and BRAC Lanka Finance PLC. He also holds a directorship at PRASAC, the largest Microfinance Company in Cambodia. Mr. Nanayakkara’s interest in Microfinance lead to the inauguration of LOLC Myanmar Microfinance Company Ltd, a green field investment in Myanmar in which he was the founding Chairman, and currently serves as a Director. His proficiency in Microfinance in the region is further demonstrated by his involvement at strategic level in LOLC Cambodia Ltd (Previously known as Thaneakea Phum Ltd); the 5th largest Microfinance company in Cambodia. He was also recently appointed as a director in LOLC International Private Limited & LOLC Private Limited.

Mr. Nanayakkara’s motivation to expand into various growth peripheries is further illustrated through his role as the Executive Chairman of Browns Investments PLC. Through various strategic investments, he is committed to catalysing

development in the growth sectors of the Sri Lankan economy. Mr Nanayakkara’s involvement in the Boards of Brown and Company PLC, Agstar Fertilizers PLC, Associated Battery Manufacturers (Cey) Ltd and Sierra Constructions Ltd, reflects this business philosophy.

Endorsing his entrepreneurial spirit, Mr. Ishara Nanayakkara received the prestigious ‘Young Entrepreneur of the Year’ Award at the Asia Pacific Entrepreneurship Awards (APEA) in 2012. He holds a diploma in Business Accounting from Australia.

2. KAPILA JAYAWARDENA Non Executive DirectorMr. Kapila Jayawardena holds an MBA in Financial Management and is a Fellow of the Institute of Bankers and an Associate Member of the Institute of Cost and Executive Accountants, London. He served as Country Head and CEO (Sri Lanka and Maldives) of Citibank NA from 1998 to 2007.

He has varied experience in the fields of Investment Banking, Banking Operations, Audit, Relationship Management, Corporate Finance, Corporate Banking and Treasury Management.

Kapila Jayawardena was appointed as the Chairman of the Sri Lanka Banks’ Association (SLBA) in 2003/04. He has also served as President of the American Chamber of Commerce in Sri Lanka in 2006/2007 and was appointed to the Financial Sector Reforms Committee (FSRC) and was a member of the National Council of Economic Development (NCED). He also served as a Board Member of the United States - Sri Lanka Fulbright Commission.

He joined LOLC in the year 2007 as the Group Managing Director/CEO. He is the Chairman of the following companies and is also on the Boards of the subsidiaries of the LOLC Group.

1. Chairman - Eden Hotel Lanka PLC2. Chairman - LOLC General Insurance Ltd3. Chairman - LOLC Securities Ltd

In 2012, he was appointed to the Board of Browns Investments PLC and in 2013 to Seylan Bank PLC.


3. MRS KALSHA AMARASINGHENon Executive DirectorMrs Kalsha Amarasinghe holds an Honours Degree in Economics. She serves on the Boards of Lanka ORIX Leasing Company PLC, Brown & Co. PLC, LOLC Micro Credit Ltd, LOLC Life Assurance Limited, Palm Garden Hotels PLC, Riverina Resorts (Pvt) Ltd and Eden Hotel Lanka PLC. She also serves as a Director on the Boards of Commercial Leasing & Finance PLC, Browns Investments PLC and Browns Capital PLC.

4. PRIYANTHA FERNANDO Senior Independent DirectorMr Priyantha Fernando has more than 35 years of experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011, in charge of the Financial System Stability and the Corporate Services clusters. Mr Fernando has extensive experience and expertise in the fields of Banking and the Financial Sector, particularly at the policy making levels in financial regulation and supervision, Information technology, national accounting, macro-economic analysis and statistics, finance and fund management. At the Central Bank, he was the Chairman of the Financial Stability Committee, member of the Monetary policy Committee, member of the Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2009/2010.

He was an ex-officio board member in several regulatory organisations namely the Securities and Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers –Sri Lanka and has also served as a Board Member at Employers Trust Fund, Lanka Clear (Pvt) Ltd and Lanka Financial Services Bureau.

During his career he has initiated and spearheaded several key projects of national importance, especially in the area of developing the infrastructure for the national payments and settlement system.

Mr Fernando has served a number of committees at national level covering a range of subjects representing the Central Bank.

He has been appointed the Chairman of Golden Key Credit Card Company and currently serves on the boards of the, Union Bank of Colombo PLC and is the acting Chairman, Taprobane Holdings Ltd, Ceylon Leather Products PLC, Equi Capital (Pvt) Ltd, Golden Key Hospitals Ltd, Thomas Cook Travels Sri Lanka and Imperial Institute of Higher Education.

5. LUXHMAN JAYARATNEIndependent DirectorMr Luxhman Jayaratne has over 37 years of banking experience. He has worked in several countries in Asia, Europe and Africa, focusing on Management of Operations and Technology areas with involvement in product management. He had been directly involved in setting up Citibank in Sri Lanka, and Romania. He had also been the Head of Operations and Technology of Africa Citibank covering 14 countries before joining Union Bank of Nigeria PLC.

Mr Jayaratne specialises in operations and technology management, process regionalisation and centralisation, and Commercial Banking.

6. KRISHAN THILAKARATNEExecutive Director / CEOMr Krishan Thilakaratne is the Director/ CEO of Commercial Leasing & Finance PLC, and Head of Islamic Finance of LOLC group. He also serves on the Board of Commercial Insurance Brokers (Pvt) Ltd., the largest Insurance Broker in Sri Lanka which is an Associate Company of Commercial Leasing & Finance PLC.

He previously held the positions of CEO, Lanka ORIX Factors Ltd., & CEO, Auto Finance of LOLC. He is an Associate Member of the Institute of Bankers of Sri Lanka and joined the LOLC Group in 1995.

Board of Directors

15

1. Mr. Krishan Thilakaratne - Director / Chief Executive Officer

2. Mr. Jude Anthony - Deputy General Manager - Branch Network

3. Mr. Nihal Weerapana - Deputy General Manager - Recoveries

4. Mrs. Deepamalie Abhayawardane - Deputy General Manager – Factoring

5. Mrs. Nishanthi Kariyawasam - Head of Finance

6. Mr. Lal Aberathna - Assistant General Manager - Factoring (Marketing)

1

3

2

6

Management Team

4

5


12

10

Management Team

11

7. Mr. Tharanga Indrapala - Assistant General Manager - Operations

8. Mr. Pradeep Madurasinghe - Assistant General Manager - Negombo Region

9. Mr. Lasantha Peiris - Head of IT Operations

10. Mr. Upul Samarasinghe - Assistant General Manager - Credit

11. Mr. Prasanna Karandagolla - Assistant General Manager - Head of Microfinance

12. Mr. Prasanna Dayarathna - Chief Manager - Operations (Factoring)

7 8

9

17

13. Mr. Terence Kaushalya - Chief Manager - Savings & Deposits

14. Mr. Sarath Nawarathna - Chief Manager - Legal

15. Mr. Upul Suraweera - Chief Manager - Head of SME & Corporate Finance

16. Mr. Chamil Prasad - Manager - Head of Human Resources

17. Mr. Hasitha Hemasiri - Assistant Manager - Head of Customer Services

18. Mr. Prasad Perera - Assistant Manager - Head of Marketing Communications

13 14

15 16

17 18


19 20

Management Team

21

19. Mr. Chandimal Perera - Assistant Manager – Head of Asset Backed Finance

20. Mr. Ilsam Awfer - Assistant Manager - Head of Islamic Business Division

21. Mr. Ranjan Gunathilaka - Head of Administration

19

1. Mr. Samitha Aruggoda - Chief Manager - Gampaha Region

2. Mr. Prasanna Goonethilleke - Chief Manager - Kandy and Eastern Region

3. Mr. Suneetha Samarawickrama - Chief Manager - Colombo Region

4. Mr. Sunil Shantha - Chief Manager - Galle Region

Regional Management Team

1

3

2

4


5

7

6

8

Regional Management Team

5. Mr. Sarath Wijenayake - Chief Manager - Ratnapura Region

6. Mr. Sampath Palliyaguru - Regional Manager - Matara Region

7. Mr. Harsha Kumarage - Regional Manager - Anuradhapura Region

8. Mr. Janaka Karunaratne - Assistant Regional Manager - Kandy Region

Makingour mark...

Management Discussion & Analysis


Commercial Leasing & Finance PLC (CLC) once again showcased an exceptional performance in the year under consideration, to deliver a stellar financial performance. The Company successfully expanded its reach and brand awareness by leveraging on technology-backed products and solutions, delivered to perfection by our committed staff members. More importantly, the Company’s performance improved despite the prevalence of less than conducive market conditions in the latter half of the financial year. Furthermore, focusing on deliverable targets and devising strategies to achieve corporate goals helped the Company stay on course.

CLC became the first Non-Banking Financial Institution (NBFI) to register with Common Electronic Fund Transfer System (CEFTS) in 2016 which is a key milestone for the Company during the financial year. This facility has attracted greater customer numbers and has helped the Company to improve its customer service proposition, thus making CLC an outstanding service provider in the industry.

The first full year of operations of the Microfinance arm infused further profitability to the Company, as it’s diverse product portfolio now enables it to tap in to all levels of the

income pyramid. The Company’s wide breadth of products and solutions have transformed it into a one-stop shop for a comprehensive range of financial services.

BUSINESS CHANNELS The Company’s business channels continued their strong performance from the previous year, as the Company’s portfolio and profitability reflected sharp growth. The overall performance of all business channels was exceptional, and one of the salient reasons for this is Company’s highly diversified portfolio, which enables it to access a wide variety of customers across all income segments.

The foundation of the business channels was tested strongly during the year under review since new products such as Microfinance and Islamic Finance were rolled out across a majority of the CLC branches. Yet success was achieved because of the Company’s ability to rally the dedication of its entire team to remain focused on delivering set targets. CLC’s performance this year has been derived from the efforts of every single employee and the management, closely monitored by the Board of Directors.

One of CLC’s major strengths has been its professional team of employees. Training for Branch Managers and Regional Managers was accelerated during the year, to ensure that they are equipped with the technical and leadership skills to drive business in their respective regions. The stringent recruitment process in place has ensured that the new recruits exhibit the right attitude and prove to be a good fit in the Company’s culture.

DEPOSITS The Company recorded a strong deposit growth of 30% during the year under review, as deposits grew to Rs. 15.9 Bn from Rs. 12.3 Bn in the previous year. We now see a clear correlation between our growth in deposits and the new customer base opting for a strong and stable finance company in which to deposit their funds. Customers are becoming increasingly more aware and savvy about the behaviour of financial markets and of the need to evaluate the stability of financial institutions before

CLC was awarded as Runner Up for Best Financial Institution of the Year for Customer Convenience at the LankaPay Technovation Awards 2017. This award shows the commitment towards customer convenience and the use of technology to provide an excellent service.


23

making their investments. During the year, we saw customers moving to higher rated financial companies such as CLC, since it is an ICRA [SL] A, stable rated company.

Our advanced technology platform is yet another crucial factor in attracting new customers and new business. The facility and flexibility to deposit and withdraw from their accounts through the island-wide branch network and an island-wide partner network of over 3,000 ATMs, 24/7, offers a unique convenience to customers. As a result, not only could we retain existing customers, but we also successfully grew our customer base. Our strong customer service heritage precedes us as customers continue to demand greater service levels.

Moreover, focus on new product and process development and improvements in customer service also bolstered the deposit base of the Company. These new product developments and service enhancements have placed CLC’s service on par with the services of any top rated banking institution.

In the period under review, the focus was on new technology and technology-backed products, leading to the launch of the online banking platform and the Mobile App with CEFTS and SLIPS functionality to enable customers to pay their utility bills online. We have expanded our portfolio of utility companies to 50, even enabling customers to reload their mobile phones online.

CLC was awarded as Runner Up for Best Financial Institution of the Year for Customer Convenience at the LankaPayTechnovation Awards 2017. This award shows the commitment towards customer convenience and the use of technology to provide an excellent service.

In addition, CLC was one of the three finalists for the Best Mobile App of the year. This achievement has fully manifested our commitment to new age technology, product development and service excellence towards our customers.

Technology has played a pivotal role in our growth during the year. At the same time, we have reaped the benefits

of attracting the unbanked population into our fold while simultaneously introducing new products. CLC is one of the NBFIs to receive written approval from Central Bank of Sri Lanka (CBSL) to collect deposits from the doorsteps of customers, extending real time credit and SMS alerts to instill further confidence in customers. We are also heartened by the fact that we will be playing a key role in instilling the savings habit among the new customer base just as we have done with our existing base.

CREDITOur low NPLs are a reflection of the strength of our credit base and this has been a result of the strong knowledge sharing culture in the Company. Our staff is kept closely updated about regulatory changes and implications, and they are empowered to make informed decisions. Considering the unfavourable market conditions for credit growth during the year under review, we are sustaining growth by diversifying and streamlining processes.

The Loan-to-value (LTV) regulatory requirement brought in by the regulatory authorities in 2016 had a negative impact on the credit side of the business, along with a rise in interest rates. As a result, banks curtailed overdraft limits which impacted the credit sector as a whole. We expect every year to reveal its own set of challenges and have thus been innovating strategies to maintain our credit quality and standard. In addition, the division carried out comprehensive credit audits in order to emphasise and ensure the importance of the quality of a company portfolio.

The strategy that CLC has adopted is to move away from traditional products to cash-flow based lending products such as personal and home loans, housing, property mortgages, and so on. Going ahead, we will continue to stringently monitor our credit growth, NPLs and collections. Our portfolio remains strong because we sustain continuous credit training for our marketers, throughout the year in an ongoing manner.


MICROFINANCEOur Microfinance arm was established in 2016 to cater to all spectrums of income categories. Our vision is to uplift customers’ living standards to the next level. We also cross-sell our savings products among these clients. CLC is also planning to sign up for Client Protection Principles (CPP) agreement certification granted by a world-renowned agency - The Smart Campaign (www.smartcampaign.com), which endorses fair pricing for products.

The Microfinance arm recorded exponential growth due to our extensive product range including micro credit, micro savings and micro insurance. We remain one of the few finance companies authorised by the CBSL to collect deposits and savings in the field which gives us a competitive edge in the

market. This also serves to strengthen our ability to canvas for new customers. Our facility to visit our customers at a convenient location of their choice enhances the possibility of them putting aside savings to secure their future.

We are also focusing on attracting first-time customers who have never transacted with formal banking/ financial institutions or engaged in formal financial transactions.

Since inception, we have executed a total of 59,153 Microfinance loans which amounts to Rs. 3.3 Bn. Within a short period of time, the Microfinance arm has contributed approximately 4% to the top-line of the Company. We operate across the island through 38 Microfinance centres located at CLC branches.


The Microfinance arm recorded exponential growth due to our extensive product range including micro credit, micro savings and micro insurance.

Mrs. W. Mery Katharin Kosaka - Negombo

25

During the year, 267 new employees were recruited by the Company to strengthen the Microfinance Business Unit.

In an effort to differentiate our product, we branded CLC “Wasana” in a simple yet attractive manner in an ATL campaign that delivered successful results. We are eager to dominate the Microfinance industry and lead the micro savings category.

We have also leveraged on technology to reduce any margin for error by ensuring all transactions are recorded in real-time, online, and also by sending and instant SMS alerts to customers. This high level of transparency has enhanced the CLC corporate brand.

Our Microfinance operation adopted a low cost model where we promote these products through our existing branch network. This has helped us to reap higher returns.

59,153Total No. of Microfinance customers

3.3Total amount of group loans granted (Rs. Bn)

38Total No. of Microfinance branches

267Total No. of Microfinance staff

Since inception, we have executed a total of 59,153 Microfinance loans which amounts to Rs. 3.3 Bn.

The CLC Microfinance portfolio mainly consists of female customers, which is in line with our objective to empower women through financial literacy and financial inclusion. These female customers use the loans to better their living standards by setting up small businesses. As a Company we have further enabled these customers to open savings accounts to cultivate the habit of saving for a better future.

CLC is reaching out to the heart of rural, remote communities and infusing new hope by extending financial support and technical knowhow to improve customers’ economic prospects. We are excited to have successfully introduced the benefits of Microfinance and the formal banking/ financial process to first-time customers who have never engaged in such transactions previously. Our sustainable approach to Microfinance envisions supporting our customers to uplift their prosperity to the next stage of growth.

Mrs. G.W. Disna Fonseka - Ja Ela


ISLAMIC FINANCE The year 2016/17 marked the first full year of operations for the Islamic Business Division (IBD). The Company recorded execution of Rs. 2.3 Bn in the year as compared to Rs. 1.2 Bn in the previous year. Assets grew by 111% to reach Rs. 2.2 Bn in the year under review. The most notable growth came from the deposit portfolio which posted a growth of 400%. The net profit of Rs. 44 Mn in 2015/16 rose to Rs. 253 Mn in 2016/17. Income grew from Rs. 61 Mn in the previous year to Rs. 343 Mn in the current year. Much of this growth can be attributed to the awareness spreading initiatives undertaken by the Company to educate the public about the benefits of Islamic Finance, while clarifying any doubts held about the various product categories. As such we undertook a comprehensive campaign in the Eastern Province. One of the major contributors to our success is the fact that CLC IBD is able to offer Islamic Finance at all our branches, thereby enhancing access to customers.

Simultaneously, we are equipped with a product portfolio which suits all customer requirements and are in the process of further enhancing it to cater to more SME and Micro segments. CLC IBD remains in complete compliance in terms of Shari’ah requirements and maintains necessary firewalls to segregate Islamic Finance operations from Conventional Business. The IBD is governed by a 3 member Shari’ah Supervisory Board (SSB) and an In-House Shari’ah Advisor.

During the year, we expanded staff numbers to ensure we have placed a dedicated Islamic Finance marketer at branches which are located at key Muslim populated towns, while at the same time also educating other staff about Islamic Finance. CLC has the expertise in Islamic Finance and an entire product range is available at all branches.

Our performance was also appreciated and recognised by the industry during the year. CLC Islamic Finance became the ‘Emerging Islamic Finance Entity of the Year’ at the Sri Lankan Islamic Banking and Finance Industry (SLIBFI) Awards 2016, for its outstanding performance within the first year of operations.

Further, CLC-IBD In House Shari’ah Advisor Ash-Shaikh Zaid Nooramith was awarded the ‘Rising Islamic Finance Personality of the Year – 2016’ at the same awards ceremony

for his contribution towards the Islamic Finance Industry at large. These accolades underscore the effectiveness of our strategy and our focus on meeting compliance and customer requirements.

The future looks positive for the Islamic Business Division as we will continue to expand the asset portfolio and enhance the product range. We are gearing up to become self-sufficient and to achieve this we will be tapping local and international investments, which will prove to be a new avenue for the Islamic banking and finance industry.

FACTORINGThe Factoring arm recorded moderate growth due to market conditions steadily becoming less favourable for the product as the 2016/17 financial year progressed. The banking sector overall experienced a liquidity crunch which resulted in interest rates going up, and coupled with the prevailing drought conditions in the Northern and Eastern parts of the country, this had a ripple effect on our factoring business. Our customers too reported a slowdown in various sectors as a result of which they could not recover payments from their customers in turn. Despite this, we posted a growth of 24%, although this fell short of the target we had set for the year after the exceptional growth recorded in the previous year.

Nevertheless, the Factoring business continued its successful path in its strategy adopted in 2013 to diversify its market segment from corporates to SME through our branch factoring programme. Accordingly, the branches recorded a 78% contribution to overall growth, up from 60% in the previous year. The branch portfolio, which was Rs. 2.6 Bn as at 31st March 2016 and consisted of 407 clients, rose to Rs. 3.7 Bn and 741 clients as at 31st March 2017. The total number of clients utilising Factoring services exceeded the 1,000 mark within the year. With these achievements, the Factoring business generated an income of Rs. 1.3Bn which reflects a growth of 85% compared to the previous year.

Factoring is a highly attractive product against receivables in order to fulfil cash flow constraints of entrepreneurs. Despite the challenges, CLC Factoring remains ahead of competition in the sector because it is the first factoring company to adopt


27

the SLIPS and CEFTS platform, enabling its customers to access speedy services while enhancing the customer experience.

RECOVERIES The period under review was a crucial and challenging one for the Recoveries team, which had to operate against backdrop of economic upheavals on the one hand and natural disasters on the other. These factors have a direct impact on our customers as it lowers their repayment capability. However, despite many challenges faced during the year, our teamwork and intricate processes ensured that NPLs remained under 2% while maintaining total provisioning of less than 2% of the total portfolio. We now have a dedicated team across 10 regions focused purely on recoveries through daily monitoring.

Another factor that rendered this year a difficult one was the fact that the Company had moved away from asset-backed products to cash-flow based products, which makes the task more challenging for the Recoveries team. However, we proved ourselves equal to the challenge. In the light of intense competition due to the 90 facilitators in the country, Recoveries

played a dedicated role in interacting with customers while ensuring we maintain our minimal NPLs.

During the year, the Company’s Microfinance business grew and the Recoveries team was tasked with ensuring collections from the Microfinance customer base, which was achieved in a smooth manner. The secret to our high efficiency standard is a clear set of goals given to each team supported by the necessary knowledge and technical skills imparted to them and their empowerment to think and act independently.

Moreover, adopting product-wise strategies also contributed to the improved bottom lines of the Company. The Recoveries department will continue and further improve their efforts to minimise the number of contracts that require legal action.

CUSTOMER SERVICEDuring the year under review, some of the existing systems were adjusted to cater to evolving market and customer needs. We have appointed and allocated Supervisors and Assistant Supervisors to every branch, a strategy that has reaped rich rewards of higher efficiency and streamlined systems.

Customer service training efforts were at their peak during the year as we had to train a large number of new recruits in the Microfinance division who underwent a stringent training process. CLC’s service offering is one of the main contributors to the Company’s success, enabling it to emerge among the top five NBFIs in the country and we continue to pursue service excellence. Our main endeavour is to reduce customer waiting times for loans and approvals by leveraging on technology. We are gearing up to do business with millennials and we see a proliferation of web-based solutions for this segment.

CLC’s online banking portal is delivering enhanced convenience for customers to bank at leisure and we ensured the online transaction experience is smooth and stress-free. The marketing call centre which responds to any queries from the public with regard to ongoing promotional campaigns and new products continued to play a useful role in the delivery of customer service.

CLC Islamic Finance became the ‘Emerging Islamic Finance Entity of the Year’ at the Sri Lankan Islamic Banking and Finance Industry (SLIBFI) Awards 2016, for its outstanding performance within the first year of operations.


MARKETING COMMUNICATIONSIn the financial year under review, Marketing Communications spend on new media increased when compared to the previous financial year. Our expenditure ratio was pegged at about 78% allocated for traditional media and 22% for new and emerging media in order to be more attuned to and be in line with evolving customer engagement trends. As a result, the CLC corporate brand and sub brands now enjoy a more visible presence on New Media platforms. This mode of customer engagement further enabled the Company to connect with the younger, more tech savvy generation. We plan to leverage our wide product portfolio by extending bundled offers to customers through partner promotions, which proved to be a popular and effective method to drive sales.

During the year, we launched an aggressive 360-degree campaign of ‘CLC Wasana’/ ‘CLC Adhistam’ to promote our Microfinance products in Sinhala and Tamil speaking communities while creating a distinct brand identity from other competing products. Thereafter, the hype surrounding this product was sustained through promotional activities. A media campaign was also launched to promote lending by bringing onboard a legendary film personality Mrs. Iranganie Serasinghe.

CLC successfully retained its 44th rank in LMD’s Brands Annual Top 100 listing, which reflects the tenacity of the Company despite challenging macro economic conditions.

Our island-wide customer engagement initiatives continued throughout the year. We have 3 branded propaganda vehicles conducting business promotions while generating product awareness.

CSR PROJECTSAt CLC, we believe sustainability is a process of continuous improvement so that communities constantly evolve to accomplish their goals. CLC contributes to building a sustainable society by fostering society’s economic and environmental health, promoting social equity, and encouraging employee volunteerism to build a stronger social network. The Company undertook several Corporate Social Responsibility (CSR) projects during 2016/17 to engage with the larger community:

• Blood Donation Campaign The Company organises an annual blood donation

campaign which witnesses the participation of our employees and stakeholders. This event provides an opportunity for all of them to come together to serve the needs of society.

• Donations to Maharagama “Apeksha” Hospital In order to ease the plight of cancer patients at the

Maharagama “Apeksha” Hospital, the Company donates King coconut to patients to ensure they remain hydrated while they undergo cancer treatment at the hospital. This initiative witnesses the participation of our staff who volunteer to personally visit the hospital.

• Distribution of Water Tanks to Polonnaruwa CLC distributed 20 water tanks to communities in the

region of Polonnaruwa to combat the effects of Chronic Kidney Disease which is rampant in the area, so that people have access to safe drinking water. This initiative has helped reduce the challenge that local residents in the area face in accessing potable water.


During the year, we launched an aggressive 360-degree campaign of ‘CLC Wasana’/ ‘CLC Adhistam’ to promote our Microfinance products in Sinhala and Tamil speaking communities while creating a distinct brand identity from other competing products.

29

• Flood donations Recurring floods over the year under review devastated

homes and livelihoods of communities in flood hit areas. CLC responded by providing urgent flood donations to communities in Ratnapura, Galle and Matara which experienced the worst of the floods.

FUTURE OUTLOOK The investments made in the last two years in Islamic Finance and Microfinance business units and the process improvements further strengthens CLC to lead in the finance industry. We will leverage on these investments to enhance our balance sheet, expand our customer base and grow our portfolio. At the same time, we will continue to expand the Company’s influence in innovating digital products that fulfil the aspirations of the next generation.


Nelliady

Jaffna

Killinochchi

Mannar Parakramapura

Thambuththegama

Trincomalee

Serunuwara

Batticaloa

Kalmunai

Ampara

Monaragala

BadullaNuwara Eliya

Welimada

RatnapuraMaharagama

Kalutara

NugegodaBambalapitiya

Pettah

KiribathgodaBorella

BattaramullaKaduwela

Avissawella

Kalawana

Tissamaharama

Embilipitiya

Udugama

AmbalangodaPitigala

Baduraliya

GalleMatara Tangalle

Anuradhapura

Nochchiyagama

DambullaPolonnaruwa

Bakamuna

Puttalam

ChilawKurunegala

Matale

Mahiyanganaya

KandyWarakapola

Gampaha

Kuliyapitiya

Negombo

Wennappuwa

Medawachchiya

Vavuniya

CLC Branches

Post Office Services Centres

Commercial Factors Head Office

Dehiwala

Grandpass

Minuwangoda

Gampola

Wattala

Branch Network

Nawala

31

Financial Review

OVERVIEWThe Company has continued its growth momentum to record robust performance for the financial year ended 31st March 2017, recording profit before income tax of Rs.2. 2Bn.This is a 10% increase over Rs. 2Bn reported for the corresponding period, 2016. This performance was achieved despite the increase in costs of funds, shrinking margins and challenging market conditions prevalent during the year. The after tax profit of the Company also improved by 7% moving to 1.68Bn from Rs. 1.57Bn whilst the earnings per share improved to Rs.0.26 from Rs.0.25.

The consolidated profit before tax of the Group improved by 13% to Rs. 2.55Bn compared with Rs.2.26Bn reported in the previous year. BRAC Lanka Finance PLC(BRAC), 99.76% owned subsidiary of the Company contributed Rs. 352Mn as profit before tax to the Group, compared with Rs.260Mn achieved in the last year.

INTEREST INCOMEInterest income, the principal source of income of the Company increased by 34% from Rs.8.11Bn to Rs.10.90Bn during the year.

Interest income In Rs. Bn

FY 2016/2017

FY 2015/2016

Variance %

Leasing & hire purchase 2.78 2.75 1

Loans & advances 5.83 3.92 49

Factoring 1.30 0.70 85

Overdue interest 0.76 0.52 48

Rentals & sales proceeds - contracts written off

0.23 0.21 7

Total interest income 10.90 8.11 34

Interest income from loans and advances increased to Rs.5.83Bn from Rs.3.92Bn with the change of product mix from lease and hire purchase to flexi cash, micro group loans etc. The Factoring income stood at Rs.1.30Bn, with an increase of 85% from Rs. 0.7 Bn over the previous year resulting from the growth in the factoring portfolio from Rs.4.95Bn to Rs. 6.16Bn.

Group interest income improved by 42% to reach Rs.14.02Bn from Rs. 9.87Bn with high margin Microfinance products offered by the subsidiary, BRAC Lanka Finance PLC.

INTEREST EXPENSEInterest expenses increased at a faster pace during the year, putting pressure on the margins. Interest expense of the Company increased considerably by 82% from Rs.3.37Bn to Rs.6.13Bn due to increase in borrowing costs and higher quantum of borrowing supporting portfolio growth.

NET INTEREST INCOME

ExpensesIn Rs.Bn

FY 2016/2017

FY 2015/2016

Variance %

Interest income 10.90 8.11 34

Interest expense (6.13) (3.37) 82

Net interest income 4.77 4.74 0.7

Company posted a marginal growth in Net Interest income from Rs. 4.74Bn to Rs. 4.77Bn for the financial year ended 31st March 2017 with growth in the portfolio.

OTHER INCOMEProfit before tax of the Company was complemented by other income which includes fee income, interest on government securities, foreign currency term deposits, capital gains and losses arising from marked to market valuation of quoted shares and unit trusts held for trading purposes.

Fee income relating to the lending portfolio included in other income increased by 15% from Rs. 0.67 Bn to Rs.0.77 Bn with the growth in the lease and loan portfolio. Total other income grew by 82%, reaching Rs.2.33Bn from Rs.1.28Bn, with the increase in interest on government securities and interest from foreign currency term deposits.

In Rs.BnFY

2016/2017FY

2015/2016Variance

%

Fee income 0.77 0.67 15

Other income 1.56 0.61 154

Total other income 2.33 1.28 82


OPERATIONAL EFFICIENCY

ExpensesIn Rs.Bn

FY 2016/2017

FY 2015/2016

Variance %

Direct expenses 0.47 0.34 38

Premises, equipment & establishment expenses

0.35 0.29 20

Personnel costs 1.10 0.87 26

Allowance for impairment & write offs

0.71 0.57 24

Depreciation and amortisation

0.11 0.09 22

Other operating expenses 1.71 1.58 8

VAT on financial services 0.46 0.27 70

Total operating expenses 4.91 4.01 22

Operating expenses of the Company rose to Rs. 4.91Bn from Rs. 4.01Bn mainly due to increase in direct expenses, personal cost, impairment charges and VAT on financial services. Personal costs increased by 26% to Rs.1.10Bn from Rs.0.87 Bn with the expansion in the Microfinance business. Significant investments were also made towards branch upgrading and refurbishments during the year.

ASSET QUALITYThe Company’s asset quality remained strong with the Non-Performing Loan(NPL) ratio being much stronger compared with the industry which was 5.3%. The provision coverage of the Company stands strong at 84% at the year end.

The allowance for impairment on leases, loans and factoring receivables amounted to Rs.0.71Bn.

The impairment charge was calculated using the statistical model as in previous years, in line with the requirement of the Sri Lanka Financial Reporting Standards (SLFRS). The Company’s impairment balances remain healthy and conservative and well over the stipulated regulatory levels.

TAX EXPENSEThe current year’s profit after tax reached Rs.1.68Bn after providing Rs.518.47Mn for income tax and deferred tax. Rs.565.43Mn has been provided as income taxes and Rs.46.96Mn has been reversed as deferred tax. The Company’s tax expense increased by 19%, from Rs.433.88Mn to Rs.518.47Mn.

ASSET GROWTHThe asset base mainly consists of lending portfolio, which accounts for 69% of the Company assets, improved by 15% from Rs.46.79Bn to Rs.53.90Bn recording a rupee growth of Rs.7.11Bn. The credit growth is mainly through other loans such as term loans, revolving loans, factoring and Microfinance products. The leasing portfolio declined by 5% compared to the previous year. This could be attributed to the implementation of the loan to value ratio in respect of loans and advances granted by finance companies on motor vehicles.

2013 2014 2015 2016 20170

20

40

60

80

100

120

COMPOSITION OF ASSETS

Loans & Advances Net InvestmentsOthers

%

Financial Review

33

Meanwhile, the investment portfolio comprising of investments in equities, corporate debt instruments and government securities contracted to 24% of the asset portfolio as it reported a negative growth of 46% with the maturity of foreign currency fixed deposits. Accordingly, the asset base of the Company reduced by 8% to Rs.77.76Bn from Rs.84.36Bn. Reduction in backed to back local borrowings against foreign currency fixed deposits are reflected in loans and borrowings classified under liabilities.

Net assets per share of the Company was Rs.2.22, up from Rs.1.85. Profitability in terms of Return on Assets and Return on Equity were recorded at satisfactory levels of 2.08% and 12.99% respectively.

CUSTOMER DEPOSITSDespite intense competition seen throughout the year, the company managed to increase its Customer deposit base by almost 30% from Rs.12.34Bn to Rs.15.93Bn. This accounted for 26% of the funding mix. However, the cost of deposits went up by 24% with increase in cost of medium term deposits.

2013 2014 2015 2016 20170

300

600

900

1,200

1,500

20,000

40,000

60,000

80,000

100,000

120,000

INTEREST PAID TO CUSTOMER DEPOSITS

Interest paid to customer depositsNumber of depositors

Rs. Mn

BANK BORROWINGS AND FOREIGN FUNDINGThe funding base of the Company decreased from Rs.58.05Bn to Rs,45.74Bn, a negative growth of 21% due to repayments relating to back to back loans obtained against foreign currency

COMPOSITION OF ASSETS AND LIABILITIES

As at 31-03-2017Rs. Bn

Share % As at 31-03-2016Rs. Bn

Share % Change

Loans & Advances - net 53.90 69% 46.79 55% 15%

Investments 18.47 24% 33.98 40% -46%

Investments in associate and Subsidiary company 1.11 1% 1.04 1% 6%

Investment Properties, intangible assets and Property plant & equipment

2.03 3% 1.07 1% 89%

Other assets 2.25 3% 1.48 2% 53%

LiabilitiesCustomer deposits 15.94 20% 12.35 15% 29%

Borrowings 45.74 59% 58.05 69% -21%

Equity 14.17 18% 11.8 14% 20%

Total Funds 75.85 98% 82.20 97% -8%

Other 1.90 2% 2.16 3% -12%

Total Assets / Liabilities-net 77.76 100% 84.36 100% -8%


fixed deposits. Foreign currency borrowings accounted for major share of total borrowing representing 41 %. Exchange rate risk was managed by placing the foreign borrowings obtained in term deposits and backed to back financing.

FUNDING MIX

Foreign funding agencies

Securitization & others

Other long term

Short term

Customer deposits

Debenture

7.23%

41%

2%23%

26%

8%

As at 31-3-2017As at 31-3-2016

36%

1%36%

17%

7%

3%

SHAREHOLDER FUNDS, CAPITAL ADEQUACY AND LIQUIDITYThe Company remains well capitalised with a strong core capital adequacy ratio of 21.11% and a total capital adequacy ratio of 19.49%, well above the stipulated regulatory minimum of 5% and 10% each. The regulatory capital computation excludes Rs.1.02Bn invested in subsidiary company BRAC Lanka Finance PLC.

ICRA Lanka Ltd. reviewed the Company’s rating and reaffirmed the rating at A with a stable outlook.

The shareholder funds of the Company reached Rs. 14.17Bn from Rs. 11.79Bn with the earnings from its operations and increase in revaluation reserves. The Company’s rich repository of capital continues to strengthen the company’s growth prospects.

2013 2014 2015 2016 20170

3

6

9

12

15

SHAREHOLDER FUNDSRs. Bn

The market capitalisation of the Company exceeded Rs.16.58 Bn as at 31st March 2017 with a closing share price of Rs.2.60, which resulted in a Price Earning(PE) ratio of 10 (times).

The strong performance of the Company during the year and the strong balance sheet, positions the Company to derive stronger performance in the coming years.

2013 2014 2015 2016 201715

20

25

30

Core capital ratio - minimum 5% Total risk weighted capital ratio - minimum 10%

%

CAPITAL ADEQUACY RATIO

Financial Review

35

Our Human Capital

At CLC, we remain committed to achieving our business goals while seeking to act at all times with the highest standards of corporate responsibility. The aspirations and concerns of our diverse stakeholders shape our performance and success. The Company is turning into reality its belief that the power of a small group of committed people can transform the world into a better place. Our vision to drive financial inclusion and empower all sections of society is bearing fruit as our products and services are accessible to customers in every corner of the country. CLC’s products and services are devised keeping in mind the best interests of stakeholders. Known to possess one of the most well trained and professional teams among finance companies, CLC is convinced that the humane and ethical nature of its operations is making a difference in society.

Our aim is to attract, develop and retain the best and the brightest talent in the country. To achieve this, we offer a motivating and inclusive workplace where we recognise and develop talent and promote well-being. We believe the company can excel only when our people are at the peak of their professional well-being so that they feel a sense of pride in the Company’s goals and objectives. The Company has in place a range of welfare, training and well-being policies to ensure that employees feel valued and that hard work is rewarded with career progression. We help our people strike a healthy balance between their professional and personal lives, creating a flexible workplace that serves the requirements of both the Company and the individual.

ENSURING THE RIGHT FITThe 2016/17 financial year was an eventful one for the Human Resource division due to the aggressive requirement for staffing the Microfinance business. As a result, CLC staff

numbers swelled by 18% over the previous year – rising from 801 to 1099 employees by 31st March 2017. The Company employs a multipronged effort to reach potential candidates by advertising employment opportunities, leveraging on employment and recruitment agencies, participating in career fairs (both local and government institutes), exploring social media and other network platforms, headhunting and walk-in interviews. Apart from looking for specific skills in keeping with the job description, we always recruit based on attitude, because we believe the right attitude brings about greater success when it comes to the recruitment process. CLC is an equal opportunity employer, offering employment irrespective of gender, race, age, religion or any other narrow considerations. The Company upholds its zero tolerance policy against discrimination of potential or existing employees on any grounds whatsoever.

LEARNING AND DEVELOPMENTA knowledge sharing culture is omnipresent in the organisation and this empowers employees to make informed choices, which benefit customers in the long run. At CLC, substantial investment is made in ongoing training and development programmes to ensure that staff is updated with the latest regulatory changes and expertise in technical nuances for each product. Alongside technical training, CLC places emphasis on Internal and External training programmes where more focus is given to develop soft skills which are required to perform their duties in a customer - centric manner. Our development and training programmes ensure we have the skills and talent needed to grow our people and our business. These programmes help our employees gain new skills and experiences through formal training, on-the-job experience,

CLC staff numbers swelled by 18% over the previous year – rising from 801 to 1099 employees by 31st March 2017.


coaching and mentoring. Building sales capabilities and equipping employees with the skills they need to deliver, exceptional customer service is also an important focus. Overseas training is extended to management staff as foreign exposure offers them an insight into global industry trends.

Employees also have access to other essential soft skills program such as Leadership Development to enable people to develop critical skills to succeed. We identify high-performing leaders, match their skills to our business needs and help them achieve their development goals. We analyse our training needs across the business annually, to identify priorities and ensure that learning plans support our business strategy. Developing the skills of employees with strong leadership potential is a key focus to strengthen our succession planning. We identify these managers across the Group through our annual talent review process.

CLC is proud of its culture wherein ample opportunities are available for staff to develop their knowledge and skill sets. The Company reimburses higher education expenses for staff upon completion of relevant study courses such as the Masters degree as part of its higher education policy. Many of our employees have made use of this opportunity to fulfil their academic aspirations and gain necessary qualifications, which has resulted in the creation of a knowledge-based workforce in the organisation.

The Company encourages the development of soft skills amongst employees; for example, employees are encouraged to conduct presentations on their performance. This serves to improve their presentation skills, overcome the fear of public speaking, and provides an opportunity for the management to assess the skills of the employee. Furthermore, case studies and other similar tasks have exposed employees to various complex scenarios, which improve their skills in decision-making and strategic thinking. Employees’ opinions and suggestions are also sought for strategic decision-making in the Company, further enhancing employee engagement within the organization.

CAREER PROGRESSIONThe Company closely tracks employees’ career progression to ensure that they feel a sense of fulfillment in working for the Company. Extensive training opportunities provided by the

Company ensure that employees are encouraged to move to the next level through a management development programme and leadership training. We have a stringent performance appraisal process in place to ensure that deserving employees are able to achieve their career advancement goals during the annual promotion cycle. CLC has instituted considerable flexibility in terms of job enrichment and scope for employees based on the Company’s operational requirements. CLC offers competitive and fair remuneration and benefits to attract and retain the best people.

EMPLOYEE ENGAGEMENTCLC’s high employee retention rate reflects the strong levels of satisfaction reported by employees. Open and regular communication is fundamental to employee engagement. At the heart of the longstanding bond with the Company lies a truly open culture and a two-way communication channel that enables free exchange of ideas, thoughts and debates for a vibrant workplace.

The Company closely tracks employees’ career progression to ensure that they feel a sense of fulfillment in working for the company.

Human Resources Report

37

A ‘process driven’ rather than a ‘people driven’ culture offers employees a clear sense of the targets to be achieved and the necessary tools to achieve the financial and operational accomplishments that the Company achieves year on year. Leadership as a trait is encouraged within every employee because this also helps the Company to identify natural leaders, while developing this trait in general among employees helps them to think and act independently.

Besides the open door policy, employees are engaged across training and development, appraisals, social, sports and religious events to build a team of employees who are happy with their career growth and feel a sense of fulfilment.

Frequent interaction between the Management and staff ensures that staff is kept engaged and motivated. Branch visits by the Senior Management team, the Heads of Departments and the Shared Services team infuse a sense of belonging and pride. Regular meetings are held among regional managers, branch managers and middle and top management to discuss issues and strategise. At every meeting, the Management is committed to address any grievances or outstanding performance by staff. In addition, regional managers make it a point to visit the branches at least once a week, which gives them an opportunity to meet the branch staff to discuss any concerns. The meeting also enables the regional manager to share any vital company information with the branch.

INVITING VALUED FEEDBACKAt CLC, we actively seek feedback from employees in order to incorporate valued suggestions and ideas to enhance our

operations. We believe employee feedback and satisfaction contribute to the success of our long-term strategic goals. Our open door culture encourages employees to interact with senior management without hesitation. The HR division is a pivotal function in the organisation as it helps rally the staff together and even organises an HR Day to reach out to staff.

WORK-LIFE BALANCE The health and well-being of our employees is valuable for the Company, and it has put in place numerous measures to see that employees maintain a fine work-life balance to achieve personal and professional satisfaction. It is mandatory for all staff members to take Annual Leave during the year. The company also offers Medical Benefits for the employee and his/her family.

A Club Membership reimbursement facility is provided to employees, thereby encouraging them to take some time off their work and engage in recreational and social activities. Further, CLC employees can avail of group synergies, such as discounted rates from the LOLC Group’s leisure properties, to spend quality time with their families.

CLC promotes sports activities such as Cricket, Rugby, Badminton, Netball, Bowling, and Athletics for all employees and proactively takes part in many tournaments. CLC Islamic Finance Division was crowned ‘Champion’ of the SLIBFI Cricket Fiesta 2016.


Commercial Leasing & Finance PLC (CLC) continued to maintain high standards of corporate governance and ethical business conduct across all aspects of its operations and decision-making processes during the year under review.

STRUCTUREFor CLC Corporate Governance is about ensuring an effective, transparent and accountable management of affairs by the Board of Directors, the highest governing body, with the ultimate objective of protecting the interests of all stakeholders. The governance structure of CLC ensures alignment of its business strategy and direction through effective engagement and communication with its stakeholders, Board of Directors, Board Sub-Committees and Management.

The Corporate Governance philosophy of CLC is within a framework of compliance and conformance, which has been established at all levels through a strong set of corporate values and a written Code of Conduct. All employees are required to embrace this philosophy in the performance of their official duties and in other situations that could affect the Company’s image.

INSTRUMENTS OF GOVERNANCEThe Corporate Governance framework of CLC encompassing external and internal instruments of governance, enables the Board to provide assurance to investors that they have discharged their duties responsibly. The Board of Directors of CLC and staff at all levels consider it their duty and responsibility to act in the best interests of the Company. It is this strong set of values that has facilitated the trust that our stakeholders have continued to place on the core values underlying our corporate activities.

The external instruments of governance at CLC include the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011, the Finance Leasing Act, No. 56 of 2000, the Exchange Control Act, No. 24 of 1953, the Payment and Settlement Systems Act, No. 28 of 2005, the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987, and any amendments thereto, including rules and directions issued to finance companies from time-to-time by the Monetary Board of the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The internal instruments of governance include the Articles of Association, the Role of the

Board, Board Approved Policies, Procedures, and Processes for internal controls and anti-money laundering.

Policies and procedures have been established taking into consideration governance principles that define the structure and responsibility of the Board to ensure legal and regulatory compliance, to protect stakeholder interests, to manage risk and enhance the integrity of financial reporting. A whistleblowing policy has been introduced and the number of the related ‘hotline’ has been shared with all employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

BOARD OF DIRECTORSThe Board is responsible for the stewardship of the Company and the Directors ensure good governance at Board level and below on the basis of sound principles that provide the framework of how the business is conducted.

The members of the Board consist of persons with multiple industrial/professional backgrounds in which they have achieved eminence, who contribute effectively to decisions made by the Board to guide CLC towards achieving its objectives. In accordance with best practices, the offices of Chairman and Chief Executive Officer are separate, and the Chairman is a Non-Executive Director. This ensures a balance of power and enhances accountability. To bring in a greater element of independence, the Board appointed Mr. P D J Fernando as the Senior Independent Director.

MONITORING AND EVALUATION BY THE BOARDCLC has in place a number of mandatory and voluntary Board Sub- Committees to fulfil regulatory requirements and for better governance of its activities. These committees meet periodically to deliberate on matters falling within their respective charters/terms of reference and their recommendations are duly communicated to the main Board. The main Board held 12 scheduled monthly meetings during the year.

Audit CommitteeThe Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee held five meetings during the year.

Report on Corporate Governance

39

Integrated Risk Management CommitteeThe Integrated Risk Management Committee was established to assist the Board in performing its oversight function in relation to different types of risk faced by the Company in its business operations and ensures adequacy and effectiveness of the risk management framework of the Company. The Committee held four meetings during the year.

Remuneration CommitteeThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board Members including the Chief Executive Officer. The Committee held one meeting during the year.

Nomination CommitteeThe Nomination Committee was established to assist the Board in assessing the skills required and recommending Director Nominees for election to the Board and to nominate members to its Sub- Committees to effectively discharge their duties and responsibilities. The Committee held two meetings during the year.

Related Party Transaction Review CommitteeOn behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with the Code of Best Practice on Related Party Transactions issued by the SEC. The Committee held four meetings during the year.

Moreover, the following mechanisms in place enables the Board to oversee the accomplishment of the targets in the business plan: review the performance of CLC at monthly Board meetings; seeking recommendations through Board appointed Sub-Committees on governance, including compliance with internal controls, human resources, risk management, credit and IT; review of statutory and other compliances through a monthly paper on compliance submitted to the Board covering the operations of CLC.

SKILLS AND PERFORMANCE OF THE BOARDThe updating of the skills and knowledge of all Directors is achieved by updates on proposed/new regulations, industry best practices, market trends and changes in the macro environment. It is also facilitated by providing them access to external and internal auditors, access to other external professional advisory services and the Company Secretaries, keeping them fully briefed on important developments in the

business activities of the Group and by periodic reports on performance, and opportunities to meet Senior Management.

As required by the Finance Companies Corporate Governance Direction, CLC has established a well defined self evaluation mechanism undertaken by each Director annually to evaluate performance of the Board. These evaluations are subsequently tabled at a Board meeting and the records are maintained by the Company Secretaries.

AVOIDING CONFLICTS OF INTERESTThe governance structure at CLC ensures that the Directors take all necessary steps to avoid conflicts of interest in their activities with, and commitments to other organisations or related parties. If a Director has a conflict of interest in a matter to be considered by the Board, such matters are disclosed and discussed at Board Meetings, where Independent Directors who have no material interest in the transaction are present.

ENGAGEMENT WITH SHAREHOLDERSThe shareholders of CLC have multiple ways of engaging with the Board: the Annual General Meetings which are the main forum at which the Board maintains effective communication with its shareholders on matters which are relevant and of concern to the general membership such as the performance and their return on investment of CLC; access to the Board and the Company Secretaries; written correspondence from the Company Secretaries to inform shareholders of relevant matters; the website of CLC which is accessible by all stakeholders and the general public; and disclosures disseminated through the Colombo Stock Exchange including interim reporting.

ENGAGEMENT WITH EMPLOYEESCLC recognises that employee involvement is a critical pre-requisite towards ensuring the effectiveness of the Corporate Governance system and therefore attaches great importance to employee communications and employee awareness of key events and significant developments.

The necessity of sincere and regular communication in gaining employee commitment to organisational goals and values are stressed extensively and intensively through various communiques issued periodically by the Directors’ Office. CLC follows an open-door policy for its employees at all levels. Regular dialogue is also maintained on work related issues as


well as on matters pertaining to general interest that affect employees and their families.

In terms of engaging with the employees, the key channels used by the Board include the Executive Director/CEO who is an employee director and the main link between the Board and the rest of the employees; and the Board Members and Board Sub-Committees who conduct effective dialogue with the members of the Management on matters of strategic direction.


EXTERNAL AUDITM/s KPMG, Chartered Accountants were re-appointed as External Auditors of the Company by the shareholders at the Annual General Meeting held in August 2016. Their services were also engaged to seek: a) an assessment of the Company’s compliance with the requirements of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board and b) the Company’s level of adherence to the internal controls on financial reporting.

Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 of 2008

CLC’s Level of Compliance

2 THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:

a. approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;

Complied with

b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;

Complied withA financial forecast for the period 2017/18 to 2019/20 has been approved by the Board.

All identified risks have been taken into account when preparing this forecast.

Further, a Risk Management Policy has been approved by the Board which includes risk management procedures and mechanisms.

c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;

Complied withThe Board has delegated this function to its Sub-Committee, the Integrated Risk Management Committee (IRMC).

Approved minutes of the quarterly meetings of IRMC are tabled at Board Meetings for review and guidance.

Risk Management Reports on liquidity and maturity of deposits are submitted to the Board on a monthly basis.

d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied with

41

Direction No.



e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;

Complied withThe Board is of the view that the system of internal controls and management information systems in place are sound and adequate to provide reasonable assurance regarding the reliability of management information and financial reporting.

The key processes that have been established by the Board to review the adequacy and integrity of the Company’s Internal Controls and Management Information Systems, include the following:

1. The Board Audit Committee and the Board Integrated Risk Management Committee ensures that the Company’s controls and risks are being appropriately managed and actions proposed for mitigation of risks.

These two Committees facilitate an ongoing process for identifying, evaluating and managing significant risks faced by the Company, including enhancing the system to cater to changes in the business and regulatory environment.

2. The CEO through the Heads of Departments ensures that approved business strategies are implemented and that agreed policies and procedures on risk/internal control are implemented and adhered to.

The Heads of Departments are therefore accountable and responsible for their respective areas of operation, including the accuracy of information presented to the Management/Board, and managing risk in their day-to-day activities through established processes and controls. In addition, the Internal Audit ensures that staff adheres to such processes and controls.

Where there is a breach of authority, such issues are escalated to the Board through the Board Audit Committee.

3. The Internal Audit performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks. Product-wise MIS reviews have been periodically carried out by the Internal Audit.

The Internal Audit also provides an independent assurance that the Company’s risk management, governance and internal control processes are operating effectively and fit for purpose.


Direction No.



f. identifying and designating key management personnel, who are in a position to:

(i) influence policy;

(ii) direct activities; and

(iii) exercise control over business activities, operations and risk management;

Complied withBoard Members including the CEO and Heads of Core Functions have been identified and designated as Key Management Personnel (KMP) by the Board as defined in the Sri Lanka Accounting Standards.

This is annually reviewed by the Board.

g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;

Complied withArticles 76-78 of the Company’s Articles of Association defines the powers and duties of the Board of Directors.

Further, the responsibilities of the Board have been defined and approved.

The areas of authority and responsibilities of the Key Management Personnel defined in individual job descriptions have been approved by the Board.

h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;

Complied withThe Company has a policy on oversight of the affairs of the Company by KMPs including a process to review the delegation process approved by the Board.

Delegated authority given to KMPs is reviewed periodically by the Board to ensure that they remain relevant to the needs of the Company.


43

Direction No.



i. periodically assessing the effectiveness of its governance practices, including:

(i) the selection, nomination and election of Directors and appointment of key management personnel;

(ii) the management of conflicts of interests; and

(iii) the determination of weaknesses and implementation of changes where necessary;

Complied withA Board approved procedure is in place for the appointment of Directors. Election of Directors is effected in accordance with the requirements of the directions issued by the Central Bank of Sri Lanka and the Companies Act No. 7 of 2007.

Directors are selected and nominated to the Board for skills and experience in order to bring about an objective judgment on issues of strategy, performance and resources. Effectiveness of this process is ascertained by their contribution at Board Meetings in their respective fields.

A Nomination Committee has been appointed to assist the Board in identifying qualified individuals as potential Directors.

KMPs are selected and recruited in terms of the HR Policy of the Company. KMPs directly report to the CEO and performance appraisals are completed at least twice a year.

Conflicts of interest are managed on a monthly basis where Directors disclose their directorships in other companies. KMPs declare any interest annually. Weaknesses are identified from the above processes and changes may be implemented where necessary.

Annual self evaluations of Directors were tabled subsequent to the financial year end, to determine any weaknesses of the above process and to implement changes where necessary.

j. ensuring that the finance company has an appropriate succession plan for key management personnel;

Complied withA Board approved succession plan is available. This will be reviewed to take into account any changes in the organisation structure, when necessary.

k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;

Complied withKey Management Personnel are called in by the members of the Board during Board and Board Committee Meetings when the need arises to explain matters relating to their area of functions.


Direction No.



l. understanding the regulatory environment; Complied withAs a practice, the Company Secretary includes an agenda item in monthly Board Meetings tabling correspondence with regulators which enable the Directors to understand the regulatory environment, concerns and changes and make appropriate decisions.

A monthly compliance report is also submitted to the Board. This report includes details of weekly, monthly, and annual returns duly submitted to the CBSL and the requirements of all the directions issued by the Monetary Board, and the Company’s current position with regard to each direction.

A monthly confirmation is provided by the Head of Finance of statutory payments made such as VAT, VAT on financial services, WHT on FD’s and savings interest, EPF, ETF, PAYE Stamp duty and Economic Service Charge.

m. exercising due diligence in the hiring and oversight of external auditors.

Complied withThe Board Audit Committee is responsible for hiring and overseeing the External Auditors.

Section 122 of the Company’s Articles of Association lays down a process for appointing of External Auditors at the AGM.

The Audit Committee has recommended that the auditors be re-appointed for 2016/17.

The Audit Committee is governed by a Board approved Audit Charter/TOR. This is periodically reviewed by the Board to ensure that it remains relevant.

No reviews were carried out during the year under review.

2.2 The Board shall appoint the chairman and the chief executive officer and define and approve the functions and responsibilities of the chairman and the chief executive officer in line with paragraph 7 of this Direction.

Complied withThe Chairman and CEO have been duly appointed and their functions and responsibilities have been defined and approved by the Board.


45

Direction No.



2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to Directors to assist the relevant Director(s) to discharge the duties to the finance company.

Complied withA Board approved detailed procedure has been established to obtain independent professional advice when necessary.

2.4 A Director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.

Complied withArticle 79 of the Company’s Articles of Association requires an interested Director to disclose his/her interest at Board Meetings.

Article 83 requires such a Director to abstain from voting on any Board resolution. He/she will not to be counted in the quorum.

In addition, a Board approved procedure is established to manage conflicts of interest of the Board Members.

2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.

Complied withThe Board has put in place systems and controls to facilitate the effective discharge of Board functions. Pre-set agenda of meetings ensure the direction and control of the Company is firmly under Board control and authority.

The agenda of the monthly Board Meetings includes reports on performance and on compliance with relevant regulations. This enables the Board to ensure that the company performs at an optimal level, while being fully compliant.

2.6 The Board shall, if it considers that the finance company is, or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith, inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.

Will comply with if the need arises.

The Board has implemented a procedure to alert them of any such event - in that, the Compliance Officer reports in the monthly compliance statement that the Company could remain as a going concern.


Direction No.



2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.

Complied withThis report serves the said requirement

2.8 The Board shall adopt a scheme of self-assessment to be undertaken by each Director annually, and maintain records of such assessments.

Complied withThe Directors carry out a self evaluation annually.

Self evaluations for the year 2016/17 have been obtained and were submitted to the Board for their review. Related records are in the custody of the Company Secretaries.

3 MEETINGS OF THE BOARD

3.1 The Board shall meet at least twelve times a financial year at approximately monthly intervals. Obtaining the Board’s consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible.

Complied withThe Board met 12 times during the year. Please see page 70 for further details.

Approvals obtained through the circulation of resolutions 13 were subsequently tabled at the following Board Meeting.

3.2 The Board shall ensure that arrangements are in place to enable all Directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.

Complied withA Board approved Policy on Board’s relationship with the Company Secretary is in place to enable all Directors to include matters and proposals in the agenda for regular Board Meetings.

3.3 A notice of at least 7 days shall be given of a regular Board meeting to provide all Directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given.

Complied withA schedule of all meetings for the coming year is circulated to all Directors at the end of December or beginning of January. At the beginning of each month, a reminder of all meetings during that month is also sent out. In addition, notices are sent out 7 days prior to the meeting. All these enable any Director to seek to include matters in the Agenda.


47

Direction No.



3.4 A Director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a Director. Provided that participation at the Directors’ meetings through an Alternate Director shall, however, be acceptable as attendance.

Complied withAll the members have attended two-thirds or more of the meetings during the year. Please see page 70 for further details.

Mr. W D K Jayawardena has been appointed as Alternate Director to Mr. I C Nanayakkara and vice versa.

3.5 The Board shall appoint a Company Secretary whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

Complied with LOLC Corporate Services (Pvt) Ltd has been appointed as Company Secretaries to the Company.

3.6 If the chairman has delegated to the Company Secretary the function of preparing the agenda for a Board meeting, the Company Secretary shall be responsible for carrying out such function.

Complied withThe Board approved Policy on Board’s relationship with the Company Secretary provides powers to the Chairman to delegate authority to the Company Secretary for preparation of agenda for Board Meetings.

3.7 All Directors shall have access to advice and services of the Company Secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed.

Complied withThe Board approved Policy on Board relationship with the Company Secretary provides that all Directors shall have access to the advice/services of the Company Secretary.

3.8 The Company Secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any Director

Complied with


Direction No.



3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following:

(a) a summary of data and information used by the Board in its deliberations;

(b) the matters considered by the Board;

(c) the fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence;

(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;

(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and

(f) the decisions and Board resolutions.

Complied withDetailed minutes are kept covering the given criteria.

4 COMPOSITION OF THE BOARD

4.1 The number of Directors on the Board shall not be less than 5 and not more than 13.

Complied withThe Board comprises six directors.

4.2 The total period of service of a director other than a Director who holds the position of Chief Executive Officer or Executive Director shall Not Exceed nine years. The total period in office of a Non-Executive Director shall be inclusive of the total period of service served by such Director up to the date of this Direction.

Complied withDuring the year under review no Director has completed nine years as a Non-Executive Director.

In accordance with this direction Mr I C Nanayakkara, Mrs K U Amarasinghe and Mr K Jayawardena are due to retire on 16th June 2017 on completing 9 years of service.


49

Direction No.



4.3 An employee of a finance company may be appointed, elected or nominated as a Director of the finance company (hereinafter referred to as an “Executive Director”) provided that the number of Executive Directors shall not exceed one-half of the number of Directors of the Board. In such an event, one of the Executive Directors shall be the Chief Executive Officer of the Company.

Complied withThere is one Executive Director (the CEO) and five Non-Executive Directors on the Board.

4.4 The number of independent Non-Executive Directors of the Board shall be at least one fourth of the total numbers of Directors. A Non-Executive Director shall not be considered independent if such Director:

a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance company;

b) has or had during the period of two years immediately preceding his appointment as Director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;

c) has been employed by the finance company during the two year period immediately preceding the appointment as Director;

d) has a relative, who is a Director or Chief Executive Officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

Complied withThere are two Independent Non-Executive Directors on the Board.

Mr. P D J Fernando,

Mr. L Jayaratne (appointed with effect from 22nd March 2017).


Direction No.



4.4 e) represents a shareholder, debtor, or such other similar stakeholder of the finance company;

f) is an employee or a Director or has a shareholding of 10% or more of the paid up capital in a company or business organisation:

(i) which has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(ii) in which any of the other Directors of the finance company is employed or is a Director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(iii) in which any of the other Directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.

4.5 In the event an Alternate Director is appointed to represent an independent Non-Executive Director, the person so appointed shall also meet the criteria that apply to the independent Non-Executive Director.

Complied withThe Board has approved the following appointments

Mr. L Jayaratne is appointed as alternate to Mr. P D J Fernando.

Mr P D J Fernando is appointed as alternate to Mr L Jayaratne.

The aforesaid appointments meet the criteria specified by this section.

4.6 Non-Executive Directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.

Complied withDirectors profiles are provided on pages 12 to 14.


51

Direction No.



4.7 A meeting of the Board shall not be duly constituted, although the number of Directors required to constitute the quorum at such meeting is present, unless at least one half of the number of Directors that constitute the quorum at such meeting are Non-Executive Directors.

Complied withThe Company’s Articles of Association (Article 98) provide that a quorum for a meeting is a majority provided that half of such quorum is Non-Executive.

The quorum had been maintained at all Board Meetings held during the financial year 2016/17.

Details of attendance at meetings are provided on page 70.

4.8 The independent Non-Executive Directors shall be expressly identified as such in all corporate communications that disclose the names of Directors of the finance company. The finance company shall disclose the composition of the Board, by category of Directors, including the names of the Chairman, Executive Directors, Non-Executive Directors and independent Non-Executive Directors in the annual corporate governance report which shall be an integral part of its Annual Report.

Complied withThe current directorate is as given below :

Mr. I C Nanayakkara, Non Executive Chairman

Mr. W D K Jayawardena, Non Executive Director

Mrs. K U Amarasinghe, Non Executive Director

Mr. P D J Fernando, Senior Independent Director

Mr. D M D K Thilakaratne, Executive Director/CEO

Mr. L Jayaratne, Independent Director (appointed with effect from 22nd March 2017)

The Directors profiles are given on pages 12 to 14.

4.9 There shall be a formal, considered and transparent procedure for the appointment of new Directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

Complied withA Board approved procedure is in place for the Board Members to select and appoint new Directors to the Board. Company’s Articles 70-74 address the general procedure for appointment and removal of Directors to the Board.

The Board has also formed a Nomination Committee to assist in assessing the skills required and recommending nominees for election to the Board and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities.

Furthermore, the Company adheres to the Finance Companies (Fitness and Propriety of Directors and Officers performing Executive Functions) Direction No. 3 of 2011 when appointing new Directors.


Direction No.



4.10 All Directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

Complied withArticle 70 of the Company’s Articles of Association provides that Directors appointed shall be subject to election by shareholders at the first AGM.

4.11 If a Director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the Director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant Director’s disagreement with the Board, if any.

Complied withDirectors’ resignation and the reason for such resignation are duly informed to the Central Bank of Sri Lanka (CBSL) and Colombo Stock Exchange (CSE).

The Board announces such situations to the shareholders through its Annual Report.

Changes to the directorate during the year (appointment of Mr L Jayaratne) was approved by the Central Bank of Sri Lanka.

5 CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS

5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a Director of a finance company

Complied withThe Board of Directors have been assessed as fit and proper in terms of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 3 of 2011.

The age of the current Directors is within the period permitted under this direction.

5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company.

Complied withNo Director holds directorships of more than 20 companies/entities/institutions inclusive of subsidiaries or associate companies.

6 DELEGATION OF FUNCTIONS

6.1 The Board shall not delegate any matters to a Board committee, Chief Executive Officer, Executive Directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied withThe Board has established a procedure under which powers have been delegated to the Director/CEO as sanctioned by the Company’s Articles of Association.

Article 77 of the Company’s Articles of Association empowers the Board to delegate its powers to a Committee of Directors or to a Director or employee upon such terms and conditions and with such restrictions as the Board may think fit.


53

Direction No.



6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.

Complied withThe delegated powers are reviewed periodically by the Board and a process to review the delegation process has been approved by the Board.

7 THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

7.1 The roles of Chairman and Chief Executive Officer shall be separated and shall not be performed by the one and the same person.

Complied withThe roles of Chairman and CEO are separate and held by two individuals appointed by the Board.

7.2 The Chairman shall be a Non-Executive Director. In the case where the Chairman is not an Independent Non-Executive Director, the Board shall designate an Independent Non-Executive Director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.

Complied with The Chairman is a Non-Executive director.

The Board has designated Mr. P D J Fernando as the Senior Independent Director to ensure a greater element of independence with suitably documented terms of reference.

7.3 The Board shall disclose in its Corporate Governance Report, which shall be an integral part of its Annual Report, the name of the Chairman and the Chief Executive Officer and the nature of any relationship [including financial, business, family or other material/relevant relationship(s)], if any, between the chairman and the Chief Executive Officer and the relationships among members of the Board.

Complied withThe Company as a practice discloses relationships in the Annual Corporate Governance Report.

There is no financial, business, family or other relationship between the Chairman and the CEO.

Mr. I C Nanayakkara and Mrs. K U Amarasinghe share a family relationship.

There is no financial, business, family or other material relationship between any other members of the Board .

A process has been developed for Directors to disclose any relationships between the Chairman and the CEO and or between any other Board Members.

7.4 The Chairman shall: (a) provide leadership to the Board;

(b) ensure that the Board works effectively and discharges its responsibilities; and

(c) ensure that all key issues are discussed by the Board in a timely manner.

Complied with


Direction No.



7.5 The Chairman shall be primarily responsible for the preparation of the agenda for each Board meeting.

The Chairman may delegate the function of preparing the agenda to the Company Secretary.

Complied withThe Chairman has delegated this function to the Company Secretary.

This has been included in the “Policy on Board’s relationship with the Company Secretary” approved by the Board.

7.6 The Chairman shall ensure that all Directors are informed adequately and in a timely manner of the issues arising at each Board meeting.

Complied withThe Chairman ensures that all Directors are properly briefed on issues arising at Board Meetings by submission of the agenda and board papers with sufficient time prior to meetings.

Further, minutes of previous month’s Board Meeting are distributed to the Board Members and tabled at the next Board Meeting for review and approval.

7.7 The Chairman shall encourage each Director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.

Complied with

7.8 The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relationships between Executive and Non-Executive Directors.

Complied withThe Company’s self-evaluation process assesses the contribution of Non-Executive Directors.

7.9 Subject to the transitional provisions contained herein, the Chairman, shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied with

7.10 The Chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

Complied withA Board approved communication policy covers this aspect.

The Annual General Meeting of the Company is the main forum at which the Board maintains effective communication with shareholders.

Periodic announcements made to the Colombo Stock Exchange also contribute towards this purpose.


55

Direction No.



7.11 The Chief Executive Officer shall function as the apex executive-in-charge of the day-to-day-management of the finance company’s operations and business.

Complied with

8 BOARD APPOINTED COMMITTEES

8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board. Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee. The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the Company.

Complied withThe Company has established an Audit Committee and an Integrated Risk Management Committee.

Reports of these committees have been submitted to the main Board for their review.

Please refer the Reports on pages 80 to 81.

8.2 Audit Committee Please refer page 80 for the Committee Report

a. The chairman of the committee shall be a Non-Executive Director who possesses qualifications and experience in accountancy and/or audit.

Complied withMr. W D K Jayawardena, Non-Executive Director, has been appointed as the Chairman of the Audit Committee by the Board.

His qualifications are as follows:

• MBA in Financial Management

• Fellow of the Institute of Bankers

• Over 30 years of Banking (of which 9 years was as CEO of Citibank Sri Lanka)

• Associate of the Institute of Cost and Executive Accountants.

As Mr Jayawardena is also the Managing Director of LOLC, in order to give clarity to his Non-Executive status at CLC, Heads of core functions who report to the CEO were identified as KMPs. A majority of these KMPs are direct employees of CLC.


Direction No.



b. The Board members appointed to the committee shall be Non-Executive Directors.

Complied withThe remaining members of the Committee are:

Mr. P D J Fernando, Senior Independent Non-Executive Director

Mr L Jayaratne, Independent Non Executive Director

c. The committee shall make recommendations on matters in connection with:

(i) the appointment of the external auditor for audit services to be provided in compliance with the relevant statutes;

(ii) the implementation of the Central Bank guidelines issued to auditors from time to time;

(iii) the application of the relevant accounting standards; and

(iv) the service period, audit fee and any resignation or dismissal of the auditor, provided that the engagement of an audit partner shall not exceed five years, and that the particular audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term.

Complied withA formal Agenda for Audit Committee meetings including items prescribed by the Direction is followed for the conduct of Audit Committee meetings.

The implementation of CBSL guidelines and relevant accounting standards; and the evaluation of the service period, fees and rotation of External Auditors are carried out by the Audit Committee in consultation with the Chief Financial Officer.

d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.

Complied withThe external Auditors are independent as they report direct to the Audit Committee of the Board.

Further, the Auditor’s Engagement Letter submitted to the committee evidence the External Auditor’s independence, and that the audit is carried out in accordance with SLAuS.


57

Direction No.



e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:

(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services;

(ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and

(iii) whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.

Complied withThe Board has approved a specific procedure for engagement of the External Auditors for providing non-audit services.

f. The committee shall, before the audit commences, discuss and finalise with the external auditors the nature and scope of the audit, including:

(i) an assessment of the finance company’s compliance with Directions issued under the Act and the Management’s internal controls over financial reporting;

(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and

(iii) the co-ordination between auditors where more than one auditor is involved.

Complied with


Direction No.



g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the Financial Statements of the finance company, its Annual Report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s Annual Report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:

(i) major judgemental areas;

(ii) any changes in accounting policies and practices;

(iii) significant adjustments arising from the audit;

(iv) the going concern assumption; and

(v) the compliance with relevant accounting standards and other legal requirements.

Complied withThe Committee has a process to review financial information of the Company when the quarterly and annual audited Financial Statements and the reports including accounting policies and changes to policies, significant assumptions/judgements prepared for disclosure are presented to the Committee.

h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

Complied withOut of the five meetings held during the year, the Committee met the External Auditors at two meetings.

On both these occasions, the Auditors met the Committee in the absence of the Executive Management.

i. The committee shall review the external auditor’s management letter and the Management’s response thereto.

Complied withThe management letter for 2015/16 has been reviewed by the Audit Committee.

j. The committee shall take the following steps with regard to the internal audit function of the finance company:

Complied with

(i) Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

The Committee has considered the scope of the internal audit function and noted the adequacy of resources and that necessary authority had been allocated to carry out its work.

(ii) Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;

The Audit Plan for 2016/17 was tabled by the Head of Internal Audit and discussed at a Committee meeting and results of the internal audit process has been reviewed and appropriate actions obtained where necessary.


59

Direction No.



(iii) Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;

An overall assessment of performance of the senior staff members and the Head of Internal Audit for the year 2016/17 has been carried out by the Committee.

(iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;

No such situation has arisen during the year.

(v) Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;

No such situation has arisen during the year.

(vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care;

The Committee is satisfied that the Internal Audit function is performed with independence, impartiality and proficiency.

The Internal Auditor reports direct to the Board Audit Committee.

k. The committee shall consider the major findings of internal investigations and management’s responses thereto;

Complied with

l. The Chief Finance Officer, the Chief Internal Auditor and a representative of the external auditors may normally attend meetings. Other Board members and the Chief Executive Officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the Executive Directors being present.

Complied with.The Committee has had two meetings with the External Auditors in the absence of the Executive Directors and the management.

m. The committee shall have:

(i) explicit authority to investigate into any matter within its terms of reference;

(ii) the resources which it needs to do so;

(iii) full access to information; and

(iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.

Complied withThe Board approved Terms of Reference of the Audit Committee ensures that it has the authority for points (i) to (iv) as required by the direction.


Direction No.



n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.

Complied withDuring the year 2016/17, the Committee has held five meetings and conclusions of such meetings have been recorded by the Company Secretary in the minutes of the relevant meetings.

o. The Board shall, in the Annual Report, disclose in an informative way,

(i) details of the activities of the audit committee;

(ii) the number of audit committee meetings held in the year; and

(iii) details of attendance of each individual member at such meetings.

Complied withPlease refer Report on page 80.

p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings

Complied with

q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.

Complied withA whistleblowing policy has been introduced and the number of the related “hot line” has been publicised to all Company employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

The related policy is periodically reviewed and strengthened to cover the method of reporting any matters investigated to the Board Audit Committee.

8.3 Integrated Risk Management Committee Please refer page 81 for the Committee Report


61

Direction No.



a. The committee shall consist of at least one Non-Executive Director, CEO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.

Complied withThe Integrated Risk Management Committee comprises:

Mr. P D J Fernando Committee Chairman/Senior Independent Director

Mrs. K U Amarasinghe Non-Executive Director

Mr. D M D K Thilakaratne Director/CEO

Mrs. S Wickremasekera Chief Risk Officer

Mrs. S Kotakadeniya Chief Financial Officer

Mr. J Kelegama Chief Credit Officer

Mr. R Perera Group Treasurer

Mr. C Dias Chief Information Officer

Mr. N Weerapane Deputy General Manager/ Recoveries

b. The committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis

Complied withAs delegated by the Committee, the Chief Risk Officer assesses risks which have been identified by Heads of Divisions on a monthly basis and summarised and submitted to the quarterly Committee meetings.

ERM has set up number of risk indicators and stress testing under different risk categories as follows.

• Liquidity Risk

• Operational Risk

• Strategic Risk

• Credit Risk

• Business Risk

• Profitability Risk


Direction No.



c. The committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee

Complied withDuring the year, the Committee monitored the activities of the ALCO through direct reports and minutes of ALCO meetings which are tabled at the quarterly IRMC meetings.

Matters reported by the ALCO include :

• Funding Gap analysed through Maturity Gap Analysis

• Foreign Currency Position

• Inter-company Exposures

• Cost of Funds

• Investments

• Borrowings

The lending rates are also periodically reviewed by the ALCO in line with regulatory requirements and market trends. Credit facilities are approved based on rates decided by the ALCO within the delegated authority limits.

Treasury dealer limits have already been established and approved by the Board. Furthermore a new treasury management system has been implemented which would cover limit for total Net Open Position (NOP) USD/LKR intraday and overnight limits; limits for Total Net Open Position of other currencies; Aggregate Gap Limits (AGL); Loss limits for FX operations; Loss Limits on marked-to-market (MtM) and counter party limits.

At the financial year end, the Committee reviewed the adequacy and effectiveness of the ALCO against its terms of reference and addressed areas that required improvement.

Going forward the Committee will also review the adequacy and effectiveness of the Credit Committee against its TOR/Policies through periodic reports.


63

Direction No.



d. The committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.

Complied withDecisions taken at Committee Meetings are followed up by the ERM team. All reported risks are constantly monitored and remedial corrective action is taken if an adverse movement of the risk is evident.

During the year, key risk indicators proposed by the CRO were recommended by the Committee and was approved by the Board. This process will be further strengthened to establish risk appetite limits for credit, market, liquidity and operations and to monitor the risk indicators through the Committee which have gone beyond the specific appetite limits.

e. The committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.

Complied withFour meetings were held during the financial year 2016/17.

f. The committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.

Complied withSpecific risks and limits are identified by the IRMC and decisions are taken collectively.

Moreover, a formal documented disciplinary action procedure involving Internal Audit & HR is in place.

g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.

Moving towards complianceThe CRO submits a summary report to the Members of the Board after the Committee meeting. This includes the risks discussed at the meeting, mitigation actions proposed by ERM and the responses received from the risk owners. Measures will be taken to dispatch the report within a week of each meeting.

Further, approved Committee minutes are tabled at the subsequent Board Meeting seeking the Board’s views and specific direction.

h. The committee shall establish a compliance function to assess the finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

Complied withA Compliance Officer has been appointed by the Board. She monitors compliance of CBSL rules, regulations and directions issued under the Finance Business Act and submits a monthly and quarterly compliance report to the Board and the IRMC respectively for their review.

Monitoring compliance of other applicable laws, internal controls and approved policies on all areas of business operations is carried out by the ERM Division under the supervision of the CRO.


Direction No.



9 RELATED PARTY TRANSACTIONS

9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or such other directions that shall repeal and replace the said directions from time to time.

9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:

a) A subsidiary of the finance company;

b) Any associate company of the finance company;

c) A director of the finance company;

d) A key management personnel of the finance company;

e) A relative of a director or a key management personnel of the finance company;

f) A shareholder who owns shares exceeding 10% of the paid up capital of the finance company;

g) A concern in which a director of the finance company or a relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.

9.2. -9.4 Complied withA Board approved process is in place to ensure that the Company does not engage in related party transactions as defined in this direction and to enable Directors to take measures to avoid a conflict of interest.

Transactions with related parties are made with the sanction of the Board subject to such transactions being in the normal course of business.

Further, Directors are individually requested to declare their transactions with the Company at each Board Meeting and in the Annual Declaration.

A Board approved procedure is in place to ensure that the Directors and the CEO make relevant disclosures in a timely manner, in the event they make an acquisition or disposal of shares in the entity, to facilitate disclosure.


65

Direction No.



9.3 The transactions with a related party that are covered in this Direction shall be the following:

a) Granting accommodation,

b) Creating liabilities to the finance company in the form of deposits, borrowings and investments,

c) providing financial or non-financial services to the finance company or obtaining those services from the finance company,

d) creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.

Complied withThe Board appointed a Related Party Transaction Review Committee comprising the following membership:

Mr. P D J Fernando - Committee Chairman (Senior Independent Director)

Mr. W D K Jayawardena, Non-Executive Director

Mrs. K U Amarasinghe - Non-Executive Director

Mr. D M D K Thilakaratne - Director/CEO

The following personnel are invited to participate at these meetings and recommend such facilities:

Mrs. N Kariyawasam/Head of Finance & Compliance Officer

Mr. R Perera - GM Treasury

Mr. J Kelegama - Chief Credit Officer

Mrs. S Kotakadeniya - Chief Financial Officer

The Committee was formed in order to adhere to the Code of Best Practice on Related Party Transactions (RPTs) issued by the Securities & Exchange Commission of Sri Lanka

During the financial year, the Committee has held four meetings.


Direction No.



9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment” shall mean:

a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of five years or more.

b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;

c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;

d) Providing or obtaining services to or from a related party without a proper evaluation procedure;

e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.

Complied withThe Directors confirm that any related party transaction entered into is compliant with the relevant rules of the Code of Best Practice on Related Party Transactions issued by the Securities & Exchange Commission of Sri Lanka. Where necessary, disclosures are made on the Colombo Stock Exchange.

The Company will further strengthen the favourable treatment monitoring mechanism by implementing an on-line system.

For further details please refer reporting pages 64 and 65.


67

Direction No.



10 DISCLOSURES

10.1 The Board shall ensure that: (a) annual audited financial Statements and periodical Financial Statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied withThe Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs/LKASs) and the formats prescribed by the regulators.

Annual Financial Statements are disclosed in the Annual Report; biannual (unaudited) Financial Statements are published in newspapers in all three languages and the quarterly statements are posted on the CSE website.

10.2 The Board shall ensure that at least the following disclosures are made in the Annual Report:

a. A statement to the effect that the annual audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied withPlease refer the Directors Report on pages 76 to 79.

b. A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.

Complied withPlease refer the Directors Statement on Internal Controls on page 85.

c. The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after 31st March 2010.

Complied withThe Company has obtained a certification on the effectiveness of the internal controls over financial reporting from M/s KPMG, Chartered Accountants.

d. Details of directors, including names, transactions with the finance company.

Complied withDirectors names and details are given in pages 12 to 14.

Transactions with Directors during the year are as follows.

• Remuneration paid - Rs. 20,980,883/-

• Accommodations granted - Nil

• Deposits with the Company - Rs. 15,806,054/-

• Interest for the year - Rs. 854,861/-


Direction No.



e. Fees/remuneration paid by the finance company to the Directors in aggregate, in the Annual Reports published after 1st January 2010.

Complied withRemuneration paid amounted to Rs. 20,980,883/-

f. Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.

Complied withNet accommodations granted to each category of related parties as a percentage of capital funds of the Company at the year-end was 7.18%. (Disclosed on pages 160 to 165)

g. The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.

Complied with• Remuneration paid - 22,734,530/-

• Accommodations granted - Rs. 2,000,000/-

• Deposits with the Company - Rs. 7,871,183/-

• Interest for the year - Rs. 728,610/-

h. A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non-compliances.

Complied withStatus of compliance with prudential requirements, regulations and laws are in the Directors Report set out on pages 76 to 79.

i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non-compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.

Complied withThere were no significant supervisory concerns/lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.

j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after 1st January 2011.

Complied withThe Company has engaged the services of the External Auditors to assess the Company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.


69

Section No.

Rules of the Colombo Stock Exchange CLC’s Level of Compliance

7.10 Rules on Corporate GovernanceStatement confirming that as at the date of the Annual Report that the Company is in compliance with these rules.

The Company is in compliance with the listing rules of the Colombo Stock Exchange.

7.10.1 Non-Executive DirectorsThe Board of Directors of a listed entity shall include at least : two Non-Executive Directors; or such number of Non Executive Directors equivalent to one third of the total number of directors whichever is higher.

Complied withAs at 31st March 2016 the Board comprised six Directors of whom five were Non-Executive Directors.

7.10.2 Independent DirectorsWhere the constitution of the Board of Directors includes only two Non Executive Directors in terms of 7.10.1, both such Non Executive Directors shall be independent. In all other instances two or one third of the Non-Executive Directors appointed to the Board, whichever is higher shall be independent.

Complied withAs at 31st March 2017 the Board comprised two Independent Directors from whom signed declarations of independence were obtained.

7.10.3-4 Directors DisclosuresAnnual determination as to the independence or non- independence of each Non-Executive Director.

Complied withThe Board has determined the Independent/Non-Independent status based on the criteria set out by the CSE.

Please refer Directors Profiles on pages 12 to 14.

7.10.5 Remuneration CommitteeShall comprise of a minimum of two independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied withAs at 31st March 2017, the Committee comprised three Non-Executive Directors of whom two were independent.

For further details, please see the Committee Report on page 82.

7.10.6 Audit CommitteeShall comprise of a minimum of two independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied with As at 31st March 2017, the Committee comprised three Non-Executive Directors of whom two were independent.

For further details, please see the Committee Report on page 80.

9.2.2 Related Party Transactions Review CommitteeThe Committee should comprise a combination of Non-Executive Directors and Independent Non-Executive Directors. The composition of the committee may also include executive directors, at the option of the listed entity. One independent Non-Executive Director shall be appointed as Chairman of the committee.

Complied with As at 31st March 2017, the Committee comprised the Senior Independent Director who is the Committee Chairman, two Non-Executive Directors, and one Executive Director.

For further details please refer the Committee Report on page 84.


MEMBER ATTENDANCE AT MEETINGSBoard Meetings

Name of the Director IN NI EX NEX Date of appointment

Meeting dates Total

28/0

4/20

16

25/0

5/20

16

22/0

6/20

16

20/0

7/20

16

11/0

8/20

16

21/0

9/20

16

26/1

0/20

16

10/1

1/20

16

21/1

2/20

16

18/0

1/20

17

13/0

2/20

17

30/0

3/20

17

(12)

Mr I C Nanayakkara 17/06/2008 * 12

Mr W D K Jayawardena 17/06/2008 12

Mrs K U Amarasinghe 17/06/2008 - 11

Mr P D J Fernando 30/03/2012 - 11

Mr L Jayaratne 22/03/2017 01

Mr D M D K Thilakaratne 06/03/2012 12

Audit Committee Meetings

Name of the Director Meeting Dates Total0518/03/2016 25/05/2016 11/08/2016 10/11/2016 13/02/2017

Mr W D K Jayawardena 05

Mr P D J Fernando 05

Mr L Jayaratne (A.W.E.F 22.03.2017)

Mr D M D K Thilakaratne 05

Mrs N Kariyawasam 05

*Represented by the Alternate Director

IN Independent Director

NI Non-Independent Director

EX Executive Director

NEX Non-Executive Director


71

Integrated Risk Management Committee Meetings

Name of the Director Meeting Dates Total0425/06/2016 11/08/2016 26/10/2016 18/01/2017


Mrs K U Amarasinghe - 03


Nomination Committee Meetings

Name of the Director Meeting Dates Total0230/03/2017


Mr I C Nanayakkara 01


Related Party Transaction Review Committee Meetings

Name of the Director Meeting Dates Total0425/05/2016 11/08/2016 10/11/2016 13/02/2017



Mrs K U Amarasinghe - - 02


Remuneration Committee Meetings

Name of the Director Meeting Dates Total0122/06/2016

Mr I C Nanayakkara 01


Mr L Jayaratne (A.W.E.F 22.03.2017)


Risk Management is a dynamic and evolving process and it is imperative that it adopts to the changing business landscape. Therefore, we believe that the Risk Governance structures should be geared to respond to organisation dynamics in an efficient and effective manner. Risk Management at LOLC is a group level centralised function. The risk governance structures in place allows for group level policies and decisions taken with regard to Risk management initiatives to cascade down to entities in the group with minimum lead time and any structural changes and process level changes can be replicated at any entity in the group. This strategy allows us to optimise our resource utilisation.

The Risk governance structures adopted at Commercial Leasing & Finance PLC. (CLC) reflect the commitment for Risk management initiatives at the highest level with both the Risk Management functions and Audit functions given total independence via their operational and reporting lines

Enterprise Risk Management

This allows the Board of Management to be appraised of the organisational risks in an unbiased manner and this boosts the confidence the Board has on the internal control structures implemented and their effectiveness. The Board of Management drives the risk governance effort via the Integrated risk management committee and the audit committee.

Risk Governance structures implemented at CLC is a combination of Risk Management, Internal Audit and IS audit functions which forms the Enterprise Risk Management Department (ERM) while the compliance department functions separately. The Audit function and the Risk Management function works in cohesion to derive the best possible synergies

The Risk Management function identify possible risks which have a reasonable probability to hinder the realisation of our strategic and tactical objectives. It appraises the Management

Board of Management

Internal Audit Function

Integrated Risk Management Committee

Information Systems Audit Function

Risk Management Function

AuditCommittee

73

of the impacts on crystallisation of identified risks and the mitigation strategies available. The Integrated risk management committee (IRMC) evaluates the possible impacts and in consultation with the risk owners decides on the best possible risk mitigation strategies and the internal controls to be adopted. The Board of Directors are kept informed through regular communications of the activities of the IRMC.

Enterprise risk management is a collaborative effort of all stake holders and the views and the perception of risk and process owners are taken in to account by compulsory reporting requirements established, which requires them to submit risk related information to ERM on a monthly basis for further analysis and onward submission to the board of Directors while the IRMC is conveyed every quarter for a more detailed analysis of the risk landscape of the company.

Enterprise Risk Management at CLC is an organisation wide process where every employee has a responsibility to manage risks with in their scope of functions. Our vision in risk management “Building an organisational Culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and lasting values “, require us to inculcate within all stake holders the appropriate risk culture. Enterprise risk management department firmly believes proper risk awareness facilitates the appropriate risk response. Therefore, dissemination of risk & response related knowledge to all employees is a critical success factor. The Enterprise risk management department continues to engage in structured training in co-ordination with the human resource department and other business units to enhance the knowledge and skills of staff engaged in critical operational activities in the organisation.

We strongly believe in that there are no limits to improvements and risk management process is no exception and in order to add value to the business we incorporated risk department participations in an advisory capacity for major product or process formulations to formulate appropriate risk control and internal control structures within the organisation.

The Internal Audit is entrusted with providing the management a reasonable assurance of the reliability, consistency and effectiveness of the internal control frame work. The audit teams adopt a three pronged strategy and consists of teams

that engages in process level /department level audits, branch based audits and region based audits. This strategy has allowed us to maintain a more frequent presence in different level of operations at any given time. The data analytics techniques are used for auditing purposes which facilitate the analysis of the entire audit universe rather than sampling. In the recent past CLC has moved in to micro lending and the internal audit team is also strengthened and resources were enhanced to conduct more field level audits in line with the changing business environment.

Information Systems Audit function reviews information systems and critical system infrastructure and plays a supporting role to general audits in reviewing the relevant processes and controls which are supported by computer systems.

A corporate whistle blower hotline is available for employees to report any irregularity or suspicious activities and a customer feedback line too is operational for customers to escalate any dissatisfaction of any fact which needs the attention of the management. These lines are operated by ERM and any information provided are treated confidentially. All complaints are followed up until resolution.

Continuous quality, knowledge and skill improvements are prerequisite of an effective risk management strategy and the ERM staff are continuously trained and opportunities/facilities provided for enhancement of their skills and knowledge inventory. An internal quality assurance system is well operational within the department which enable us to maintain consistent and uniformity in our processes.

RISK PROFILE The following is based on the perceived risk and is a high level categorisation of risk used only for the illustration purposes of this report

Risk Levels Risk Score

Very High 5

High 4

Medium 3

Low 2

Very Low 1


FinancialInformation

Exploring t ti l

Exploring our potential...

Technology Risk

Business Strategy Risk

Internal Systems &

Operational Risk

Mismanagement&

Fraud Risk

OPERATIONAL RISKS

5

4

3

2

1

0

Legal Risk

Systemic Risk

Image Risk

Industry Risk

Policy Risk

Financial Infrastructure Risk

BUSINESS RISKS

5

4

3

2

1

0

Currency Risk

Market Risk

Liquidity Risk

Credit Risk

CapitalAdequacy Risk

Profitability& Income Risk

Asset &Liability Risk

Interest Rate Risk

FINANCIAL RISKS

5

4

3

2

1

0

DisasterManagement & Business

Risk

Political Risk

ContagionRisk

ExogenousRisk

5

4

3

2

1

0

EVENT RISKS

Enterprise Risk Management

FinancialInformation

Exploring t ti l

Exploring our potential...

FINANCIAL CALENDAR 2016/17

1st Quarter Results 2016/2017 released on 15th August 2016

2nd Quarter Results 2016/2017 released on 15th November 2016

3rd Quarter Results 2016/2017 released on 15th February 2017

4th Quarter Results 2016/2017 released on 31st May 2017

Annual Report for 2016/2017 released in August 2017

25th Annual General Meeting in September 2017

PROPOSED FINANCIAL CALENDAR 2017/18

1st Quarter Results 2017/2018 will be released on 15th August 2017

2nd Quarter Results 2017/2018 will be released on 15th November 2017

3rd Quarter Results 2017/2018 will be released on 15th February 2018

4th Quarter Results 2017/2018 will be released on 31st May 2018

Annual Report for 2017/2018 will be released in August 2018

26th Annual General Meeting in August 2018


DIRECTORS REPORT Your Directors have pleasure in presenting their Annual Report together with the Audited Financial Statements for the year ended 31st March 2017.

PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS During the year the principal activities of the Company comprised provision of leasing, loans, receivable financing, mobilising of fixed and savings deposits, Islamic financing and micro financing.

MARKETS SERVED The Company operates in all provinces of Sri Lanka with the largest concentration of branches being in Western and North Central Provinces.

DIRECTORATE The Directors during the year under review were as follows:

1. Mr. I C Nanayakkara (Alternate to Mr W D K Jayawardena)

Non Executive Chairman

2. Mr. W D K Jayawardena (Alternate to Mr I C Nanayakkara)

Non Executive Director

3. Mrs. K U Amarasinghe Non Executive Director

4. Mr. P D J Fernando Senior Independent Director

5. Mr L Jayaratne (Appointed with effect from 22.03.2017)

Independent Non Executive Director

6. Mr. D M D K Thilakaratne Executive Director/CEO

The Board welcomes Mr L Jayaratne, who was appointed as Independent Non-Executive Director with effect from 22nd March 2017.

In accordance with the Direction on Corporate Governance issued by the Central Bank of Sri Lanka, on completing 9 years of service, Mr I C Nanayakkara, Mrs K U Amarasinghe and Mr K Jayawardena are due to retire on 16th June 2017.

The Board wishes to place on record its sincere appreciation to them for the invaluable contribution made during their tenure towards the progress and development of the Company and wish them the very best in their future endeavours.

RECOMMENDATIONS FOR RE-ELECTION OF DIRECTORSIn terms of Article 70 of the Articles of Association Mr L Jayaratne retire by rotation at the Annual General Meeting of the Company and offer himself for re-election.

In terms of Article 75 of the Articles of Association Mr P D J Fernando and Mr D M D K Thilakaratne retire by rotation at the Annual General Meeting of the Company and offer themselves for re-election.

The Board recommends their re-election. The approval of the Central Bank of Sri Lanka has been sought for these re-elections.

DIRECTORS INTERESTS IN CONTRACTS The Directors have made the declarations required by the Companies Act No. 7 of 2007. These have been noted by the Board, recorded in the Minutes and entered into the Interest Register which is maintained by the Company.

Lists of companies on which these Directors serve have been included on page 79.

DIRECTORS’ REMUNERATION The Company paid Rs. 20,980,883/00 as Directors’ remuneration for the financial year ended 31st March 2017.

DIRECTORS SHAREHOLDING

Directors Name As At 31.03.2017

As at 31.03.2016

1 Mr. I C Nanayakkara Nil Nil

2 Mr. W D K Jayawardena Nil Nil

3 Mrs. K U Amarasinghe Nil Nil

4 Mr. P D J Fernando Nil Nil

5 Mr. L Jayaratne Nil Nil

6 Mr. D M D K Thilakaratne Nil Nil

Report of the Board of Directors

77

SHAREHOLDING STRUCTURE The stated capital of the Company is Rs. 1,425,946,629/- divided into 6,377,711,170 shares.

MEETINGS OF THE BOARD OF DIRECTORSTwelve regular monthly meetings were held during the year. A schedule of Directors’ attendance at Board Meetings and Sub Committee Meetings has been included on pages 70 and 71.

CORPORATE GOVERNANCECLC is governed by the requirements of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 and the Listing Rules of the Colombo Stock Exchange and subsequent amendments thereto. The manner in which CLC ensures adherence with the above requirements has been disclosed on pages 38 to 71.

BOARD SUB COMMITTEES In compliance with regulatory guidelines and also with best practices, the Board has formed the following sub committees:

• The Audit Committee

• The Integrated Risk Management Committee

• The Remuneration Committee

• The Nomination Committee

• The Related Party Transaction Review Committee

These Committees assist the Board with its role of oversight of the Company’s performance and conformance. Minutes of the meetings of these Committees are tabled at the next Board meeting, enabling the Board to benefit from the focused review of these Committees on the areas and issues within their purview. These subcommittees have met quarterly or as and when necessary.

The Reports of these Committees can be found on pages 80 to 84.

COMPLIANCE WITH LAWS AND REGULATIONS The Company has not engaged in any activity that contravenes any applicable law or regulation, and to the best of the knowledge of the Directors, the Company has been in compliance with all prudential requirements, regulations and laws.

BRAC LANKA FINANCE PLC The Company held 99.76% of the issued share capital of BRAC Lanka Finance PLC (BRAC) as at 31st March 2017. BRAC issued new shares in the ratio of 5 new shares for every 4 shares held, and the Company was entitled to 131,873,685 new shares as it currently held 105,498,948 shares of BRAC.

The Board having noted that the resultant increase in investment if the Company were to subscribe would negatively impact its capital adequacy ratio (CAR), agreed to refrain from subscribing to the BRAC rights entitlement.

The parent company, Lanka ORIX Leasing Company PLC on 9th May 2017, purchased all unsubscribed shares primarily to ensure that the BRAC requirement for increased capital was met whilst maintaining Group control. Consequently, the Company’s holding diluted to 44.33% from 99.76%.

COMMERCIAL INSURANCE BROKERS (PRIVATE) LIMITED - ASSOCIATE COMPANY The Company holds 40% of the equity of Commercial Insurance Brokers (Private) Limited. Mr D M D K Thilakaratne has been nominated to its Board by the Company. During the past 30 years CIB has been engaged in the business of life and general insurance. It is one of the premier insurance broking firms in the country.

EVENTS AFTER THE REPORTING DATE No circumstances have arisen since the reporting date that would require disclosure other than the dilution of the BRAC holding as stated above.

HUMAN RESOURCES The total staff strength of the Company as at end March 2017 was 1,099 (2016 – 801).

GOING CONCERN The Directors after making necessary inquiries have the expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, the going concern basis has been adopted in the preparation of the Financial Statements.


FINANCIAL STATEMENTS & AUDITOR’S REPORT AND DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING The Financial Statements and the Auditor’s Report are given on pages 85 to 183.

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that the financials have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011 and all relevant directions of the Central Bank of Sri Lanka.

SIGNIFICANT ACCOUNTING POLICIES The Accounting Policies adopted in the preparation of the Financial Statements and any changes thereof where applicable have been included in the Notes to the Financial Statements on pages 98 to 183.

TRANSACTIONS WITH RELATED PARTIES The Directors confirm that any related party transaction entered into is compliant with the relevant rules. Where necessary, disclosures are made on the Colombo Stock Exchange.

Details of related party transactions are disclosed in the Financial Statements under Note 39 on page 160.

INTERNAL CONTROLSThe Enterprise Risk Management Division regularly reviews all aspects of operations, including controls, and compliance with relevant regulations. These reports are taken up for discussion by the Audit Committee or the Integrated Risk Management Committee as appropriate.

The Board could also seek the support of the external auditors to review and advise on any improvements needed to existing controls.

The Risk Management Report is on pages 72 to 74.

STATUTORY PAYMENTS For the year under review, all known statutory payments have been made and all retirement gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts.

AUDITORS M/s KPMG, the Auditors of the company retire and offer themselves for reappointment. The Board recommends their re-appointment for the year 2017/2018 at a fee to be decided upon by the Board.

Auditor’s remuneration is given in the Note No. 9 to the Audited financial statements on page 124.

As far as the Directors are aware, the Auditors do not have any other relationship with the Company or any of its subsidiaries nor do they have any interest in contracts with the Company or any of its subsidiaries.

ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held on 20th September 2017 at 10.00 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya. Should you be unable to attend, please complete the Proxy Form in the manner instructed therein and return it to the Company.

For and on behalf of the Board of Directors ofCommercial Leasing & Finance PLC

D M D K Thilakaratne Director/ CEO

I C NanayakkaraChairman

15th June 2017Colombo 04

Report of the Board of Directors

79

Name Directorships held

Mr. I C Nanayakkara

Chairman:

LOLC Micro Credit Limited

Commercial Leasing & Finance PLC

Brown & Company PLC

Browns Investments PLC

BRAC Lanka Finance PLC

LOLC Life Assurance Limited

Deputy Chairman: Lanka ORIX Leasing Company PLC

LOLC Finance PLC

Seylan Bank PLC

Director: PRASAC Microfinance Institute

Sierra Constructions Limited

Agstar Fertilizers PLC

LOLC Myanmar Microfinance Co. Ltd

Associated Battery Manufacturers (Ceylon) Ltd

LOLC International (Pvt) Ltd

B Commodities ME FZE

LOLC Private Limited

Mr. W D K Jayawardena

Chairman: LOLC Securities Ltd

Eden Hotel Lanka PLC

LOLC General Insurance Limited

Palm Garden Hotels PLC

Browns Capital PLC

Managing Director/ Group CEO: Lanka ORIX Leasing Company PLC

Director: LOLC Micro Credit Limited

Commercial Leasing & Finance PLC

Brown & Company PLC

Name Directorships held


Riverina Resorts (Pvt) Ltd

BRAC Lanka Finance PLC

Seylan Bank PLC

LOLC International (Pvt) Ltd

Mrs. K UAmarasinghe

Director: Commercial Leasing & Finance PLC

LOLC Finance PLC

Lanka ORIX Leasing Company PLC

LOLC Life Assurance Limited

LOLC Micro Credit Limited

Eden Hotel Lanka PLC

Palm Garden Hotels PLC

Brown & Company PLC


Riverina Resorts (Pvt) Ltd

Browns Capital PLC

Mr P D J Fernando Chairman: Golden Key Credit Card Company

Director: Commercial Leasing & Finance PLC

Union Bank of Colombo PLC

Ceylon Leather Products PLC

Thomas Cook Travels Sri Lanka

Equi Capital (Pvt) Ltd

Golden Key Hospitals Ltd

Taprobane Holdings Ltd

Mr L Jayaratne Director Commercial Leasing & Finance PLC

Mr D M D KThilakaratne

Director Commercial Leasing & Finance PLC

Commercial Insurance Brokers (Pvt) Ltd

Commercial Factors Limited


COMPOSITIONThe Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee comprises the following members:

Mr. W D K Jayawardane

Committee Chairman/Non-Executive Director

Mr. P D J Fernando Senior Independent Non-Executive Director

Mr. L Jayaratne Independent Non-Executive Director (appointed with effect from 22.03.2017)

The Audit Committee Chairman counts over thirty years’ experience in Banking, Financial Management and Corporate Management and holds a Master’s Degree in Business Administration, from the American University of Asia. He is a Fellow Member of the Institute of Bankers and an Associate of the Institute of Cost and Executive Accountants, London.

TERMS OF REFERENCEThe Audit Committee is governed by the Audit Charter which defines its Terms of Reference. The composition of the Committee meets the requirements set out in the Finance Companies Corporate Governance Direction No. 3 of 2008. The Committee Charter was last reviewed and revised by the Board in February 2014.

The Committee has been mandated to ensure that a sound Financial Reporting System is established by: reviewing the appropriateness of procedures in place for the identification, evaluation and management of business risks; ensuring that internal controls relating to all areas of operations, including Human Resources and IT enhance good governance while not impeding business; seeking assurance that agreed control systems are in place, are operating efficiently and are regularly monitored; ensuring that appropriate controls are put in place prior to the implementation of significant business changes, facilitating monitoring of the changes; reviewing internal and external audit functions; and ensuring compliance with applicable laws, regulations, listing rules and established policies of the Company.

ACTIVITIES OF THE COMMITTEEDuring the year under review, the Committee reviewed interim and annual Financial Statements prior to publication,

checking and recommending changes in accounting policies, significant estimates and judgments made by the management, compliance with relevant accounting standards/regulatory requirements, and issues arising from internal and external audit.

Effectiveness of the Company’s internal controls was evaluated through reports provided by the Management, and by the Internal and External Auditors. The Committee is satisfied that an effective system of internal control is in place to provide the assurance on safeguarding the assets and the integrity of financial reporting. On behalf of the Audit Committee, the Internal Auditor performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks.

The Committee addressed the External Auditor’s findings reported in the Management Letter relating to the previous financial year’s (2015/16) audit.

The Committee reviewed the independence and objectivity of the External Auditors, M/s KPMG, Chartered Accountants and has received a declaration confirming that they do not have any relationship or interest in the Company as required by the Companies Act No. 7 of 2007.

The Committee meets quarterly; and additional meetings are held as and when a need arises. Five meetings were held during the year and the members’ attendance at Audit Committee meetings is provided on page 70 The CEO and the Head of Finance were present at all five meetings. Minutes of such meetings which include details of matters discussed are reported regularly at Board meetings. The Audit Partner was invited to attend two such meetings and on both these occasions the auditors were able to meet with the Audit Committee members without the presence of the other Directors and members of the Management.

W D K JayawardenaChairmanAUDIT COMMITTEE

Colombo15th June 2017

Report of the Audit Committee

81

Report of the Integrated Risk Management CommitteeCOMPOSITIONThe Integrated Risk Management Committee (IRMC) was established to assist the Board in performing its oversight function in relation to different types of risk faced by the Company in its business operations and ensures adequacy and effectiveness of the risk management framework of the Company. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/Senior Independent Non-Executive Director


Mr. D M D K Thilakaratne

Executive Director/CEO

Mrs. S Wickremasekera Chief Risk Officer

Mrs. S Kotakadeniya Chief Financial Officer

Mr. J Kelegama Chief Credit Officer

Mr. R Perera Group Treasurer

Mr. C Dias Chief Information Officer

Mr. N Weerapane Deputy General Manager/Recoveries

TERMS OF REFERENCEThe IRMC has adopted the provisions of Section 8 (3) of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board of the Central Bank of Sri Lanka as its Terms of Reference. The composition and the scope of work of the Committee are in conformity with the provisions of the aforesaid Direction.

The Committee is responsible for: identifying, assessing and managing broad risk categories, i.e., credit, market, liquidity, operational and strategic risks through risk indicators; reviewing the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits; taking prompt

corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the Company’s policies; taking appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions; and establishing a compliance function to assess the Finance Company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations.

ACTIVITIES OF THE COMMITTEEThe Committee works closely with the key management personnel and the Board in fulfilling its duties in risk management. Credit, operational, market and liquidity risks were monitored by Divisional Heads and reported to the Chief Risk Officer on a monthly basis. These risks were then reviewed and assessed monthly by the Chief Risk Officer and summarised reports were submitted quarterly to the Committee for concurrence and/or specific directions in order to ensure that the risks are managed appropriately. As delegated by the Committee, the Chief Risk Officer submitted a risk assessment report to the Board, subsequent to each meeting within a week of each meeting, stating the risk mitigation actions pursued and seeking the Board’s views. In addition, proceedings of meetings were also tabled at a subsequent meeting of the Board. During the year, the Committee met four times on a quarterly basis. The attendance of members at meetings is stated on page 71.

P D J Fernando ChairmanINTEGRATED RISK MANAGEMENT COMMITTEE



Report of the Remuneration CommitteeCOMPOSITIONThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board members. The Committee comprises the following members:

Mr. I C Nanayakkara Committee Chairman/Non-Executive Chairman

Mr. P D J Fernando Senior Independent Non-Executive Director

Mr. L Jayaratne Independent Non-Executive Director (appointed with effect from 22.03.2017)

TERMS OF REFERENCEThe Remuneration Committee is governed by its Remuneration Policy which has vested it with powers to evaluate, assess and recommend to the Board for approval any fee, remuneration and ex-gratia to be paid out to its Directors including the Chief Executive Officer based on: the need of the Company to be competitive; the need to attract, motivate and retain talent; and the need to encourage and reward high levels of performance and achievement of corporate goals and objectives.

ACTIVITIES OF THE COMMITTEEThe Committee is responsible for determining the remuneration policy relating to the Director/CEO; periodically evaluating the performance of the Director/CEO against the set targets and goals and determining the basis for revising remuneration, benefits and other payments of performance based incentives; determining the Remuneration Policy relating to Executive and Non-executive Directors including Alternate Directors and recommending these to the Board for adoption. All independent Directors receive a fee for attending Board meetings and Committee meetings. They do not receive any performance or incentive payments. Directors’ emoluments have been disclosed on page 124. One Remuneration Committee meeting was held during the year under review and the members’ attendance at of this meeting is provided on page 71. Proceedings of the meeting was also tabled at a subsequent meeting of the Board.

I C Nanayakkara ChairmanREMUNERATION COMMITTEEColombo15th June 2017

83

Report of the Nomination CommitteeCOMPOSITIONThe Nomination Committee has been set up to assist the Board in assessing the skills required and recommending Director nominees for election to the Board (subject to ratification by the shareholders) and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/Senior Independent Non-Executive Director

Mr. I C Nanayakkara Non-Executive Director

Mr. W D K Jayawardena Non-Executive Director

TERMS OF REFERENCEThe Committee is governed by its Charter which defines its terms of reference. The Committee is responsible for: assisting the Board in identifying qualified individuals to become Board members and determining the composition of the Board of Directors and its Committees; oversight of the evaluation of the Board and its Committees, as well as Senior Management of the Company, including succession planning; annually review the composition of each Sub-Committee and present recommendations/nominations for committee memberships to the Board; and maintain records and minutes of meetings and activities of the Committee; perform any other activities consistent with this Charter.

ACTIVITIES OF THE COMMITTEEDuring the year, the Committee assessed the composition of the Board and its Sub-Committees in terms of the requirements of the relevant regulations of the CBSL and CSE. Proceedings of meetings were also tabled at a subsequent meeting of the Board. One Committee meeting was held during the year under review and proceedings of the meeting were reported to the Board. Attendance of the Committee Members at meetings is on page 71.

P D J Fernando ChairmanNOMINATION COMMITTEE



Report of the Related Party Transaction Review CommitteeCOMPOSITIONThe following Directors served as members of the Committee during the financial year:

Mr. P D J Fernando Committee Chairman/ Senior Independent Non-Executive Director

Mr. W D K Jayawardena Non-Executive Director


Mr. D M D K Thilakaratne Executive Director/ CEO

TERMS OF REFERENCEThe Committee has adopted the Code of Best Practices on related party transactions issued by the Securities and Exchange Commission of Sri Lanka as its Terms of Reference. On behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with this Code.

ACTIVITIES OF THE COMMITTEEThe Committee has reviewed quarterly all recurrent and non recurrent RPTs of the Company and was satisfied that such transactions had been carried out at market rates; and where applicable, the guidelines of the CSE and the Sri Lanka Accounting Standards had been complied with in relation to approvals/reporting/disclosure.

The Committee in discharging its functions relied on processes that are established to ensure compliance with the Code; protection of shareholder interests; and maintaining fairness and transparency.

The Group Chief Financial Officer, Group Treasurer, Group Chief Credit Officer including the Compliance Officer/Head of Finance are invited for all Committee meetings, to ensure on behalf of the Board that all related party transactions of the Group are consistent with the Code.

MEETINGSThe Committee held four meetings during the financial year. Information on the attendance of these meetings by the members of the Committee is given on page 71. The activities and views of the Committee have been communicated to the Board of Directors quarterly through verbal briefings, and by tabling the minutes of the Committee’s meetings.

P D J Fernando ChairmanRELATED PARTY TRANSACTION REVIEW COMMITTEE


85

Directors’ Statement on Internal Control over Financial ReportingRESPONSIBILITYIn line with the Finance Companies Direction No. 3 of 2008 Section 10(2) b), the Board of Directors present this report on Internal Control over Financial Reporting.

The Board of Directors (“the Board”) is responsible for the adequacy and effectiveness of the Internal Control mechanism in place at Commercial Leasing & Finance PLC. (“the Company”).

The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and this process includes the system of Internal Control over Financial Reporting. The process is regularly reviewed by the Board.

The Board is of the view that the system of Internal Control over Financial Reporting in place, is sound and adequate to provide reasonable assurance regarding the reliability of Financial Reporting, and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The Management assists the Board in the implementation of the Board’s policies and procedures pertaining to Internal Control over Financial Reporting. The Management initiated the process of documenting the system of Internal Control over Financial Reporting in 2011. In assessing the Internal Control System over Financial Reporting, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company and continue to review and update every year. These in turn are being observed and checked by the Internal Audit Department of the Company for suitability of design and effectiveness on an on-going basis.

CONFIRMATIONBased on the above processes, the Board confirms that the Financial Reporting System of the Company has been designed to provide reasonable assurance regarding the reliability of Financial Reporting and the preparation of Financial Statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

EXTERNAL AUDITOR’S CERTIFICATIONThe External Auditors have submitted a certification on the process adopted by the Directors on the system of Internal Controls over Financial Reporting. The matters addressed by the External Auditor’s in this respect, will be taken in to consideration and appropriate steps will be taken to incorporate same, where applicable.

By order of the Board;

I C NanayakkaraChairman

Krishan ThilakaratneDirector/CEO

W D K JayawardenaChairman/Audit Committee



The financial statements are prepared in compliance with the Sri Lankan Financial Reporting Standards (SLFRS/LKAS) issued by the institute of Chartered accountant of Sri Lanka, the requirements of the Companies Act No.7 of 2007, the Finance Business Act No.42 of 2011 and the Listing Rules of the Colombo Stock Exchange.

Accordingly, the Company has prepared financial statements which comply with SLFRSs/ LKASs and related interpretations applicable for period ended 31 March 2017, together with the comparative period data as at and for the year ended 31 March 2016, as described in the accounting policies.

We accept responsibility for the integrity and accuracy of these financial statements. Significant accounting policies have been applied consistently. Application of significant accounting policies and estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and the external auditors. Estimate and judgment relating to the financial statements were made on a prudent and reasonable basis, in order to ensure that the financial statements are true and fair. To ensure this, our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company were consistently followed.

We confirm that to the best of our knowledge, the financial statements and other financial information included in this annual report, fairly present, in all material respects the financial position, results of operations and cash flows of the company as of, and for, the periods presented in this annual report.

We are responsible for establishing and maintaining internal controls and procedures. We have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the company is made known to us and for safeguarding the company’s assets and preventing and

Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement

detecting fraud and error. We have evaluated the effectiveness of the company’s internal controls and procedures and are satisfied that the controls and procedures were effective as of the end of the period covered by this annual report. We confirm, based on our evaluations that there were no significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud that involves management or other employees.

The financial statements were audited by Messrs.KPMG, Chartered Accountants, the Independent Auditors. The Audit Committee pre - approves the audit and non-audit services provided by KPMG in order to ensure that the provision of such services does not impair KPMG’s independence and objectivity. The Audit Committee also reviews the external audit plan and the management letters and follows up on any issues raised during the statutory audit. The Audit Committee also meets with the external and internal auditors to review the effectiveness of the audit.

We confirm that the company has complied with all applicable laws and regulations and guidelines and that there are no material litigations that are pending against the company other than those arising in the normal course of conducting business.

Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group

Krishan ThilakaratneDirector/CEO

15th June 2017

87

TO THE SHAREHOLDERS OF COMMERCIAL LEASING & FINANCE PLC REPORT ON THE FINANCIAL STATEMENTSWe have audited the accompanying financial statements of Commercial Leasing & Finance PLC, (“the Company”), and the consolidated financial statements of the Company and its subsidiary (“Group”), which comprise the statement of financial position as at March 31, 2017, and the statement of profit or loss and other comprehensive income, statement of changes in equity and, cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information as set out on pages 88 to 183 of the annual report.

BOARD’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The Board of Directors (“Board”) is responsible for the preparation of these financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITORS’ RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINIONIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at March 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSAs required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion and scope and limitations of the audit are as stated above

b) In our opinion:

• we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company,

• The financial statements of the Company give a true and fair view of its financial position as at March 31, 2017, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

• The financial statements of the Company, and the Group comply with the requirements of sections 151 and 153 of the Companies Act No. 07 of 2007.

Chartered AccountantsColombo,

15th June 2017

Independent Auditors’ Report


Statement of Profit or Loss and Other Comprehensive Income

Group CompanyFor the year ended 31st March 2017 2016 2017 2016

Note Rs. Rs. Rs. Rs.

Interest Income 4 14,021,536,602 9,870,499,892 10,898,203,064 8,110,089,437

Interest Expense 5 (7,264,172,297) (3,937,803,899) (6,125,875,979) (3,372,543,608)

Net interest income 6,757,364,305 5,932,695,993 4,772,327,085 4,737,545,829

Other Income 6 2,457,769,974 1,382,778,779 2,331,372,193 1,280,640,884

Operating expensesDirect expenses (654,021,925) (345,823,097) (469,700,616) (342,593,160)

Premises, equipment & establishment expenses (444,499,654) (333,673,305) (346,377,030) (293,762,218)

Personnel Expenses (1,613,747,888) (1,217,922,452) (1,103,658,073) (870,768,659)

Allowance for impairment & write offs 7 (1,053,623,595) (636,412,444) (712,077,237) (571,654,618)

Depreciation and amortisation 8 (124,581,259) (97,399,975) (109,605,722) (87,034,248)

Other operating expenses (2,194,409,301) (2,063,517,209) (1,709,840,997) (1,581,463,276)

Results from operating activities before value added tax on financial services and NBT

9 3,130,250,657 2,620,726,289 2,652,439,603 2,270,910,534

Value added tax on financial services and NBT 10 (582,929,507) (360,088,573) (457,910,846) (270,657,788)

Results from operating activities 2,547,321,150 2,260,637,716 2,194,528,757 2,000,252,746

Share of profit of equity accounted investee (net of tax) 10,245,454 8,013,140 10,245,454 8,013,140

Profit Before Tax 2,557,566,604 2,268,650,856 2,204,774,210 2,008,265,886

Income tax expense 11 (651,336,273) (542,746,922) (518,470,888) (433,882,710)

Profit for the year 1,906,230,331 1,725,903,933 1,686,303,322 1,574,383,176

89



Other Comprehensive IncomeRevaluation of property, plant and equipment 27.2 747,892,179 - 747,892,179 -

Actuarial (Losses) / Gain on defined benefit plan 34.2 (5,625,892) (7,811,753) (8,591,135) 5,499,585

Net Change in fair value of available for sale finance assets

(42,068,926) (127,759,524) (40,107,127) (127,517,001)

Effective portion of changes in fair value of cash flow hedges

18,493,043 226,340,545 18,493,043 226,340,545

Share of Other Comprehensive Income from Equity accounted investee

199,410 (375,726) 199,410 (375,726)

Income tax recognised in other comprehensive income 33.3.1 (26,911,978) - (26,081,710) -

Other comprehensive income for the year, net of tax 691,977,836 90,393,542 691,804,660 103,947,403

Total comprehensive income for the year 2,598,208,167 1,816,297,475 2,378,107,982 1,678,330,579

Profit attributable to;Equity holders of the company 1,896,644,018 1,717,346,010 1,686,303,322 1,574,383,176

Non controlling interest 9,586,313 8,557,923 - -

1,906,230,331 1,725,903,933 1,686,303,322 1,574,383,176

Total Comprehensive Income attributable to;Equity holders of the company 2,588,623,451 1,808,505,076 2,378,107,982 1,678,330,579

Non controlling interest 9,584,716 7,792,399 - -

2,598,208,167 1,816,297,475 2,378,107,982 1,678,330,579

Basic and Diluted Earnings Per Share 12 0.30 0.27 0.26 0.25

The notes form an integral part of these Financial Statements.

Figures in brackets indicate deductions


Group Company

As at 31st March 2017 2016 2017 2016Note Rs. Rs. Rs. Rs.

ASSETSCash and cash equivalents 13.1 2,150,419,980 2,280,294,711 1,487,849,203 836,056,671

Financial assets held for trading 14 2,715,175,089 4,232,811,100 2,715,175,089 4,232,811,100

Other investments 15 16,650,125,114 29,745,984,714 15,753,953,997 29,742,821,576

Rentals receivable on leases & hire purchases 16 14,081,274,833 14,783,489,462 13,972,747,976 14,693,482,139

Loans and advances 17 43,778,397,335 33,951,969,210 33,763,173,050 27,140,128,239

Factoring receivables 18 6,167,657,168 4,959,717,107 6,167,657,168 4,959,717,107

Due from related companies 19 4,189,200 143,940 - 7,704

Value Added Tax (VAT) recoverable 264,968,562 299,175,528 264,968,560 253,887,201

Current tax assets 20 85,864,450 12,303,428 77,088,006 11,297,049

Other current assets 21 484,376,965 394,934,801 424,395,780 374,196,989

Equity accounted investees 22 83,059,004 75,854,139 83,059,004 75,854,139

Investment properties 23 46,000,000 - 46,000,000 -

Investments in Subsidiaries 24 - - 1,023,301,966 967,862,518

Deferred tax assets 33.1.1 - 2,048,359 - -

Goodwill 25 253,210,966 253,210,966 - -

Intangible assets 26 5,943,388 3,286,196 5,943,388 3,286,196

Property, plant and equipment 27 2,120,039,018 1,141,540,251 1,975,784,096 1,067,544,875

Total Assets 88,890,701,072 92,136,763,912 77,761,097,283 84,358,953,503

LIABILITIES AND EQUITYLiabilitiesBank overdraft 13.2 1,805,044,333 1,594,870,802 1,390,806,997 1,170,761,489

Deposits from customers 28 18,749,264,785 13,528,662,903 15,935,942,434 12,347,646,453

Loans and borrowings-current 29.2 20,028,639,204 27,404,764,809 17,978,500,029 26,906,767,392

Loans and borrowings- non current 29.2 26,288,430,792 31,123,198,968 26,288,430,792 29,689,143,968

Current Tax Liabilities 30 520,757,787 588,902,777 413,645,436 464,454,830

Due to related companies 31 5,360,025,600 4,117,851,409 84,598,219 283,967,475

Trade and other payables 32 1,165,471,874 1,362,947,669 1,084,294,002 1,290,512,224

Deferred tax liabilities 33.2.1 347,866,851 357,931,658 337,045,278 357,931,658

Employee benefits 34 95,895,277 71,097,067 72,300,062 50,341,964

Total Liabilities 74,361,396,503 80,150,228,062 63,585,563,249 72,561,527,453

Statement of Financial Position

91

Group Company

As at 31st March 2017 2016 2017 2016Note Rs. Rs. Rs. Rs.

EquityStated capital 35 1,425,946,629 1,425,946,629 1,425,946,629 1,425,946,629

Reserves 36 1,682,756,039 892,093,174 1,709,933,458 927,827,424

Retained earnings 37 11,417,907,696 9,617,451,437 11,039,653,947 9,443,651,997

Total Equity 14,526,610,364 11,935,491,240 14,175,534,034 11,797,426,050

Non-controlling interest 2,694,205 51,044,610 - -

14,529,304,569 11,986,535,850 - -

Total Liabilities & Equity 88,890,701,072 92,136,763,912 77,761,097,283 84,358,953,503

Net Assets Value Per Share 2.28 1.87 2.22 1.85


Figures in brackets indicate deduction.

These Financial Statements are prepared and presented in compliance with the requirements of Companies Act No. 7 of 2007.

Mrs. S.S. Kotakadeniya Chief Financial Officer-LOLC Group

The Board of Directors is responsible for the preparation and presentation of these financial statements. Approved and Signed for and on behalf of the Board by;

I.C. Nanayakkara D.M.D.K. Thilakaratne Chairman Director/ CEO

Colombo, 15th June 2017


Group Stated Capital

Revaluation Reserve

Hedging Reserve

Available-for-Sale Reserve

General Reserve

Statutory Reserve Fund

Retained Earnings

Total Non controllingInterest

Total Equity

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2015 1,425,946,629 135,980,246 (180,070,259) 40,271,173 231,779,789 479,261,095 7,990,107,736 10,123,276,408 43,252,213 10,166,528,622

Total comprehensive income for the yearProfit for the year - - - - - - 1,717,346,010 1,717,346,010 8,557,923 1,725,903,933

Other comprehensive income - - 226,340,545 (127,745,826) - - (7,059,926) 91,534,793 (765,525) 90,769,268

Share of Other Comprehensive Income from Equity accounted investee - - - - - - (375,726) (375,726) - (375,726)

Total comprehensive income for the period - - 226,340,545 (127,745,826) - - 1,709,910,358 1,808,505,076 7,792,398 1,816,297,474

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - 3,709,753 3,709,753 - 3,709,753

Transferred to/(from) during the year - - - - - 86,276,410 (86,276,410) - - -

- - - - - 86,276,410 (82,566,657) 3,709,753 - 3,709,753

Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,506 9,617,451,437 11,935,491,240 51,044,611 11,986,535,852


Other comprehensive income - 747,892,179 18,493,043 (42,067,329) - - (5,625,892) 718,692,001 (1,596) 718,690,404

Share of Other Comprehensive Income from Equity accounted investee - - - - - - 199,410 199,410 - 199,410

Tax Impact on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 1,575,250 (26,911,978) - (26,911,978)

Total comprehensive income for the period - 736,401,351 1,496,643 (42,067,329) - - 1,892,792,786 2,588,623,451 9,584,716 2,598,208,167

Transactions with Owners directly recorded in the EquityAcquisition of NCI - - - - - - 2,495,674 2,495,674 (57,935,122) (55,439,448)


- - - - - 94,832,201 (92,336,527) 2,495,674 (57,935,122) (55,439,448)


Statement of Changes in Equity

93

Group Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve


Retained Earnings

Total Non controllingInterest

Total Equity

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2015 1,425,946,629 135,980,246 (180,070,259) 40,271,173 231,779,789 479,261,095 7,990,107,736 10,123,276,408 43,252,213 10,166,528,622


Other comprehensive income - - 226,340,545 (127,745,826) - - (7,059,926) 91,534,793 (765,525) 90,769,268

Share of Other Comprehensive Income from Equity accounted investee - - - - - - (375,726) (375,726) - (375,726)

Total comprehensive income for the period - - 226,340,545 (127,745,826) - - 1,709,910,358 1,808,505,076 7,792,398 1,816,297,474

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - 3,709,753 3,709,753 - 3,709,753


- - - - - 86,276,410 (82,566,657) 3,709,753 - 3,709,753



Other comprehensive income - 747,892,179 18,493,043 (42,067,329) - - (5,625,892) 718,692,001 (1,596) 718,690,404

Share of Other Comprehensive Income from Equity accounted investee - - - - - - 199,410 199,410 - 199,410

Tax Impact on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 1,575,250 (26,911,978) - (26,911,978)

Total comprehensive income for the period - 736,401,351 1,496,643 (42,067,329) - - 1,892,792,786 2,588,623,451 9,584,716 2,598,208,167

Transactions with Owners directly recorded in the EquityAcquisition of NCI - - - - - - 2,495,674 2,495,674 (57,935,122) (55,439,448)


- - - - - 94,832,201 (92,336,527) 2,495,674 (57,935,122) (55,439,448)



Company Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve


Retained Earnings

Total Equity

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2015 1,425,946,629 135,980,246 (180,070,256) 40,409,820 288,079,789 465,903,908 7,939,135,583 10,115,385,719

Total comprehensive income for the yearProfit for the year - - - - - - 1,574,383,176 1,574,383,176

Other comprehensive income - - 226,340,545 (127,517,001) - - 5,499,585 104,323,129

Share of Other Comprehensive Income from Equity accounted investee - - - - - - (375,726) (375,726)

Total comprehensive income for the period - - 226,340,545 (127,517,001) - - 1,579,507,034 1,678,330,579

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - 3,709,753 3,709,753

Transferred to/(from) during the year - - - - - 78,700,372 (78,700,372) -

- - - - - 78,700,372 (74,990,619) 3,709,753

Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,289 (87,107,181) 288,079,789 544,604,281 9,443,651,997 11,797,426,050


Revaluation of property, plant and equipment - 747,892,179 - - - - - 747,892,179

Other comprehensive income - - 18,493,043 (40,107,127) - - (8,591,135) (30,205,219)

Share of Other Comprehensive Income from Equity accounted investee - - - - - - 199,410 199,410

Tax on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 2,405,518 (26,081,710)

Total comprehensive income for the period - 736,401,351 1,496,643 (40,107,127) - - 1,680,317,115 2,378,107,982

Transactions with Owners directly recorded in the EquityTransferred to/(from) during the year - - - - - 84,315,166 (84,315,166) -

- 736,401,351 1,496,643 (40,107,127) - 84,315,166 1,596,001,949 2,378,107,982



Figures in brackets indicate deductions.

Statement of Changes in Equity

95

Company Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve


Retained Earnings

Total Equity


Balance as at 01st April 2015 1,425,946,629 135,980,246 (180,070,256) 40,409,820 288,079,789 465,903,908 7,939,135,583 10,115,385,719


Other comprehensive income - - 226,340,545 (127,517,001) - - 5,499,585 104,323,129

Share of Other Comprehensive Income from Equity accounted investee - - - - - - (375,726) (375,726)

Total comprehensive income for the period - - 226,340,545 (127,517,001) - - 1,579,507,034 1,678,330,579

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - 3,709,753 3,709,753

Transferred to/(from) during the year - - - - - 78,700,372 (78,700,372) -

- - - - - 78,700,372 (74,990,619) 3,709,753



Revaluation of property, plant and equipment - 747,892,179 - - - - - 747,892,179

Other comprehensive income - - 18,493,043 (40,107,127) - - (8,591,135) (30,205,219)

Share of Other Comprehensive Income from Equity accounted investee - - - - - - 199,410 199,410

Tax on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 2,405,518 (26,081,710)

Total comprehensive income for the period - 736,401,351 1,496,643 (40,107,127) - - 1,680,317,115 2,378,107,982

Transactions with Owners directly recorded in the EquityTransferred to/(from) during the year - - - - - 84,315,166 (84,315,166) -

- 736,401,351 1,496,643 (40,107,127) - 84,315,166 1,596,001,949 2,378,107,982



Figures in brackets indicate deductions.




CASH FLOW FROM/ (USED IN) OPERATING ACTIVITIESProfit before income tax 2,557,566,604 2,268,650,856 2,204,774,210 2,008,265,886

Adjustment for:

Profit on disposal of property, plant and equipment 6 (5,434,017) (2,037,393) (5,434,017) (1,886,387)

Depreciation 8 124,581,259 97,399,975 109,605,722 87,034,248

Provision for Employee Benefits 34.1 21,433,260 15,420,730 15,378,201 11,109,131

Net impairment loss on financial assets 7 1,053,623,595 636,412,444 712,077,237 571,654,618

Change in fair value of investments 14.1 (13,049,452) 40,155,273 (13,049,452) 40,155,273

Dividend Income 6 (46,715,131) (4,719,406) (46,650,781) (4,660,006)

Interest expense 5 7,264,172,297 4,032,127,453 6,125,875,979 3,466,867,161

Impairment of investments - 10,700,000 - 10,700,000

Adjustment for Unamortised finance cost - Long term Borrowings

101,908,720 (354,311,122) 99,495,912 (353,116,195)

FV gain on Investment Property 23 (4,000,000) - (4,000,000) -

Share of equity accounted investee 22 (10,245,454) (8,013,140) (10,245,454) (8,013,140)

Cash flows from operating activities before working capital changes

11,043,841,682 6,731,785,671 9,187,827,557 5,828,110,589

(Increase) / Decrease in operating assets & liabilities(Increase)/decrease in leases, hire purchase receivables 478,204,181 (2,410,079,497) 482,356,863 (2,414,582,397)

(Increase)/decrease in advances and other loans receivable

(10,372,056,731) (13,238,858,600) (6,812,760,209) (9,315,198,963)

(Increase)/decrease in factoring receivable (1,532,626,827) (2,652,794,110) (1,532,626,826) (2,652,794,110)

(Increase)/decrease in other receivables and related party receivables

(155,666,901) 867,283,691 (94,865,221) (224,636,178)

Increase/(decrease) in trade and other payables and related party payable

1,044,698,395 3,341,291,058 (405,587,476) 450,391,278

(Increase)/decrease in customer deposits 5,220,601,883 2,969,259,137 3,588,295,981 2,646,076,480

Cash Generated from / (Used in) operations 5,726,995,682 (4,392,112,651) 4,412,640,669 (5,682,633,301)

Finance cost paid (6,589,951,057) (3,882,955,818) (6,018,678,763) (3,317,695,526)

Income tax paid 30 (754,409,690) (463,740,624) (616,248,373) (444,087,222)

Employee Benefits paid 34 (2,260,942) (6,631,553) (2,011,238) (3,493,948)

Net cash flows (Used in) / Generated from operating activities

(1,619,626,007) (8,745,440,646) (2,224,297,705) (9,447,909,997)

Statement of Cash Flows

97



CASH FLOW FROM INVESTING ACTIVITIESNet cash and cash equivalents on acquisition of subsidiary

- - (55,439,448) -

Acquisition of property, plant and equipment (361,981,255) (173,487,482) (276,330,327) (117,491,304)

Acquisition of intangible assets (6,341,400) - (6,341,400) -

Net additions to financial Instruments 14,584,476,138 (28,024,897,587) 15,479,445,915 (27,910,463,536)

Proceeds from the sale of property, plant and equipment

6,972,873 2,037,393 6,972,873 1,886,387

Dividend received from investments 6 43,475,131 7,959,406 43,410,781 7,900,006

Net cash (used in) /generated from investing activities 14,266,601,487 (28,188,388,270) 15,191,718,394 (28,018,168,447)

CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short-term interest bearing loans and borrowings

(10,964,931,756) 15,243,623,697 (10,964,931,756) 15,243,623,697

Net Movement in Derivatives - (115,963,064) - (115,963,064)

Proceeds from long-term interest bearing loans and borrowings

- 25,859,253,997 - 23,625,135,000

Repayments of long-term interest bearing loans and borrowings

(2,022,091,986) (7,680,889,821) (1,570,741,911) (5,826,257,282)

Proceeds from issuance of debentures - 5,000,000,000 - 5,000,000,000

Net cash flows (used in)/ generated from financing activities

(12,987,023,742) 38,306,024,809 (12,535,673,667) 37,926,538,351

Net (decrease) / increase in cash and cash equivalents (340,048,262) 1,372,195,893 431,747,023 460,459,908

Cash and cash equivalents at the beginning of the year 685,423,909 (686,771,984) (334,704,818) (795,164,724)

Cash and cash equivalents at the end of the year (Note A) 345,375,647 685,423,909 97,042,206 (334,704,818)

Note ACash in Hand and favorable bank balances 13.1 2,150,419,980 2,280,294,711 1,487,849,203 836,056,671

Unfavorable bank balances used for cash management purposes

13.2 (1,805,044,333) (1,594,870,802) (1,390,806,997) (1,170,761,489)

Cash and cash equivalents at the end of the year 345,375,647 685,423,909 97,042,206 (334,704,818)

The notes form an integral part of these Financial Statements. Figures in brackets indicate deductions.


1. CORPORATE INFORMATION1.1 General Commercial Leasing & Finance PLC was incorporated

as a Private Limited Company in April 1988 and in 1992 converted into a Public Limited Company and listed in the Colombo Stock Exchange. In 2008 with the acquisition by Lanka Orix Leasing Company PLC, the company submitted an application to delist from Colombo Stock Exchange and it was treated as de-listed with effect from July 01, 2009.

Further to Finance Leasing Act No 56 of 2000, on 07th December 2011, the Company has obtained the License to carry on Finance Business under the Finance Business Act No 42 of 2011. Company has relisted in Colombo Stock Exchange in June 2012 in compliance with the CBSL Directions with the divestment of 10% of the stated capital.

Ordinary shares of the Company are listed on the Diri savi board of the Colombo Stock Exchange (CSE).

The Consolidated Financial Statements of the Company as at and for the year ended 31st March 2017 comprise of the Company and its subsidiary (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates.

The registered office and the principal place of business of the Company is located at No.68, Bauddhaloka Mawatha, Colombo 04.

1.2 Parent entity and Ultimate Parent Company Lanka ORIX Leasing Company PLC is the holding

company of the Group and therefore, it does not have an identifiable immediate or ultimate parent of its own.

1.3 Principal Activities and Nature of Operations The principal activities of the Company comprised of

leasing, hire purchase, loans, factoring, Islamic financing, micro financing and mobilisation of public deposits.

Description of the nature of operations and principal activities of the subsidiary company and associate company are given on note 22 and 24 respectively to

these Financial Statements with any changes to the principal activities during the financial year under review.

1.4 Number of Employees The staff strength of the Company as at 31st March 2017

was 1,099 (31.03.2016 – 801).

2. BASIS OF PREPARATION2.1 Statement of Compliance The Financial Statements of the Company and those

consolidated with such are prepared in accordance with the Sri Lanka Accounting Standards (LKASs/SLFRSs) laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007. These SLFRSs and LKASs are available at www.casrilanka.com.

The presentation of these Financial Statements is also in compliance with the requirements of the Finance Business Act no 42 of 2011 and the listing rules of the Colombo Stock Exchange. These Financial Statements, except for information on cash flows have been prepared following the accrual basis of accounting.

The Group did not adopt any inappropriate accounting treatments, which are not in compliance with the requirements of the SLFRSs and LKASs, regulations governing the preparation and presentation of the Financial Statements.

2.2 Presentation of Financial Statements The assets and liabilities of the Group presented in the

Statement of Financial Position are grouped by nature and listed in-order to reflect their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in note 38 (Maturity analysis).

Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to off-set the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and

Notes to the Financial Statements

99

settle the liability simultaneously. Income and expenses are not offset in the Statement of Profit or Loss unless required or permitted by an accounting standard or an interpretation, and as specially disclosed in the accounting policies of the Group.

2.3 Basis of Measurement The Financial Statements of the Group and the

Company have been prepared on the historical cost basis and applied consistently with no adjustments being made for inflationary factors affecting the financial Statements, except for the following material items in the Statement of Financial Position;

• Financial instruments at fair value through profit or loss are measured at fair value.

• Derivative financial instruments are measured at fair value.

• Available-for-sale financial assets are measured at fair value.

• The liability for defined benefit obligations are measured at present value, based on an actuarial valuation as explained in note 34.

• Lands and buildings are measured at the revalued amounts.

• Investment properties are measured at fair value.

2.4 Functional and presentation currency The functional currency is the currency of the primary

economic environment in which the entities of the Group operates. These Financial Statements are presented in Sri Lankan Rupees (LKR), which is the Group’s functional currency and the presentation currency. All financial information has been rounded to the nearest Rupee unless stated otherwise.

2.5 Use of Significant Judgments, Estimates and Assumptions

The preparation of the financial statements in conformity with SLFRSs/LKASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The respective carrying amounts of assets and liabilities are given in the related Notes to the Financial Statements.

Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are included in the following notes to these Financial Statements.

Critical accounting estimate/judgment

Disclosure reference

Note

Financial Instruments – fair value disclosure

3.3.3.4

Determination in fair value of Investment properties

3.4

Written off policy 3.3.4.4

Useful lives of intangible assets 3.5

Useful lives of property, plant and equipment

3.6.1.7

Deferred tax 3.8.2

Goodwill on acquisition 3.1.13

Employee Benefits 34

Allowance for impairment 16.1.3 , 16.2.3, 17.1.1 & 18.1

2.6 Comparative Information The presentation and classification of the financial

statements of the previous years have been amended, where relevant including the following for better presentation and to be comparable with those of the current year.



2.7 Materiality, Presentation and Aggregation As per LKAS – 01 “Presentation of Financial

Statements”, each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.

The assets and liabilities of the Group presented in the Statement of Financial Position are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern.

2.8 Offsetting Financial assets and financial liabilities are offset and

the net amount reported in the Statement of Financial Position, only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or to realise the assets and settle the liabilities simultaneously. Income and expenses are not offset in the Income Statement, unless required or permitted by an Accounting Standard or Interpretation (issued by the International Financial Reporting Interpretations Committee and Standard Interpretations Committee) and as specifically disclosed in the Significant Accounting Policies of the Group.

2.9 Going Concern The Board of Directors is satisfied that the Group has

adequate resources to continue its operations in the foreseeable future and management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, going-concern basis has been adopted in preparing these Financial Statements.

2.10 Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation

and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The Board of Directors acknowledges their responsibility as set out in the “Annual Report of the Board of Directors on the Affairs of the Company” and “Director’s Responsibility for Financial Reporting”.

These Financial Statements include the following components;

• A Statement of Profit or Loss providing the information on the financial performance of the Group and the Company for the year under review;

• A Statement of Other Comprehensive Income providing the information of the other comprehensive income of the Group and the Company;

• A Statement of Financial Position providing the information on the financial position of the Group and the Company as at the year end;

• A Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Group and the Company;

• A Statement of Cash Flows providing the information to the users, on the ability of the Group and the Company to generate cash and cash equivalents and the needs of entities to utilise those cash flows, and

• Notes to the Financial Statements comprising Accounting Policies and other explanatory information.

2.11 Approval of Financial Statements by the Board of Directors

The Financial Statements of the Group and the Company for the year ended 31 March 2017 (including comparatives) were approved and authorised for issue by the Board of Directors on 15 June 2017.

2.12 Changes in Accounting Policies The Group and the Company has consistently applied

the accounting policies as set out in Note 3 to all periods presented in these consolidated financial statements.

101

2.13 New Accounting Standards Issued But Not Effective at Reporting Date The Accounting standards issued but not effective at the reporting date is given below with expected impact on Group

financial statements. The Group will apply the accounting standards when they become effective.

Accounting Standard Summary of the Requirements Possible Impact on Consolidated Financial Statements

SLFRS 9 – ‘Financial Instruments’

SLFRS 9, issued in 2014, replaces the existing guidance in LKAS 39 – Financial Instruments: Recognition and Measurement. SLFRS 9 contains three principal classification categories for financial assets – i.e. measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The existing LKAS 39 categories of Held-to-maturity, Loans and receivables and Available-for-sale are removed.

SLFRS 9 replaces the ‘incurred loss’ model in LKAS 39 with an ‘expected credit loss’ model. The new model applies to financial assets that are not measured at FVTPL.

The model uses a dual measurement approach, under which the loss allowance is measured as either:

• 12 month expected credit loss; or

• Lifetime expected credit losses.

The measurement basis will generally depend on whether there has been a significant increase in credit risk since initial recognition.

A simplified approach is available for trade receivables, contract assets and lease receivables, allowing or requiring the recognition of lifetime expected credit losses at all times. Special rules apply to assets that are credit impaired at initial recognition. The new standard carried guidance on new general hedge accounting requirements.

SLFRS 9 introduces new presentation requirements and extensive new disclosure requirements.

Effective date of SLFRS 9 has been deferred till January 01, 2018.

The Group has completed the initial high level assessment of the potential impact on its Consolidated Financial Statements resulting from the application of SLFRS 9 with the assistance of an external consultant.The next phase being the implementation phase, will commence from end May 2017. During this Phase the Group will implement a business model approach and solely payment of principal and interest criteria to ensure that financial assets are classified into the appropriate categories

Need to build a model with appropriate methodologies and controls to ensure that judgment exercised to assess recoverability of loans and make robust estimates of expected credit losses and point at which there is significant increase in credit risk.

Judgment will need to be applied to ensure that the measurement of expected credit losses reflects reasonable and supportable information.

Given the nature of the Group’s operations, this standard is expected to have a pervasive impact on the Group’s Financial Statements. In particular, calculation of impairment of financial instruments on an expected credit loss model is expected to result in an increase in the overall level of impairment allowances.


Accounting Standard Summary of the Requirements Possible Impact on Consolidated Financial Statements

SLFRS 15 – ‘Revenue from Contracts with Customers’

SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. New qualitative and quantitative disclosure requirements aim to enableFinancial Statements users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

Entities will apply five-step model to determine when to recognise revenue and at what amount. The model specified that revenue is recognised when or as an entity transfers control of goods and services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised.

It replaces existing revenue recognition guidance, including LKAS 18 on ‘Revenue’ and LKAS 11 on ‘Construction Contracts’ and IFRIC 13 on ‘Customer Loyalty Programmes’.

SLFRS 15 is effective for annual reporting periods beginning on or after January 01, 2018, with early adoption permitted.

The Group does not expect significant impact on its Financial Statements resulting from the application of SLFRS 15 and pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these Financial Statements.

SLFRS 16 – ‘Leases’ SLFRS 16 eliminates the current dual accounting model for lessees which distinguishes between On-Balance Sheet fiancé leases and Off-Balance Sheet operating leases. Instead there will be a single On-Balance Sheet accounting model that is similar to current finance lease accounting.

SLFRS 16 is effective for annual Reporting periods beginning on or after January 01, 2019.

The Group is assessing the potential impact on its Financial Statements resulting from the application of SLFRS 16.


3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been

applied consistently to all periods presented in these Consolidated Financial Statements unless otherwise indicated.

These accounting policies have been applied consistently by entities within the Group.

3.1 Basis of Consolidation3.1.1 Business combinations The Group’s Financial Statements comprise,

Consolidated Financial Statements of the Company and its Subsidiaries in terms of the Sri Lanka Accounting Standard – SLFRS 10 on ‘Consolidated Financial Statements’ and the proportionate share of the profit or loss and net assets of its Associates in terms of the Sri Lanka Accounting Standard – LKAS 28 on ‘Investments in Associates and Joint Ventures’.

103

The Group measures goodwill as the fair value of the consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in Profit or Loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.1.2 Subsidiaries Subsidiaries are entities controlled by the Group.

Control exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.

The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Acquisition of subsidiaries is accounted for using the acquisition method of accounting.

The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. If a member of the group uses accounting policies other than those adopted in the consolidated Financial Statements for similar transactions and events in similar circumstances, appropriate adjustments are made to its Financial Statements in preparing the consolidated Financial Statements.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

3.1.3 Non-Controlling Interests Non-controlling Interests is the equity in a subsidiary

not attributable, directly or indirectly, to the parent are presented in the Statement of Financial Position within Equity, separately from the Equity attributable to Shareholders Holders of the Parent (Company).

3.1.4 Acquisition of Non-Controlling interests Subsequent to the acquisition of control, any further

acquisition of net assets from non-controlling interest is accounted for as transactions with owners in their capacity as owners. Therefore, no goodwill or gain on bargain purchase is recognised as a result of such transactions.

Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received shall be recognised directly in equity and attributed to the owners of the parent.

3.1.5 Transactions do not result a change in control Changes in the Group’s interest in a subsidiary that do

not result in a loss of control status are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests and parent’s equity are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill recognised and no gain or loss is recognised in Profit or Loss.

3.1.6 Common control transactions A business combination involving entities or businesses

under common control is a business combination in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory.



The acquirer of the common control transaction applies book value accounting for all common control transactions.

In applying book value accounting, no entries are recognised in Profit or Loss; instead, the result of the transaction is recognised in equity as arising from a transaction with shareholders.

3.1.7 Loss of Control The parent can lose control of a subsidiary with or

without a change in absolute or relative ownership levels. Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any minority interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the Statement of Profit or Loss.

If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as other financial asset depending on the level of influence retained.

3.1.8 Equity accounted Investees - Associates Associates are those entities in which the Group

has significant influence, but not control, over the financial and operating activities. Significant influence is presumed to exist when the Group holds between twenty and fifty percent of the voting power of another entity.

Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost in the terms of Sri Lanka Accounting Standards – LKAS 28 on “Investment in Associates”. The Group’s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment losses.

The Consolidated Financial Statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

Acquisitions of additional stakes of equity accounted investees, until the control is established, are accounted as goodwill within the equity accounted investment if consideration paid is more than the net asset acquired or taken into to profit or loss as gain on bargain purchase if the net asset acquired is more than the consideration paid.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Associate Companies of the Group which have been accounted for under the equity method of accounting are disclosed under Note 22 to these Financial Statements.

3.1.9 Reporting Date The Group’s Subsidiary Company has a common

financial year end which ends on 31st March. The financial year of Commercial Insurance Brokers Limited, an associate company of the Group ends on 31st December.

The difference between the reporting date of the above companies and that of the parent does not exceed three months.

However, for the Group financial reporting purposes; the Financial Statements ending 31 March of the above mentioned subsidiaries and associates are considered.

3.1.10 Balances and Transactions Eliminated on Consolidation Intragroup balances and transactions, including income,

expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full.

Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee.

105

3.1.11 Business Combinations All business combinations have been accounted for by

applying the acquisition method in accordance with the SLFRS 3 - Business Combinations. Applying this method involves the entity that obtains control over the other entity to recognise the fair value of assets acquired and liabilities and contingent liabilities assumed, including those not previously recognised.

3.1.12 Cost of Acquisition The cost of an acquisition is measured as the fair value

of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. This excludes any transaction costs incurred.

3.1.13 Goodwill on Acquisition Goodwill represents the excess of the cost of any

acquisition of a subsidiary or an associate over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.

The Group tests the goodwill for impairment annually and assess for any indication of impairment to ensure that its carrying amount does not exceed the recoverable amount. If an impairment loss is identified, it is recognised immediately to the Statement of Profit or Loss. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination.

The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presented as an intangible and the goodwill on an acquisition of an equity accounted investment is included in the carrying value of the investment.

3.1.14 Gain on Bargain Purchase (negative goodwill) If the Group’s interest in the net fair value of the

identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition of the entity, the Group will reassess the measurement of the acquiree’s identifiable assets and liabilities and the measurement of the cost and recognise the difference immediately in the Consolidated Statement of Profit or Loss.

3.2 Foreign currency 3.2.1 Foreign Currency Transactions Transactions in foreign currencies are translated to the

respective functional currency (Sri Lankan Rupees-LKR) at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items are the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in Statement of Profit or Loss.

3.3 Financial instruments3.3.1 Financial Assets Financial assets are within the scope of LKAS 39 are

classified appropriately as fair value through Profit or Loss (FVTPL), loans and receivables (L & R), held to maturity (HTM), available-for-sale (AFS) at its initial recognition.

All the financial assets are recognised at fair value at its initial recognition.


3.3.1.1 Financial Assets at Fair Value through Profit or Loss (FVTPL)

A financial asset is classified at fair value through Profit or Loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through Profit or Loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, transaction costs are recognised in Profit or Loss as incurred.

Financial assets at fair value through Profit or Loss are measured at fair value, and subsequent therein are recognised in Profit or Loss.

The Group’s investments in certain equity securities and derivative instruments which are not accounted under hedge accounting are classified under fair value through profit or loss.

3.3.1.2 Loans and Receivables (L&R) Loans and receivables are financial assets with fixed

or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables of the Group comprise of the following,

3.3.1.2.1 Rental receivables on Finance Leases and Hire purchases

Assets leased to customers which transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Amounts receivable under finance leases are included under “Lease Rentals Receivable”. Leasing balances are stated in the Statement of Financial Position after deduction of initial rentals received, unearned lease income and the provision for impairment.

Assets sold to customers under fixed rate hire agreements, which transfer all risk and rewards as well as the legal title at the end of such contractual period are classified as ‘Hire Purchase Receivable’. Such assets are accounted for in a similar manner as finance leases.

3.3.1.2.2 Rental receivables on Operating Leases Leases where the Company as the lessor effectively

retains substantially all the risk and rewards incidental to the ownership are classified as operating leases. Lease rentals from operating leases are recognised as income on a straight-line basis over the lease term.

3.3.1.2.3 Advances and Other Loans to Customers Advances and other loans to customers comprised of

revolving loans, loans with fixed installments. Revolving loans to customers are reflected in the statement of financial position at amounts disbursed less repayments and allowance for impairment losses. Loans to customers with fixed installments are stated in the statement of financial position net of possible loan losses and net of interest, which is not accrued to revenue.

After initial measurement, ‘loans and advances’ are subsequently measured at amortised cost using the EIR, less allowance for impairment except when the Company recognises loans and receivables at fair value through profit or loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest Income’ in the Statement of Profit or Loss. The losses arising from impairment are recognised in the Statement of Profit or Loss.

3.3.1.2.4 Trade Receivables Trade receivables are stated at the amounts they are

estimated to realise, net of provisions for impairment. An allowance for impairment losses is made where there is objective evidence that the Group will not be able to recover all amounts due according to the original terms of receivables. Impaired receivables are written-off when identified.


107

3.3.1.3 Held-to-Maturity Financial Assets If the company has the positive intent and ability to hold

debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses.

Any sale or reclassification of a more than an insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the company from classifying investment securities as held-to-maturity for the current and the following two financial years.

The Group does not have any financial assets designated as “held to maturity” as at the reporting date of financial assets.

3.3.1.4 Available-for-Sale Financial Assets Available-for-sale financial assets are non-derivative

financial assets that are designated as available for- sale and that are not classified in any of the previous categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, these are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to Profit or Loss.

Available-for-sale financial assets comprise of Treasury Bonds.

3.3.1.5 Cash and Cash Equivalents Cash and cash equivalents comprise of cash in hand and

cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than

three months which are subject to insignificant risk of changes in their fair value.

Bank overdrafts that are repayable on demand and form an integral part of the Company cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.3.2 Financial Liabilities The Group initially recognises debt securities, deposits

from customers and loans & borrowings on the date that they are originated. All other financial liabilities are recognised at initially on the trade date, which is the date that the Group becomes party to the contractual provisions of the instruments.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using effective interest rate method.

Other financial liabilities comprise of loans & borrowings, debenture issued, bank overdraft, customer deposits and trade and other payables.

3.3.3 Accounting for Non-derivative Financial Instruments3.3.3.1 Recognition The Group initially recognises loans and advances,

deposits, debt securities and subordinated liabilities on the date at which they are originated. All the financial assets and liabilities other than regular purchases and sales are recognised on the date the Group becomes a party to the contractual provisions of the instrument.

3.3.3.2 De-recognition The Group derecognises a financial asset when the

contractual rights to the cash flows from the financial asset expires, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred


or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognised as a separate asset or liability in the statement of financial position. On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of

(i) the consideration received (including any new asset obtained less any new liability assumed) and

(ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in Profit or Loss.

The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised.

Transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

3.3.3.3 Amortised cost measurement The amortised cost of a financial asset or liability is

the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

3.3.3.4 Fair value measurement SLFRS 13 Fair Value Measurement applies to SLFRSs that

require or permit fair value measurement or disclosures

and provides a single SLFRS framework for measuring fair value and disclosures on fair value measurement. The Standard defines fair value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather than entity-specific, measurement.

SLFRS 13, defines fair value, sets out in a single SLFRS a framework for measuring fair value disclosures on fair value measurements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date.

When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

If a market for a financial instrument is not active, the Group establishes fair value using valuation techniques. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and other equity pricing models.

The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When transaction


109

price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in Statement of Financial position.

3.3.3.5 Valuation of Financial Instruments The Group measures the fair values using the following

fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level 1 – Quoted market price (unadjusted) in an active market of an identical instrument.

Level 2 – Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices), this category included instruments valued using: quoted market prices in active markets similar instruments; quoted prices for identical or similar instruments in markets are considered less than active: or other valuation techniques where all significant inputs are directly observable from market data.

Level 3 – Valuation techniques use significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques

Valuation techniques include comparison to similar instruments for which market observable prices exist, other equity pricing models and other valuation models.

The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.

The Group widely recognised valuation models for determining the fair value of common and more simple financial instruments. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market inputs reduces the need of management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets are prone to changes based on specific events and general conditions in the financial markets.

3.3.4 Impairment of Financial Instruments At each reporting date the Company assesses whether

there is objective evidence that financial assets not carried at fair value through Profit or Loss are impaired. A financial asset or a group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include:

• significant financial difficulty of the borrower or issuer,

• default or delinquency by a borrower

• restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider

• indications that a borrower or issuer will enter bankruptcy,

• the disappearance of an active market for a security


• other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group of economic conditions that correlate with defaults in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

3.3.4.1 Impairment of Financial Assets carried at Amortised Cost

The Group considers evidence of impairment for loans and advances at both a specific and non - specific basis. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then assessed for any impairment separately by grouping them.

Loans and advances that are not individually significant are assessed for impairment by grouping them together with similar risk characteristics based on product types.

In assessing non-significant impairment the Group uses statistical modeling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modeling, default rates, loss rates and the expected timing of future recoveries are regularly taken into account to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset's original effective interest rate. Impairment losses are recognised in Profit or Loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through Profit or Loss.

3.3.4.2 Impairment of Available for Sale Investment Securities Impairment losses on available for sale investment

securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to Profit or Loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to Profit or Loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in Profit or Loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the Statement of Profit or Loss is removed from equity and recognised in the Statement of Profit or Loss Income. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in Other Comprehensive Income.

3.3.4.3 Reversal of Impairment Loss If, in a subsequent period, the fair value of an impaired

available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in Profit or Loss, the impairment loss is reversed, with the amount of the reversal recognised in Profit or Loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in Other Comprehensive Income. The Group writes off certain


111

loans and advances and investment securities when they are determined to be uncollectible.

3.4.4.4 Write-off of Financial Assets carried at amortised cost The Company writes off a loan or an investment

debt security balance, and any related allowances for impairment losses, when the Board of Directors determines that the loan or security is uncollectible. This determination is made after considering information such as occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status. The Company generally writes off balances on its past due status reaching 12 months and if no collateral is available.

The Company holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral usually is not held against investment securities, and no such collateral was held at 31 March 2017 (2016: no collateral held).

3.3.4.5 De-recognition of Financial Assets and Financial Liabilities

Financial Assets Financial assets (or, where applicable or a part of a

financial asset or part of a group of similar financial assets) is derecognised when;

• The rights to receive cash flows from the asset have expired; or

• The Group has transferred its rights to cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘passthrough’ arrangement; and either:

• the Group has transferred substantially all the risks and rewards of the assets, or

• the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flow from an asset or has entered in to a pass through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the assets nor transferred control of it, the asset is recognised to the extent of the Group’s continuing involvement in it. In that case, the Group also recognises an associated liability. The transferred assets and the associated liabilities are measured on a basis that reflects the right and obligation that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial Liabilities A financial liability is derecognised when the obligation

under liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts are recognised in the profit or loss.

3.3.5 Accounting for Derivative Financial Instruments Derivatives are initially recognised at fair value on the

date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, or using valuation techniques. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.


3.3.5.1 Hedge accounting The Group holds derivative financial instruments to

hedge its foreign currency risk exposure. On initial designation of the derivative as the hedge instrument, the company formally documents the relationship between the hedging instrument and hedged item, its risk management objective and its strategy in undertaking the hedge.

Central treasury documents the assessment, both at hedge inception and on an on-going basis, of whether or not the hedging instruments, primarily forward rate contracts, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items.

Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.3.5.1.1 Cash flow hedge When a derivative is designated as the hedging

instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the non-financial item affects profit or loss. In other cases as well, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.

3.3.5.1.2 Hedge Effectiveness Testing To qualify for hedge accounting, at the inception of

the hedge and throughout its life, each hedge must be expected to be highly effective and demonstrate actual effectiveness on an on-going basis. The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed.

The method adopted by the Company to assess hedge effectiveness is based on its risk management strategy. For expected effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cash flows must offset each other in the range of 80% to 125%. The ineffective portion will be recognised immediately in income statement. In measuring the effectiveness, the forecasted transaction of entering into another forward contract is also taken into consideration.

3.3.6 Other non-trading derivatives (Derivatives that do not qualify for Hedge Accounting)

When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.

3.3.7 Reclassification of Financial Instruments The Group reclassifies non-derivative financial assets out

of the ‘held for trading’ category and into the ‘available-for-sale’, ‘loans and receivables’ or ‘held to maturity’ categories as permitted by LKAS 39. Further, in certain circumstances, the Group is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.


113

For a financial asset with a fixed maturity reclassified out of the ‘available-for-sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to Profit or Loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using EIR. In the case of a financial asset does not have a fixed maturity, the gain or loss is recognised in the Profit or Loss when such a financial asset is sold or disposed of. If the financial asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the Statement of Profit or Loss.

The group may reclassify a non-derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument-by-instrument basis.

3.4 Investment Properties3.4.1 Basis of Recognition Investment property is the property held either to earn

rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.4.2 Basis of Measurement3.4.2.1 Fair value Model Investment properties are initially recognised at cost.

Subsequent to initial recognition the investment properties are stated at fair values, which reflect market conditions at the reporting date. Gains or losses arising from changes in fair value are included in the Statement of Profit or Loss in the year in which they arise.

Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the Consolidated Financial Statements, and accounted for as per LKAS 16- Property, Plant and Equipment.

3.4.2.2 De-recognition Investment properties are de-recognised when either

they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the Statement of Profit or Loss in the year of retirement or disposal.

3.4.2.3 Subsequent Transfers to/from Investment Property Transfers are made to investment property when,

and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development.

Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

For a transfer from investment property to owner occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Company as an owner occupied property becomes an investment property, the Company, accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the Statement of Profit or Loss. When the Company completes the construction or development of a self-constructed investment property, any difference


between the fair value of the property at that date and its previous carrying amount is recognised in the Statement of Profit or Loss.

3.4.2.4 Determining Fair Value External and independent valuers, having appropriate

recognised professional qualifications and recent experience in the location and category of property being valued, values the investment property portfolio as at each reporting date. In financial periods within that period the fair value is determined by the Board of Directors.

The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.

3.5 Intangible Assets3.5.1 Basis of Recognition An intangible asset is recognised if it is probable that

future economic benefits that are attributable to the assets will flow to the entity and the cost of the assets can be measured reliably.

3.5.2 Basis of Measurement Intangible assets acquired separately are measured

as initial recognition at cost. Following initial recognition intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful life of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful life are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the method for an intangible asset with a definite useful life is reviewed at least at each financial year end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level.

3.5.3 Subsequent Expenditure Subsequent expenditure on intangible assets are

capitalised only when it increases the future economic

benefits embodied these assets. All other expenditure are expensed when incurred.

3.5.4 De-recognition Intangible assets are de-recognised on disposal or when

no future economic benefits are expected from its use. The gain or loss arising from de-recognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset.

3.5.5 Amortisation Amortisation is recognised in the Statement of

statement of profit or loss on a straight-line basis over the estimated useful life of intangible assets, other than goodwill, from the date that they are available for use.

The estimated useful life of each intangible asset is as follows;

Computer Software 5 years License and Fees 20 years

Amortisation methods, useful lives and residual values are reviewed at each reporting date and are adjusted as appropriate.

3.6 Property, Plant and Equipment 3.6.1 Freehold Property, Plant & Equipment3.6.1.1 Basis of Recognition Property, plant and equipment are recognised if it is

probable that future economic benefits associated with the asset will flow to the Company and cost of the asset can be reliably measured.

3.6.1.2 Basis of Measurement Items of property, plant and equipment are measured

at cost/revaluation less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labor, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site at which they are located and capitalised borrowing costs.


115

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

3.6.1.3 Cost Model The Company applies the cost model to all property,

plant and equipment except freehold land and buildings; which records at cost of purchase together with any incidental expenses thereon less any accumulated depreciation and accumulated impairment losses if any.

3.6.1.4 Revaluation Model The Company revalues its land and buildings which

are measured at its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

On revaluation of lands and buildings, any increase in the revaluation amount is credited to the revaluation reserve through other comprehensive income in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognised in the Statement of Profit or Loss. A decrease in value is recognised in the Statement of Profit or Loss where it exceeds the increase previously recognised in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

3.6.1.5 Subsequent Cost Subsequent expenditure is capitalised only when it is

probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred.

3.6.1.6 Reclassification to investment property When the use of a property changes from owner-

occupied to investment property, the property is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognised in Profit or Loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised and presented in the revaluation reserve in equity. Any loss is recognised immediately in Profit or Loss.

3.6.1.7 Depreciation Depreciation is based on the cost of an asset less its

residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in Profit or Loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Lands are not depreciated.

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognised.

Depreciation methods, useful life values are assessed at the reporting date. The estimated useful lives for the current year are as follows:

Free-hold building 40 years

Fixtures 05 years

Office Furniture 05 years

Office Equipment 05 years

Free-hold motor Vehicles 04 years

Computer Equipment 05 years


3.6.1.8 De-recognition An item of property, plant and equipment is de-

recognised upon disposal or when no future economic are expected from its use or disposal.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in the Statement of Profit or Loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

3.6.2 Operating Lease Assets When acting as lessor, the Company includes the

assets subject to operating leases in ‘Property, Plant and Equipment’ and accounts for them accordingly. Impairment losses are recognised to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.

3.6.3 Capital Work-in-Progress Capital work-in-progress represents the accumulated

cost of materials and other costs directly related to the construction of an asset. Capital work in progress is transferred to the respective asset accounts at the time it is substantially completed and ready for its intended use.

3.7 Impairment of Non-financial Assets The carrying amounts of the Company’s non-financial

assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its related Cash-Generating Unit (CGU) exceeds its estimated recoverable amount.

The Company’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs

on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in Profit or Loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

3.8 Tax expense Tax expense comprises current, deferred tax and

other statutory taxes. Income tax and deferred tax expense is recognised in Statement of Profit or Loss except to the extent that it relates to items recognised in the Statement of Other Comprehensive Income or Statement of Changes in equity.

3.8.1 Current tax expense Current tax is the expected tax payable or recoverable

on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the tax on dividend income.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and subsequent amendments thereto.


117

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue.

3.8.2 Deferred tax Deferred tax is recognised in respect of temporary

differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

• Taxable temporary differences arising on the initial recognition of goodwill.

• Taxable temporary differences arising on subsidiaries, associates or joint ventures who have not distributed their entire profits to the parent or investor.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred

tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are not discounted.

The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognised as deferred tax expense and conversely any net decrease is recognised as reversal to deferred tax expense, in the Statement of Profit or Loss.

3.8.3 Withholding Tax on Dividends Dividend distributed out of taxable profit of the local

companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognised at the same time as the liability to pay the related dividend is recognised.

3.8.4 Economic Service Charge (ESC) As per the provisions of Economic Service Charge Act

No. 13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.

3.8.5 Nation Building Tax (NBT) As per the provisions of the Nation Building Tax Act,

No. 9 of 2009 and the subsequent amendments thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.

3.8.6 Value Added Tax on Financial Services (VAT on FS) VAT on Financial Services is calculated in accordance

with the amended VAT Act No. 7 of 2003 and subsequent amendments thereto. The base for the computation of VAT on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees. VAT on financial services is computed on the prescribed rate of 15%.


The VAT on Financial service is recognised as expense in the period it becomes due.

3.8.7 Crop Insurance Levy (CIL) As per the provisions of the Section 14 of the Finance

Act No. 12 of 2013, the CIL was introduced with effect from April 01, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.

3.8.8 Borrowing Costs Borrowing costs that are directly attributable to the

acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalised as part of the assets.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in Profit or Loss using the effective interest method.

Other Non-Financial Liabilities and Provisions

Liabilities are recognised in the Statement of Financial Position when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor within one year of the reporting date are treated as current liabilities. Liabilities payable after one year from the reporting date are treated as non-current liabilities.

3.8.9 Deposits due to Customers Deposits include term deposits and certificates of

deposits. They are stated in the Statement of Financial Position at amount payable. Interest paid / payable on these deposits based on effective interest rate is charged to the Statement of Profit or Loss.

3.8.10 Deposit Insurance Scheme In terms of the Finance Companies Direction No 2 of

2010 “Insurance of Deposit Liabilities” issued on 27th

September 2010, all Registered Finance Companies are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the Monetary Board in terms of Sri Lanka Deposit Insurance Scheme Regulations No 1 of 2010 issued under Sections 32A to 32E of the Monetary Law Act with effect from 1st October 2010.

Deposits to be insured include time and savings deposit liabilities and exclude the following.

Deposit liabilities to member institutions

Deposit liabilities to Government of Sri Lanka

Deposit liabilities to shareholders, directors, key management personnel and other related parties as defined in Finance Companies Act Direction No 03 of 2008 on Corporate Governance of Registered Finance Companies

Deposit liabilities held as collateral against any accommodation granted

Deposit liabilities falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds of which have been transferred to Central Bank of Sri Lanka

Registered Finance Companies are required to pay a premium of 0.15% on eligible deposit liabilities as at end of the month to be payable within a period of 15 days from the end of the respective month.

3.9 Debt Securities Issued These represent the funds borrowed by the Group for

long-term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the effective interest method, except where the Group designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.

3.10 Other Liabilities Other liabilities are recorded at amounts expected to be

payable at the Reporting date.


119

3.11 Employee Benefits3.11.1 Defined Contribution Plans A Defined Contribution Plan is a post-employment

benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Defined Contribution Plans are recognised as an employee benefit expense in the Statement of Profit or Loss in the periods during which services are rendered by employees.

3.11.1.1 Employees’ Provident Fund (EPF) The Company and employees contribute 12% and 8%

respectively on the salary of each employee to the above mentioned funds.

3.11.1.2 Employees’ Trust Fund (ETF) The Company contributes 3% of the salary of each

employee to the Employees’ Trust Fund.

3.11.2 Defined Benefits Plans A defined benefit plan is a post-employment benefit

plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted.

The calculation is performed every three years by a qualified actuary using the projected unit credit method. For the purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.

When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in Profit or Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in Profit or Loss.

The Group recognises all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognise as personnel expenses in Statement of Profit or Loss. This retirement benefit obligation is not externally funded.

However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.

3.11.3 Short-term Employee Benefits Short-term employee benefit obligations are measured

on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

3.12 Provisions, Contingent Assets and Contingent Liabilities

Provisions are made for all obligations (legal or constructive) existing as at the reporting date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date.

All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

Statement of Profit or Loss and Other Comprehensive Income


3.13 Revenue Recognition Revenue is recognised to the extent that it is probable

that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment.

3.13.1 Interest Income on Leases, Hire Purchases, Loans and Advances

Interest income and expense are recognised in Profit or Loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the Statement of Profit or Loss includes,

• interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis

• interest on available for sale investment securities calculated on an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Company's trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried at fair value through Profit or Loss, are presented in net income from other financial instruments at fair value through Profit or Loss in the Statement of Profit or Loss.

The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognised as income over the term of the facility commencing with the month that the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment.

3.13.2 Service charge and facility fee from Microfinance facilities

Collection on service charge and facility fee from Microfinance facilities are accounted on cash basis.

3.13.3 Fees and Other Income Fees and commission income and expense that are

integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees are recognised as the related services are performed.

Profit or loss on contracts terminated, collections on contracts written off, interest on overdue rentals, interest earned on property sale and buy back agreements are accounted for on cash basis.

3.13.4 Net income from other financial instruments at fair value through Profit or Loss

Net income from other financial instruments at fair value through Profit or Loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships and financial assets and liabilities designated at fair value through Profit or Loss, and include all realised and unrealised fair value changes, interest, dividends and foreign exchange differences.


121

3.13.5 Factoring Income Revenue is derived from two sources, Funding and

providing Sales Ledger Related Services.

Funding - Discount income relating to factoring transactions is recognised at the end of a given accounting month. In computing this discount, a fixed rate agreed upon at the commencement of the factoring agreement is applied on the daily balance in the client’s current account.

Sales Ledger Related Services - A service charge is levied as stipulated in the factoring agreement.

Income is accounted for on an accrual basis and deemed earned on disbursement of advances for invoices factored.

The above revenue components are accounted on an accrual basis and deemed earned on disbursement of advances for invoices factored.

3.13.6 Other Income Rent income and non-operational interest income are

accounted for on accrual basis.

Dividend income is recognised when the right to receive payment is established.

Gain on disposal of property, plant and equipment and other non-current assets, including investments held by the Group have been accounted for in the Statement of Profit or Loss Income, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.

3.13.7 Rental Income Rental income from investment property is recognised

in Profit or Loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognised as other income.

3.14 Expenses Recognition Expenses are recognised in the Statement of Profit

or Loss on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.

For the presentation of the Statement of Profit or Loss the Directors are of the opinion that the nature of the expenses method present fairly the element of the Company’s performance, and hence such presentation method is adopted.

3.15 Earnings per Share The Group presents basic earnings per share data for its

ordinary shares. Basic earnings per share is calculated by dividing the Profit or Loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year.

3.16 Statement of Cash Flows The Cash Flow Statement has been prepared using the

'Indirect Method' of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 7 'Cash Flow Statements.' Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

3.17 Movement of Reserves Movement of Reserves is disclosed in the Statement of

Changes in Equity.


3.18 Related Party Transactions Transactions with related parties are conducted on

normal business terms. The relevant disclosures are given in Note 39 to the Financial Statements.

3.19 Transactions with Related Parties The Company carries out transactions in the ordinary

course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24.

3.19.1 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard 24 “Related

Party Disclosures”, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the company has pre-defined approved list of key management personal.

3.20 Operating Segments An operating segment is a component of the Company

that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are reviewed regularly by Board of Directors of the Company to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Accordingly, the segment comprises of financial services are described in Note 46.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the year.

3.21 Subsequent Events All material subsequent events have been considered

and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.

3.22 Commitments and Contingencies All discernible risks are accounted for in determining the

amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognised in the statement of financial position but are disclosed unless they are remote.

3.23 Capital Management The Board of Directors monitor the return on capital

investment on a month basis. This review is mainly carried out through return on investment analysis prepared on a quarterly basis. The plan forecasts are also reviewed on a monthly basis to ensure that targets are met in order to manage the capital invested on the Group Companies.

The Board of Directors also decides and monitors the level of dividends to ordinary shareholders. The Company does not subject to any externally impose capital requirements. However, companies within the group have such requirement based on the industry in which such company established. The group companies which require externally imposed capital will monitor such requirement on a regular basis and report to respective legal authority in order to ensure compliance with such regulatory requirement.


123


Rs. Rs. Rs. Rs.

4 INTEREST INCOMEInterest income on;

Finance Lease 2,776,674,790 2,744,365,234 2,752,713,098 2,730,576,276

Hire Purchase 1,771,510 16,046,514 809,424 6,575,123

Loans and Advances 8,910,119,035 5,723,893,489 5,830,662,134 3,924,042,307

Hire rentals 16,517,838 15,944,090 16,517,838 15,944,090

Overdue Rental 782,835,856 519,223,831 763,979,957 516,335,470

Factoring 1,303,970,860 702,716,105 1,303,970,860 702,716,105

Rentals & sales proceeds - contracts written off 229,646,713 148,310,629 229,549,753 213,900,066

14,021,536,602 9,870,499,892 10,898,203,064 8,110,089,437

5 INTEREST EXPENSEInterest on other financial liabilities due to customers 1,509,701,633 1,195,751,334 1,428,276,406 1,155,828,541

Interest on bank overdrafts and other short-term borrowings 2,500,583,177 900,156,305 2,238,959,144 878,385,380

Interest on long term borrowings 2,392,575,713 1,307,542,916 1,597,328,655 803,976,342

Interest on securitisation - 55,321,437 - 55,321,437

Debenture interests 481,974,113 340,582,192 481,974,113 340,582,192

Charges on forward rate contracts 379,337,661 138,449,716 379,337,661 138,449,716

7,264,172,297 3,937,803,899 6,125,875,979 3,372,543,608

6 OTHER INCOMEDividend Income 46,715,131 4,719,406 46,650,781 4,660,006

Interest received from government securities 690,990,915 260,171,236 587,232,980 235,663,808

Interest income on commercial papers and fixed deposits 693,209,785 241,399,408 679,679,425 241,398,980

Profit on disposal of property, plant and equipment 5,434,017 2,037,393 5,434,017 1,886,387

Appreciation in market value of quoted investments - Shares 12,225,668 4,466,434 12,225,668 4,466,434

Appreciation in market value of quoted investments - Unit Trust 84,349,868 - 84,349,868 -

Gain/(loss) on sale of treasury bonds - 9,429,641 - 9,429,641

Documentation fees 206,998,647 213,900,066 203,742,960 148,310,629

Staff loan interest 13,862 2,187,044 13,862 2,187,044

Commission Income 48,203,343 46,825,896 48,202,500 46,704,684

Sundry income 75,542,981 79,307,538 74,876,121 67,746,659

Foreign exchange gain / (loss) 18,700,351 - 18,280,679 -

Rental income - 148,104 - -

Change in fair value of investment properties 4,000,000 - 4,000,000 -

Transfer fees and profit/(loss) on termination 571,385,406 518,186,612 566,683,332 518,186,612

2,457,769,974 1,382,778,779 2,331,372,193 1,280,640,884



Rs. Rs. Rs. Rs.

7 ALLOWANCE FOR IMPAIRMENT AND WRITE OFFSLease receivables (Note 16.1.4) 177,976,886 411,972,512 180,823,308 400,198,191

Hire purchases (Note 16.2.4) 46,033,562 21,349,418 57,553,990 21,299,557

Advances & loans (Note 17.1.2) 273,790,343 81,536,879 147,715,399 41,347,391

Factoring (Note 18.1.1) 324,686,766 106,959,882 324,686,766 106,959,882

Insurance Receivables 1,297,774 1,849,598 1,297,774 1,849,598

Provision for Termination - 12,744,155 - -

Written offs 229,838,264 - - -

1,053,623,595 636,412,444 712,077,237 571,654,618

8 DEPRECIATION AND AMORTISATIONDepreciation of property, plant and equipment (Note 27) 120,897,051 96,861,171 105,921,514 86,495,444

Amortisation off of intangible assets (Note 26) 3,684,208 538,804 3,684,208 538,804

124,581,259 97,399,975 109,605,722 87,034,248

9 RESULT FROM OPERATING ACTIVITIESProfit from ordinary activities before VAT on financial services, NBT and tax stated after charging all expenses including the following:


Rs. Rs. Rs. Rs.

Directors' fees & other Emoluments 22,773,405 53,610,116 20,980,883 43,204,615

Auditors' remuneration - statutory audit 1,960,000 1,875,000 1,300,000 1,125,000

- audit related services 1,835,000 1,820,000 1,285,000 800,000

Depreciation & Amortisation 124,581,259 97,399,975 109,605,722 87,034,248

Legal and professional expenses 22,827,524 22,862,014 22,452,074 37,293,383

Personnel Expenses (Note 9.1) 1,577,029,332 1,217,922,452 1,103,658,073 870,768,659


125


Rs. Rs. Rs. Rs.

9.1 Personnel ExpensesSalaries and other benefits 1,461,000,199 1,114,216,257 1,019,199,804 805,816,232

Defined contribution plan cost - EPF 79,003,982 72,038,517 55,270,191 43,074,637

- ETF 18,557,133 16,246,948 13,809,877 10,768,659

Defined benefit plan costs - Employee Benefits 18,468,018 15,420,730 15,378,201 11,109,131

1,577,029,332 1,217,922,452 1,103,658,073 870,768,659

10 VALUE ADDED TAX ON FINANCIAL SERVICES AND NBTValue added tax on financial services 478,803,944 285,664,399 375,691,226 215,110,938

Nation Building tax on financial services 104,125,563 74,424,174 82,219,620 55,546,850

582,929,507 360,088,573 457,910,846 270,657,788

11 INCOME TAX EXPENSECurrent tax expense (Note 11.1) 686,264,699 655,240,704 565,438,978 545,307,410

Deferred tax (reversal) / charge (Note 33.3.1) (34,928,426) (112,493,782) (46,968,090) (111,424,700)

Current income tax expense 651,336,273 542,746,922 518,470,888 433,882,710

The Company is liable for tax at the rate of 28% on its taxable income in accordance with the Inland Revenue Act No 10 of 2006 and subsequent amendments made thereon.


Rs. Rs. Rs. Rs.

11.1 Current Tax ExpenseCurrent year income tax expense on ordinary activities (Note 11.2)

686,264,699 635,308,155 565,438,978 525,374,861

Under provision of taxes in respect of previous years - 19,932,549 - 19,932,549

686,264,699 655,240,704 565,438,978 545,307,410



Rs. Rs. Rs. Rs.

11.2 Numerical Reconciliation of accounting profits to income tax expense,Accounting profit before income tax 2,557,566,604 2,268,650,856 2,204,774,210 2,008,265,886

Aggregate disallowable expenses 9,484,987,551 9,275,696,218 9,264,447,079 9,066,133,102

Aggregate tax deductible expenses (5,031,046,488) (3,386,137,416) (4,942,644,275) (3,330,450,139)

Tax exempt income (4,391,335,080) (4,804,517,417) (4,352,838,279) (4,782,875,517)

(-) Allowable tax credits (750,281,780) (1,320,398,350) (750,281,780) (1,320,398,350)

(+/-) Other adjustments (specify) 581,054,549 235,663,808 595,967,971 235,663,808

Taxable profit 2,450,945,355 2,268,957,699 2,019,424,927 1,876,338,789

Income tax at 28 % 686,264,699 635,308,155 565,438,978 525,374,861

Current income tax expense 686,264,699 635,308,155 565,438,978 525,374,861

11.3 Deferred tax has been computed using the enacted tax rate of 28%


Rs. Rs. Rs. Rs.

12 EARNINGS PER SHARE Amount Used as the NumeratorNet profit attributable to equity holders of the Company 1,896,644,018 1,717,346,010 1,686,303,322 1,574,383,176

Number of Ordinary Shares Used as the DenominatorWeighted average number of ordinary shares in issue (shares)

6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170

Earnings per Share 0.30 0.27 0.26 0.25

Basic earnings per share is calculated by dividing the net profit for the year attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.


127

Group CompanyAs at 31st March 2017 2016 2017 2016

Rs. Rs. Rs. Rs.

13 CASH AND CASH EQUIVALENTSComponents of Cash Equivalents

13.1 Favourable Cash & Cash Equivalent BalancesCash in hand 170,515,473 90,520,870 158,027,247 23,565,637

Investment in REPO 575,000,000 850,000,000 - -

Balances with banks 1,404,904,507 1,339,773,841 1,329,821,956 812,491,034

2,150,419,980 2,280,294,711 1,487,849,203 836,056,671

13.2 Unfavourable Cash & Cash Equivalent BalancesBank overdraft (1,805,044,333) (1,594,870,802) (1,390,806,997) (1,170,761,489)

Total cash and cash equivalents in the cash flow statement

345,375,647 685,423,909 97,042,206 (334,704,818)

14 FINANCIAL ASSETS HELD FOR TRADINGEquity shares (Note 14.1) 201,238,845 188,189,393 201,238,845 188,189,393

Unit Trust (Note 14.2) 2,513,936,244 4,044,621,707 2,513,936,244 4,044,621,707

2,715,175,089 4,232,811,100 2,715,175,089 4,232,811,100

14.1 Equity SharesBalance as at beginning of the year 188,189,393 228,344,666 188,189,393 228,344,666

Marked to market adjustments 13,049,452 (40,155,273) 13,049,452 (40,155,273)

Balance at end of the year (Note 14.1.1) 201,238,845 188,189,393 201,238,845 188,189,393


Group Group CompanyAs at 31st March As at 31st March As at 31st March As at 31st March

2017 2016 2017 2016No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair ValueShares Rs. Rs Shares Rs. Rs Shares Rs. Rs Shares Rs. Rs

14.1.1 Equity shares - PortfolioColombo Drydocks PLC 4,315 85,997 327,940 4,315 85,997 466,452 4,315 85,997 327,940 4,315 466,452 466,452

DFCC Bank PLC 38 - 4,332 38 380 5,206 38 - 4,332 38 380 5,206

Overseas Realty Ceylon PLC 113,680 1,664,891 2,296,336 113,680 1,664,891 2,660,112 113,680 1,664,891 2,296,336 113,680 1,664,891 2,660,112

Seylan Bank PLC 74,261 1,104,210 4,062,077 74,261 1,104,210 4,678,443 74,261 1,104,210 4,062,077 74,261 1,104,210 4,678,443

Hayleys Limited 734,144 216,803,911 194,548,160 734,144 216,803,911 180,379,180 734,144 216,803,911 194,548,160 734,144 216,803,910 180,379,180

219,659,009 201,238,845 219,659,389 188,189,393 219,659,009 201,238,845 220,039,843 188,189,393



14.2 Unit TrustCAL High Yield Fund 101,735,645 1,700,000,000 1,710,450,880 99,969,343 1,500,000,000 1,526,171,974 101,735,645 1,700,000,000 1,710,450,880 99,969,343 1,500,000,000 1,526,171,974

First Capital Wealth Fund - - - 413,627 500,000,000 490,122,597 - - - 413,627 500,000,000 490,122,597

First Capital Money Market Fund - - - 462,877 500,000,000 508,396,588 - - - 462,877 500,000,000 508,396,588

NDB Wealth Money Plus Fund - - - 105,229,927 1,500,000,000 1,519,930,548 - - - 105,229,927 1,500,000,000 1,519,930,548

CAL Investment Grade Fund 23,496,609 300,000,000 302,431,899 - - - 23,496,609 300,000,000 302,431,899 - - -

Invest trust Money market fund 39,603,960 500,000,000 501,053,465 - - - 39,603,960 500,000,000 501,053,465 - - -

2,500,000,000 2,513,936,244 4,000,000,000 4,044,621,707 2,500,000,000 2,513,936,244 4,000,000,000 4,044,621,707


Rs. Rs. Rs. Rs.

15 OTHER INVESTMENTSFinancial investments - Available-for-sale (Note 15.1) 2,033,067,488 1,532,341,890 1,491,486,089 1,529,178,752

Loans and receivables (Note 15.2) 14,556,356,196 28,152,831,033 14,201,766,478 28,152,831,033

Derivative assets held for risk management (Note 15.3) 60,701,430 60,811,791 60,701,430 60,811,791

16,650,125,114 29,745,984,714 15,753,953,997 29,742,821,576


129



14.1.1 Equity shares - PortfolioColombo Drydocks PLC 4,315 85,997 327,940 4,315 85,997 466,452 4,315 85,997 327,940 4,315 466,452 466,452

DFCC Bank PLC 38 - 4,332 38 380 5,206 38 - 4,332 38 380 5,206

Overseas Realty Ceylon PLC 113,680 1,664,891 2,296,336 113,680 1,664,891 2,660,112 113,680 1,664,891 2,296,336 113,680 1,664,891 2,660,112

Seylan Bank PLC 74,261 1,104,210 4,062,077 74,261 1,104,210 4,678,443 74,261 1,104,210 4,062,077 74,261 1,104,210 4,678,443

Hayleys Limited 734,144 216,803,911 194,548,160 734,144 216,803,911 180,379,180 734,144 216,803,911 194,548,160 734,144 216,803,910 180,379,180

219,659,009 201,238,845 219,659,389 188,189,393 219,659,009 201,238,845 220,039,843 188,189,393



14.2 Unit TrustCAL High Yield Fund 101,735,645 1,700,000,000 1,710,450,880 99,969,343 1,500,000,000 1,526,171,974 101,735,645 1,700,000,000 1,710,450,880 99,969,343 1,500,000,000 1,526,171,974

First Capital Wealth Fund - - - 413,627 500,000,000 490,122,597 - - - 413,627 500,000,000 490,122,597

First Capital Money Market Fund - - - 462,877 500,000,000 508,396,588 - - - 462,877 500,000,000 508,396,588

NDB Wealth Money Plus Fund - - - 105,229,927 1,500,000,000 1,519,930,548 - - - 105,229,927 1,500,000,000 1,519,930,548

CAL Investment Grade Fund 23,496,609 300,000,000 302,431,899 - - - 23,496,609 300,000,000 302,431,899 - - -

Invest trust Money market fund 39,603,960 500,000,000 501,053,465 - - - 39,603,960 500,000,000 501,053,465 - - -

2,500,000,000 2,513,936,244 4,000,000,000 4,044,621,707 2,500,000,000 2,513,936,244 4,000,000,000 4,044,621,707


Rs. Rs. Rs. Rs.

15 OTHER INVESTMENTSFinancial investments - Available-for-sale (Note 15.1) 2,033,067,488 1,532,341,890 1,491,486,089 1,529,178,752

Loans and receivables (Note 15.2) 14,556,356,196 28,152,831,033 14,201,766,478 28,152,831,033

Derivative assets held for risk management (Note 15.3) 60,701,430 60,811,791 60,701,430 60,811,791

16,650,125,114 29,745,984,714 15,753,953,997 29,742,821,576



Rs. Rs. Rs. Rs.

15.1 Financial Investments - Available-for-saleInvestments in treasury bonds (Note 15.1.1) 1,872,958,045 1,465,352,140 1,424,507,339 1,462,200,002

Treasury Bills (15.1.2) 93,119,693 - - -

Unquoted Shares (Note 15.1.3) 67,189,750 67,189,750 66,978,750 66,978,750

(-) Specific allowances for impairment (15.1.4) (200,000) (200,000) - -

2,033,067,488 1,532,341,890 1,491,486,089 1,529,178,752

Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value


15.1.1 Investments in Treasury BondsSoftlogic Finance PLC 39,740,200 39,635,275 39,740,200 37,758,227 39,740,200 39,635,275 39,740,200 37,758,227

Entrust Securities PLC 21,367,125 24,723,263 21,367,125 25,058,552 21,367,125 24,723,263 21,367,125 25,058,552

First Capital Treasuries Limited 502,413,529 497,454,983 61,553,779 53,782,868 61,553,779 52,180,595 61,553,779 53,782,868

Capital Alliance 223,216,820 211,928,844 223,216,820 210,467,790 223,216,820 211,928,844 223,216,820 210,467,790

Bank of Ceylon 3,078,818 3,176,318 - - - - - -

Nations Trust Bank - - 3,199,462 3,152,138 - - - -

Seylan Bank PLC 1,159,354,332 1,096,039,362 1,159,354,332 1,135,132,565 1,158,450,150 1,096,039,362 1,159,354,332 1,135,132,565

1,949,170,824 1,872,958,045 1,508,431,718 1,465,352,140 1,504,328,074 1,424,507,339 1,505,232,256 1,462,200,002

15.1.2 Treasury BillsTreasury Bills 93,119,693 93,119,693 - - - - - -

93,119,693 93,119,693 - - - - - -

Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016

No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair ValueShares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs.

15.1.3 Unquoted SharesEquity Investments Lanka Ltd 16,875 168,750 168,750 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750

Credit Information Bureau 210 21,000 21,000 110 10,000 10,000 100 10,000 10,000 100 10,000 10,000

Finance Houses Consortium (Pvt) Ltd. 20,000 200,000 200,000 20,000 211,000 211,000 - - - - - -

LOLC Myanmar Micro-Finance Company Limited

519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000

67,189,750 67,189,750 66,978,750 66,978,750


131


Rs. Rs. Rs. Rs.

15.1 Financial Investments - Available-for-saleInvestments in treasury bonds (Note 15.1.1) 1,872,958,045 1,465,352,140 1,424,507,339 1,462,200,002

Treasury Bills (15.1.2) 93,119,693 - - -

Unquoted Shares (Note 15.1.3) 67,189,750 67,189,750 66,978,750 66,978,750

(-) Specific allowances for impairment (15.1.4) (200,000) (200,000) - -

2,033,067,488 1,532,341,890 1,491,486,089 1,529,178,752

Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value


15.1.1 Investments in Treasury BondsSoftlogic Finance PLC 39,740,200 39,635,275 39,740,200 37,758,227 39,740,200 39,635,275 39,740,200 37,758,227

Entrust Securities PLC 21,367,125 24,723,263 21,367,125 25,058,552 21,367,125 24,723,263 21,367,125 25,058,552

First Capital Treasuries Limited 502,413,529 497,454,983 61,553,779 53,782,868 61,553,779 52,180,595 61,553,779 53,782,868

Capital Alliance 223,216,820 211,928,844 223,216,820 210,467,790 223,216,820 211,928,844 223,216,820 210,467,790

Bank of Ceylon 3,078,818 3,176,318 - - - - - -

Nations Trust Bank - - 3,199,462 3,152,138 - - - -

Seylan Bank PLC 1,159,354,332 1,096,039,362 1,159,354,332 1,135,132,565 1,158,450,150 1,096,039,362 1,159,354,332 1,135,132,565

1,949,170,824 1,872,958,045 1,508,431,718 1,465,352,140 1,504,328,074 1,424,507,339 1,505,232,256 1,462,200,002

15.1.2 Treasury BillsTreasury Bills 93,119,693 93,119,693 - - - - - -

93,119,693 93,119,693 - - - - - -

Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016

No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair ValueShares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs.

15.1.3 Unquoted SharesEquity Investments Lanka Ltd 16,875 168,750 168,750 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750

Credit Information Bureau 210 21,000 21,000 110 10,000 10,000 100 10,000 10,000 100 10,000 10,000

Finance Houses Consortium (Pvt) Ltd. 20,000 200,000 200,000 20,000 211,000 211,000 - - - - - -

LOLC Myanmar Micro-Finance Company Limited

519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000

67,189,750 67,189,750 66,978,750 66,978,750


Group Company 2017 2016 2017 2016

Rs. Rs. Rs. Rs.

15.1.4 Specific allowances for impairment As at 01 April 2016 200,000 200,000 - -

Charge / (reversal) for the year - - - -

Balance as at 31 March 200,000 200,000 - -

Group Company As at 31st

March As at 31st

March As at 31st

MarchAs at 31st

March 2017 2016 2017 2016

Rs. Rs. Rs. Rs.

15.2 Loans and Receivables Repos 3,758,141,452 4,593,221,027 3,754,956,245 4,593,221,027

Investments in term deposits 9,091,563,770 23,559,610,006 8,740,159,259 23,559,610,006

Commercial Papers 1,706,650,974 - 1,706,650,974 -

14,556,356,196 28,152,831,033 14,201,766,478 28,152,831,033

15.3 Derivative Assets Held for Risk ManagementForward rate contracts (Note.15.3.1) 60,701,430 60,811,791 60,701,430 60,811,791


133

15.3

.1Fo

rwar

d ra

te co

ntra

cts

The

com

pan

y us

es a

mix

ture

of f

orw

ard

fore

ign

exch

ang

e co

ntra

cts

to h

edg

e th

e fo

reig

n cu

rren

cy tr

ansl

atio

n ris

k o

n its

fore

ign

bo

rro

win

gs.

The

fair

valu

e o

f the

der

ivat

ives

des

igna

ted

as

cash

flo

w h

edg

es a

re a

s fo

llow

s;

Gro

upCo

mpa

nyAs

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6As

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6 A

sset

s L

iabi

litie

s A

sset

s L

iabi

litie

s A

sset

s L

iabi

litie

s A

sset

s L

iabi

litie

s Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.

60,

701,

430

-

60,

811,

791

-

60,

701,

430

-

60,

811,

791

-

The

time

per

iod

s in

whi

ch t

he h

edg

ed c

ash

flow

s ar

e ex

pec

ted

to o

ccur

and

affe

ct t

he s

tate

men

t of c

om

pre

hens

ive

inco

me

are

as fo

llow

s;

Gro

upCo

mpa

ny

As a

t 31s

t Mar

ch 2

017

As a

t 31s

t Mar

ch 2

016

As a

t 31s

t Mar

ch 2

017

As a

t 31s

t Mar

ch 2

016

With

in

1 Ye

ar1-

5 Ye

ars

Ove

r 5

Year

sW

ithin

1

Year

1-5

Year

sO

ver

5 Ye

ars

With

in

1 Ye

ar1-

5 Ye

ars

Ove

r 5

Year

sW

ithin

1

Year

1-5

Year

sO

ver

5 Ye

ars

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

9,4

92,0

89,1

94

7,8

73,2

09,1

30

- 2

,497

,256

,157

-

- 9

,492

,089

,194

7

,873

,209

,130

-

2,4

97,2

56,1

57

- -

For

the

year

end

ed 3

1 M

arch

201

7 ne

t g

ain

of R

s.18

.5 M

n (2

016:

Net

gai

n o

f Rs.

226

Mn)

rela

ting

to t

he e

ffect

ive

po

rtio

n o

f cas

h flo

w h

edg

es w

ere

reco

gni

sed

in o

ther

co

mp

rehe

nsiv

e in

com

e.



Rs. Rs. Rs. Rs.

16 RENTALS RECEIVABLE ON LEASES AND HIRE PURCHASESFinance lease receivables (Note 16.1) 14,070,619,329 14,745,331,507 13,971,615,347 14,671,376,772

Hire purchase receivables (Note 16.2) 10,655,504 38,157,954 1,132,629 22,105,368

14,081,274,833 14,783,489,462 13,972,747,976 14,693,482,139

Rentals Receivable on Leases and Hire PurchasesGross rental receivables 18,789,600,326 19,920,552,431 18,597,917,018 19,742,331,037

Unearned income (4,460,605,297) (4,926,256,616) (4,405,457,287) (4,880,417,835)

Total Rentals Receivable ( Note 16.4) 14,328,995,029 14,994,295,815 14,192,459,731 14,861,913,202

Allowance for impairment (Note 16.3) (247,720,196) (210,806,354) (219,711,755) (168,431,063)

Net receivables 14,081,274,833 14,783,489,462 13,972,747,976 14,693,482,139

16.1 Finance Lease ReceivablesGross rentals receivable 18,705,852,395 19,824,954,578 18,534,203,245 19,687,178,847

Unearned income (4,458,959,695) (4,921,266,636) (4,405,457,287) (4,879,434,822)

14,246,892,700 14,903,687,942 14,128,745,958 14,807,744,025

Allowance for impairment (Note 16.1.3) (176,273,371) (158,356,436) (157,130,611) (136,367,253)

14,070,619,329 14,745,331,507 13,971,615,347 14,671,376,772

Finance Lease ReceivablesReceivables within one year (Note 16.1.1) 3,931,468,053 3,757,591,850 3,864,304,726 3,744,021,632

Receivable from one to five years (Note 16.1.2) 9,834,788,964 10,681,072,267 9,794,573,627 10,617,483,781

Overdue rental receivable 480,635,683 465,023,826 469,867,605 446,238,612

(-) Allowance for impairment (Note 16.1.3) (176,273,371) (158,356,436) (157,130,611) (136,367,253)

14,070,619,329 14,745,331,507 13,971,615,347 14,671,376,772


135


Rs. Rs. Rs. Rs.

16.1.1 Receivables within One YearGross rentals receivable 6,186,934,031 6,051,679,280 6,090,997,332 6,037,598,281

Unearned income (2,255,465,978) (2,294,087,430) (2,226,692,606) (2,293,576,649)

3,931,468,053 3,757,591,850 3,864,304,726 3,744,021,632

16.1.2 Receivable from One to Five Years Gross rentals receivable 12,038,282,681 13,308,251,472 11,973,338,308 13,203,341,954

Unearned income (2,203,493,717) (2,627,179,205) (2,178,764,681) (2,585,858,173)

9,834,788,964 10,681,072,267 9,794,573,627 10,617,483,781

16.1.3 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 1st April 75,083,077 26,789,500 75,083,078 18,694,969

Charge / (Reversal) for the year (Note 16.1.4) 75,982,428 338,864,932 75,982,428 346,959,464

Write offs (87,025,101) (290,571,355) (87,025,101) (290,571,355)

Balance as at 31st March 64,040,404 75,083,077 64,040,405 75,083,078

Allowance for individually non-significant ImpairmentBalance as at 1st April 83,273,359 224,817,745 61,284,176 222,697,415


Write offs (73,034,850) (214,651,967) (73,034,850) (214,651,967)


Total allowances for impairment 176,273,371 158,356,436 157,130,611 136,367,253

16.1.4 Impairment provision for the yearAllowance for individually significant impairment 75,982,428 338,864,932 75,982,428 346,959,464

Allowance for individually non-significant Impairment 101,994,458 73,107,581 104,840,880 53,238,727

177,976,886 411,972,512 180,823,308 400,198,191



Rs. Rs. Rs. Rs.

16.2 Rentals Receivable on Hire PurchasesGross rentals receivable 83,747,931 95,597,853 63,713,773 55,152,190

Unearned income (1,645,602) (4,989,980) - (983,013)

82,102,329 90,607,873 63,713,773 54,169,177


Net receivables 10,655,504 38,157,954 1,132,629 22,105,368

Hire Purchase ReceivablesReceivables within one year (Note 16.2.1) 40,248,794 56,723,420 29,180,217 48,428,355

Receivables from one to five years (Note 16.2.2) 1,784,652 10,585,658 - 60,884

Overdue rental receivable 40,068,883 23,298,795 34,533,556 5,679,938

(-) Allowance for impairment (Note 16.2.3) (71,446,825) (52,449,919) (62,581,144) (32,063,809)

10,655,504 38,157,954 1,132,629 22,105,368

16.2.1 Receivables within One YearGross rentals receivable 41,661,230 58,093,681 29,180,217 49,411,368

Unearned income (1,412,436) (1,370,261) - (983,013)

40,248,794 56,723,420 29,180,217 48,428,355

16.2.2 Receivables from One to Five YearsGross rentals receivable 2,017,818 14,205,377 - 60,884

Unearned income (233,166) (3,619,719) - -

1,784,652 10,585,658 - 60,884

16.2.3 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 1st April 31,238,213 12,386,259 31,238,212 165,602

Charge / (Reversal) for the year 25,540,985 23,307,514 25,540,985 35,528,170

Write offs (25,664,673) (4,455,560) (25,664,673) (4,455,560)



137


Rs. Rs. Rs. Rs.

Allowance for individually non-significant ImpairmentBalance as at 1st April 21,211,705 29,698,775 825,597 21,583,184

Charge / (Reversal) for the year 20,492,577 (1,958,096) 32,013,005 (14,228,613)

Write offs (1,371,983) (6,528,974) (1,371,983) (6,528,974)

Balance as at 31st March 40,332,299 21,211,705 31,466,620 825,597


16.2.4 Impairment charge / (reversal) for the yearAllowance for individually significant impairment 25,540,985 23,307,514 25,540,985 35,528,170

Allowance for individually non-significant Impairment 20,492,577 (1,958,096) 32,013,005 (14,228,613)

46,033,562 21,349,418 57,553,990 21,299,557

16.3 Allowance for Impairment for Leases and Hire Purchases ReceivablesBalance as at 1st April 210,806,354 293,692,279 168,431,063 263,141,170

Charge / (Reversal) for the year 224,010,448 433,321,930 238,377,298 421,497,748

Write offs (187,096,606) (516,207,855) (187,096,606) (516,207,855)


Group CompanyGross amount % Gross amount % Gross amount % Gross amount %

As at 31-Mar-2017 As at 31-Mar-2016 As at 31-Mar-2017 As at 31-Mar-201616.4 Concentration by Sector

Manufacturing 1,036,708,997 7% 1,026,375,060 7% 1,026,186,898 7% 1,026,375,060 7%

Agriculture 3,078,078,237 21% 2,865,221,606 19% 2,928,306,460 21% 2,865,221,606 19%

Trade 2,656,323,207 19% 3,154,079,280 21% 2,650,895,646 19% 3,154,079,280 21%

Transport 2,061,388,588 14% 2,433,842,866 16% 2,038,345,742 14% 2,301,460,252 15%

Construction 851,706,794 6% 557,012,821 4% 851,199,229 6% 557,012,821 4%

Services 2,311,801,596 16% 3,769,267,765 25% 2,575,590,617 18% 3,769,267,765 25%

Micro and Others 2,332,987,610 16% 1,188,496,417 8% 2,121,935,140 15% 1,188,496,417 8%

14,328,995,029 14,994,295,815 14,192,459,731 14,861,913,202

Lease & Hire Purchase receivables amounting to Rs 11,156,271,501/- assigned under funding arrangement (2016- Rs. 3,748,595,413 /-) also included under lease and hire purchase receivables.



Rs. Rs. Rs. Rs.

17 LOANS AND ADVANCESAdvances and loans (Note 17.1) 43,778,397,335 33,951,969,210 33,763,173,050 27,140,128,239

43,778,397,335 33,951,969,210 33,763,173,050 27,140,128,239

17.1 Rentals Receivable on Loans to CustomersRentals receivable on loans to customers 43,245,675,761 33,104,285,751 33,245,883,254 26,792,418,348

Overdue loan installments 963,486,860 1,092,967,287 767,481,222 538,494,803

Total Rentals Receivable (Note 17.2) 44,209,162,621 34,197,253,038 34,013,364,476 27,330,913,151


43,778,397,335 33,951,969,210 33,763,173,050 27,140,128,239

17.1.1 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 1st April 101,941,147 18,096,671 101,941,147 11,278,949


Write off (40,371,451) (32,239,549) (40,371,451) (32,239,549)



Charge / (Reversal) for the year (Note 17.1.2) 98,935,077 (34,547,146) 52,797,833 (81,554,356)

Write off (47,937,433) (53,362,286) (47,937,433) (53,362,286)



17.1.2 Impairment provision for the yearAllowance for individually significant impairment 174,855,266 116,084,025 94,917,566 122,901,747

Allowance for individually non-significant Impairment 98,935,077 (34,547,146) 52,797,833 (81,554,356)

273,790,343 81,536,879 147,715,399 41,347,391


139

Group CompanyGross Amount as

at 31.03.2017Rs.

% Gross Amount as at 31.03.2016

Rs.


Rs.


Rs.

%

17.2 Concentration by SectorManufacturing 7,268,604,505 16% 4,279,081,191 12% 2,508,977,549 7% 1,492,335,859 5%

Agriculture 4,403,141,621 10% 3,925,328,996 11% 1,982,210,004 6% 1,674,526,217 6%

Trade 10,707,219,175 24% 8,788,740,628 25% 8,138,979,996 24% 6,499,350,151 24%

Transport 3,740,470,801 8% 3,143,723,345 9% 3,693,626,003 11% 3,100,712,184 11%

Construction 1,761,569,560 4% 1,564,449,496 4% 1,692,140,310 5% 1,524,124,273 6%

Services 9,222,130,468 21% 8,685,151,879 25% 8,274,454,391 24% 8,452,144,311 31%

Micro and Others 7,106,026,491 16% 4,810,777,503 14% 7,722,976,224 23% 4,587,720,155 17%

44,209,162,621 35,197,253,038 34,013,364,476 27,330,913,151

Loan receivables amounting to Rs.10,774,897,266 /- assigned under funding arrangement (2016- Rs.10,743,181,5942/-) also included under loan receivables.


Rs. Rs. Rs. Rs.

18 FACTORING RECEIVABLESFactoring receivables (Note 18.2) 6,546,928,552 5,085,264,974 6,546,928,552 5,085,264,974

Allowance for impairment (Note 18.1) (379,271,384) (125,547,867) (379,271,384) (125,547,867)

Balance as at 31 March 6,167,657,168 4,959,717,107 6,167,657,168 4,959,717,107

18.1 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 1st April 69,947,881 343,024,081 69,947,881 343,024,081


Write off (70,963,249) (345,646,147) (70,963,249) (345,646,147)



Charge / (Reversal) for the year (Note 18.1.1) (32,432,793) 34,389,934 (32,432,793) 34,389,934





Rs. Rs. Rs. Rs.

18.1.1 Impairment charge / (reversal) for the yearAllowance for individually significant impairment 357,119,559 72,569,947 357,119,559 72,569,947

Allowance for individually non-significant Impairment (32,432,793) 34,389,934 (32,432,793) 34,389,934

324,686,766 106,959,882 324,686,766 106,959,882

Group CompanyGross Amount as

at 31-Mar-2017 Rs.

% Gross Amount as at 31-Mar-2016

Rs.

% Gross Amount as at 31-Mar-

2017 Rs.

% Gross Amount as at 31-Mar-2016

Rs.

%

18.2 Concentration by SectorAgriculture 656,027,660 10% 196,867,618 4% 656,027,660 10% 196,867,618 4%

Manufacturing 1,797,795,989 27% 1,372,345,466 27% 1,797,795,989 27% 1,372,345,466 27%

Services 488,297,765 7% 408,077,175 8% 488,297,765 7% 408,077,175 8%

Trading 978,286,361 15% 852,208,793 17% 978,286,361 15% 852,208,793 17%

Transport 2,031,521,028 31% 1,471,866,323 29% 2,031,521,028 31% 1,471,866,323 29%

Micro and Others 594,999,748 9% 783,899,599 594,999,748 9% 783,899,599 15%

6,546,928,552 5,085,264,974 6,546,928,552 5,085,264,974


Rs. Rs. Rs. Rs.

19 DUE FROM RELATED PARTIESLOLC Motors Limited - 143,825 - -

BRAC Lanka Finance PLC - - - 7,589

Brown & Company PLC 4,189,200 - - -

LOLC General Insurance Limited - 115 - 115

4,189,200 143,940 - 7,704


141


Rs. Rs. Rs. Rs.

20 CURRENT TAX ASSETSWith-Holding Tax recoverable 85,013,013 10,955,013 77,088,006 10,955,013

Nation Building Tax (NBT) recoverable - 342,036 - 342,036

Other tax recoverable 851,437 1,006,379 - -

85,864,450 12,303,428 77,088,006 11,297,049

21 OTHER CURRENT ASSETSFinancial AssetsLoans to employees (Note 21.1) 1,275,545 1,339,512 1,275,545 1,339,513

Amount reserved for Force buy - BRAC shares - 54,828,695 - 54,828,695

1,275,545 56,168,207 1,275,545 56,168,207

Non-financial AssetsPrepayments and advances 263,401,107 263,114,965 203,490,152 242,257,175

Insurance Premium Receivables 31,892,756 41,310,396 31,892,756 41,310,396

Other non-financial receivables 187,807,557 34,341,233 187,737,327 34,461,211

483,101,420 338,766,594 423,120,235 318,028,782

Total other current assets 484,376,965 394,934,801 424,395,780 374,196,989

21.1 Loans to EmployeesBalance at the beginning of the year 1,339,513 82,672,153 1,339,513 82,672,153

Loans granted during the year 4,809,000 10,588,522 4,809,000 10,588,522

Loans recovered during the year (4,872,968) (67,775,465) (4,872,968) (67,775,465)

Transferred to loan portfolio - (24,145,697) - (24,145,697)

Balance at end of the year 1,275,545 1,339,513 1,275,545 1,339,513


Group Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016

PrincipleActivity

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

22 EQUITY ACCOUNTED INVESTEECommercial Insurance Brokers Limited Insurance

Brokering40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000

Add : Share of profits applicable to the CompanyBalance at the beginning of the year 75,054,139 70,656,726 75,054,139 70,656,726

Current year's share of profits before taxation 15,081,296 13,000,462 15,081,296 13,000,462

Taxation (4,835,843) (4,987,322) (4,835,843) (4,987,322)

Current year's share of profits after taxation 10,245,454 8,013,140 10,245,454 8,013,140

Actuarial loss 276,959 (521,842) 276,959 (521,842)

Income tax on other comprehensive income (77,548) 146,116 (77,548) 146,116

Dividends received during the year (3,240,000) (3,240,000) (3,240,000) (3,240,000)

Sub Total 82,259,004 75,054,139 82,259,004 75,054,139

Balance at the end of the year 83,059,004 75,854,139 83,059,004 75,854,139

22.1 Current Year's share of profitThe Share of Equity Accounted Investee profit is based on the audited Financial Statements for the year ended 31st December 2016.

Summarised Financial data as at 31st December 2016 of Commercial Insurance Brokers (Pvt) Ltd is stated below.


Rs. Rs. Rs. Rs.

Revenue 232,301,704 218,636,318 232,301,704 218,636,318

Profit before tax 37,703,241 32,501,155 37,703,241 32,501,155

Profit after tax 25,613,634 20,032,850 25,613,634 20,032,850

Total assets 273,855,907 257,851,308 273,855,907 257,851,308

Total liabilities 60,394,343 61,501,904 60,394,343 61,501,904


143

Group Group CompanyAs at 31st March 2017 As at 31st March 2016 As at 31st March 2017 As at 31st March 2016

PrincipleActivity

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

22 EQUITY ACCOUNTED INVESTEECommercial Insurance Brokers Limited Insurance

Brokering40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000

Add : Share of profits applicable to the CompanyBalance at the beginning of the year 75,054,139 70,656,726 75,054,139 70,656,726

Current year's share of profits before taxation 15,081,296 13,000,462 15,081,296 13,000,462

Taxation (4,835,843) (4,987,322) (4,835,843) (4,987,322)

Current year's share of profits after taxation 10,245,454 8,013,140 10,245,454 8,013,140

Actuarial loss 276,959 (521,842) 276,959 (521,842)

Income tax on other comprehensive income (77,548) 146,116 (77,548) 146,116

Dividends received during the year (3,240,000) (3,240,000) (3,240,000) (3,240,000)

Sub Total 82,259,004 75,054,139 82,259,004 75,054,139

Balance at the end of the year 83,059,004 75,854,139 83,059,004 75,854,139

22.1 Current Year's share of profitThe Share of Equity Accounted Investee profit is based on the audited Financial Statements for the year ended 31st December 2016.

Summarised Financial data as at 31st December 2016 of Commercial Insurance Brokers (Pvt) Ltd is stated below.


Rs. Rs. Rs. Rs.

Revenue 232,301,704 218,636,318 232,301,704 218,636,318

Profit before tax 37,703,241 32,501,155 37,703,241 32,501,155

Profit after tax 25,613,634 20,032,850 25,613,634 20,032,850

Total assets 273,855,907 257,851,308 273,855,907 257,851,308

Total liabilities 60,394,343 61,501,904 60,394,343 61,501,904

23 INVESTMENT PROPERTIES


Rs. Rs. Rs. Rs.

Balance at the beginning of the year - 10,700,000 - 10,700,000

Additions during the year 42,000,000 - 42,000,000 -

Provision for Investment Property (Note 23.1) - (10,700,000) - (10,700,000)

Change in fair value during the year 4,000,000 - 4,000,000 -

Balance at the end of the year 46,000,000 - 46,000,000 -

23.1 Valuation of Investment Properties The fair value of the investment properties were determined as at 31st March 2017, by Mr. P.W Senaratne, an independent valuers who hold recognised and relevant professional qualification and have recent experience in the location and category of the investments properties.


23.2

In

201

6, In

vest

men

t pro

per

ty h

ad b

een

pro

vid

ed fu

lly. L

egal

act

ion

has

alre

ady

bee

n ta

ken

to s

ecur

e th

e tit

le fr

om

a t

hird

par

ty .

Gro

up C

ompa

ny

Prop

erty

& L

ocat

ion

Met

hod

of V

alua

tion

Lan

d Ex

tent

B

uild

ing

Exte

nt

Hist

oric

al

Cost

Fa

ir Va

lue

2017

Fair

Valu

e20

16Fa

ir Va

lue

2017

2016

Rs.

Rs.

Rs.

Rs.

No

10,

Third

Lan

e,

Pita

ko

tte,

Ko

tte

Mar

ket a

pp

roac

h0A

- 0R-

35

.18P

164

0 sq

ft

42,

000,

000

46,

000,

000

-

46,

000,

000

-

46,

000,

000

-

46,

000,

000

-

Com

pany

As a

t 31

Mar

ch20

1720

16N

o. o

f Sha

res

Hol

ding

%Co

st (R

s.)N

o. o

f Sha

res

Hol

ding

%Co

st (R

s.)

24

INVE

STM

ENT

ON

SU

BSID

IARI

ESPr

inci

ple

Activ

ityBR

AC

Lan

ka

Fina

nce

PLC

Leas

ing

, Hire

pur

chas

e, S

ecur

ed

Loan

s,M

icro

finan

ce,P

rop

erty

m

ort

gag

ed lo

ans

and

mo

bili

satio

n o

f p

ublic

dep

osi

ts.

105

,499

,048

99

.76%

1,02

3,30

1,96

6 9

9,77

9,64

1 94

.35%

967

,862

,518

105

,499

,048

1,

023,

301,

966

99,

779,

641

967

,862

,518

Sub

seq

uent

to

the

fina

ncia

l yea

r, su

bje

ct to

the

no

te n

umb

er 4

3, t

he h

old

ing

per

cent

age

of B

RAC

Lan

ka F

inan

ce P

LC h

as d

ecre

ased

fro

m 9

9.76

% t

o

44.3

3% im

med

iate

ly a

fter

the

rig

ht is

sue

in M

ay 2

017.

Co

nseq

uent

ly, w

ith e

ffect

to t

hat,

the

gro

up c

ont

rol h

old

ing

ove

r B

RAC

Lan

ka F

inan

ce P

LC h

as

bee

n tr

ansf

ered

fro

m In

vest

men

t in

Sub

sid

iary

to E

qui

ty A

cco

unte

d In

vest

ee.

Gro

upCo

mpa

nyAs

at 3

1st M

arch

2017

2016

2017

2016

Rs.

Rs.

Rs.

Rs.

25G

OO

DW

ILL

Go

od

will

on

Acq

uisi

tion

253

,210

,966

2

53,2

10,9

66

-

-


145

AmountRs

25.1 Goodwill is attribute to the acquisition of BRAC Lanka Finance PLC.Goodwill on acquisition is recognised as follows;

Fair value of consideration paid 608,635,308

Acquisition of NCI 243,611,315

Identifiable Assets Acquired (599,035,657)

Goodwill 253,210,966

As at 31st MarchGroup

Computer Softwares

License and Fees

2017 2016

Rs. Rs. Rs. Rs.

26 INTANGIBLE ASSETSCostBalance as at the beginning of the period 3,825,000 - 3,825,000 -

Additions - 6,341,400 6,341,400 3,825,000

Balance as at the end of the period 3,825,000 6,341,400 10,166,400 3,825,000

Accumulated Amortisation and Impairment lossesBalance as at the beginning of the period 538,804 - 538,804 -

Amortisation charged 780,866 2,903,341 3,684,208 538,804

Balance as at the end of the period 1,319,670 2,903,341 4,223,012 538,804

Carrying AmountAs at 31 March 2017 2,505,330 3,438,059 5,943,388 -

As at 31 March 2016 - - - 3,286,196


Company ComputerSoftwares

License andFees

2017 2016

Rs. Rs. Rs. Rs.

26 INTANGIBLE ASSETS (CONTD.)CostBalance as at the beginning of the period 3,825,000 - 3,825,000 -

Additions - 6,341,400 6,341,400 3,825,000

Balance as at the end of the period 3,825,000 6,341,400 10,166,400 3,825,000

Accumulated Amortisation and Impairment lossesBalance as at the beginning of the period 538,804 - 538,804 -

Amortisation charged 780,866 2,903,341 3,684,208 538,804

Balance as at the end of the period 1,319,670 2,903,341 4,223,012 538,804

Carrying AmountAs at 31 March 2017 2,505,330 3,438,059 5,943,388 -

As at 31 March 2016 - - - 3,286,196


147

Gro

upFr

eeho

ldLa

nds

Free

hold

Build

ings

Free

hold

Mot

orVe

hicl

es

Furn

iture

&Fi

tting

sO

ffice

Equi

pmen

tCo

mpu

ters

Asse

ts fo

rO

pera

ting

Leas

es

Plan

t &M

achi

nery

Tota

l

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

27

PRO

PERT

Y, P

LAN

T A

ND

EQ

UIP

MEN

TCo

st/V

alua

tion

Bal

ance

as

at 1

st A

pril

201

6 7

01,7

39,0

40

158

,837

,469

1

08,8

76,9

34

153

,389

,376

2

46,4

31,6

90

164

,529

,411

1

11,6

54,3

13

2,1

86,0

33

1,64

7,64

4,26

6

Ad

diti

ons

131

,038

,000

1

9,93

0,47

5 -

3

7,91

5,71

3 9

7,68

9,88

9 6

3,68

5,42

6 2

,000

,000

9

,721

,752

3

61,9

81,2

55

Reva

luat

ions

674

,722

,960

5

6,56

9,52

5 -

-

-

-

-

-

7

31,2

92,4

85

Dis

po

sals

-

-

(6,8

54,5

85)

(142

,650

) (1

,269

,939

) (1

,872

,000

) (5

,430

,357

) -

(1

5,56

9,53

0)

Tran

sfer

s /

Oth

er A

dju

stm

ents

-

(23,

837,

469)

-

-

-

-

-

-

(23,

837,

469)

Imp

airm

ent/

der

eco

gni

tion

-

-

-

(6,9

06,2

22)

(2,1

36,4

98)

-

-

-

(9,0

42,7

20)

Bala

nce

as a

t 31s

t Mar

ch 2

017

1,5

07,5

00,0

00

211,

500,

000

102

,022

,349

1

84,2

56,2

17

340

,715

,142

2

26,3

42,8

37

108

,223

,956

1

1,90

7,78

5 2

,692

,468

,287

Accu

mul

ated

Dep

reci

atio

n

Bal

ance

as

at 1

st A

pril

201

6 -

3

3,48

0,32

6 8

8,91

1,07

5 7

7,50

2,55

8 1

20,5

68,3

72

115

,891

,472

6

7,56

4,17

9 2

,186

,033

5

06,1

04,0

15

Cha

rge

for t

he y

ear

-

6,9

56,8

37

10,

585,

063

24,

250,

852

39,

183,

777

24,

665,

041

14,

188,

430

1,0

67,0

51

120

,897

,051

Reva

luat

ions

-

(16,

599,

694)

-

-

-

-

-

-

(16,

599,

694)

Dis

po

sals

-

-

(6,8

54,5

85)

(142

,650

) (1

,269

,939

) (1

,872

,000

) (3

,891

,501

) -

(1

4,03

0,67

5)

Tran

sfer

s /

Oth

er A

dju

stm

ents

-

(23,

837,

469)

-

-

-

-

-

-

(23,

837,

469)

Imp

airm

ent/

der

eco

gni

tion

-

-

-

(73,

400)

(30,

560)

-

-

-

(103

,960

)

Bala

nce

as a

t 31s

t Mar

ch 2

017

-

-

92,

641,

553

101

,537

,360

1

58,4

51,6

50

138

,684

,513

7

7,86

1,10

8 3

,253

,084

5

72,4

29,2

68

Carry

ing

valu

e

As a

t 31

Mar

ch 2

017

1,5

07,5

00,0

00

211,

500,

000

9,3

80,7

96

82,

718,

857

182

,263

,492

8

7,65

8,32

4 3

0,36

2,84

8 8

,654

,701

2,

120,

039,

018

As

at 3

1 M

arch

201

6 7

01,7

39,0

40

125

,357

,143

1

9,96

5,85

9 7

5,88

6,81

8 1

25,8

63,3

19

48,

637,

939

44,

090,

134

-

1,14

1,54

0,25

1


Com

pany

Free

hold

Land

sFr

eeho

ldBu

ildin

gsFr

eeho

ldM

otor

Vehi

cles

Furn

iture

&Fi

tting

sO

ffice

Equi

pmen

tCo

mpu

ters

Asse

ts fo

rO

pera

ting

Leas

es

Com

pute

rTo

tal

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

27

PRO

PERT

Y, P

LAN

T A

ND

EQ

UIP

MEN

T (C

ON

TD.)

Cost

/Val

uatio

n

Bal

ance

as

at 1

st A

pril

201

6 7

01,7

39,0

40

158

,837

,469

1

00,0

51,9

61

125

,009

,617

1

84,7

68,7

74

164

,529

,411

1

11,6

54,3

13

-

1,5

46,5

90,5

85

Ad

diti

ons

131

,038

,000

1

9,93

0,47

5 -

3

4,05

7,54

6 2

5,61

8,88

0 6

3,68

5,42

6 2

,000

,000

-

2

76,3

30,3

27

Reva

luat

ions

674

,722

,960

5

6,56

9,52

5 -

-

-

-

-

-

7

31,2

92,4

85

Dis

po

sals

-

-

(6,8

54,5

85)

(142

,650

) (1

,269

,939

) (1

,872

,000

) (5

,430

,357

) -

(1

5,56

9,53

0)

Tran

sfer

s /

Oth

er A

dju

stm

ents

-

(23,

837,

469)

-

-

-

-

-

-

(23,

837,

469)

Imp

airm

ent/

der

eco

gni

tion

-

-

(6,5

39,2

21)

(1,9

83,6

96)

-

-

-

(8,5

22,9

17)

Bala

nce

as a

t 31s

t Mar

ch 2

017

1,5

07,5

00,0

00

211

,500

,000

9

3,19

7,37

7 1

52,3

85,2

92

207

,134

,019

2

26,3

42,8

37

108

,223

,956

-

2

,506

,283

,481

Accu

mul

ated

Dep

reci

atio

n

Bal

ance

as

at 1

st A

pril

201

6 -

3

3,48

0,32

6 8

3,81

2,83

8 6

7,84

9,88

0 1

10,4

47,0

14

115

,891

,472

6

7,56

4,17

9 -

4

79,0

45,7

09

Cha

rge

for t

he y

ear

-

6,9

56,8

37

9,1

62,6

88

21,

457,

120

29,

491,

398

24,

665,

041

14,

188,

430

-

105

,921

,514

Reva

luat

ions

-

(16,

599,

694)

-

-

-

-

-

-

(16,

599,

694)

Dis

po

sals

-

-

(6,8

54,5

85)

(142

,650

) (1

,269

,939

) (1

,872

,000

) (3

,891

,501

) -

(1

4,03

0,67

5)

Tran

sfer

s /

Oth

er A

dju

stm

ents

-

(23,

837,

469)

-

-

-

-

-

-

(23,

837,

469)

Bala

nce

as a

t 31s

t Mar

ch 2

017

-

-

86,

120,

941

89,

164,

350

138

,668

,473

1

38,6

84,5

13

77,

861,

108

-

530

,499

,385

Carry

ing

valu

e

As a

t 31

Mar

ch 2

017

1,5

07,5

00,0

00

211

,500

,000

7

,076

,436

6

3,22

0,94

2 6

8,46

5,54

6 8

7,65

8,32

4 3

0,36

2,84

8 -

1

,975

,784

,096

As

at 3

1 M

arch

201

6 7

01,7

39,0

40

125

,357

,143

1

6,23

9,12

3 5

7,15

9,73

6 7

4,32

1,76

0 4

8,63

7,93

9 4

4,09

0,13

4 -

1

,067

,544

,875

27.1

Pr

op

erty

, pla

nt &

eq

uip

men

t inc

lud

ed fu

lly d

epre

ciat

ed a

sset

s th

at a

re s

till i

n us

e ha

ving

a g

ross

am

oun

t of R

s. 2

73,6

51,4

05/-

as

at 3

1st

Mar

ch 2

017

(201

5/16

- Rs

.203

,370

,073

)

27.2

La

nd &

bui

ldin

gs

of t

he C

om

pan

y ar

e st

ated

bas

ed o

n a

valu

atio

n p

erfo

rmed

by

P.W

Sen

arat

na, F

.I.V

( Sri

Lank

a) a

n In

dep

end

ent

Cha

rter

ed V

alue

r, as

at 3

1st M

arch

201

7. T

he D

etai

ls o

f whi

ch a

re a

s fo

llow

s,


149

Info

rmat

ion

on F

reeh

old

Land

and

Bui

ldin

g of

the

Com

pany

Loca

tion

Valu

atio

n of

Net

Boo

k Va

lue

ofRe

valu

atio

n Ex

tent

Exte

nt

Build

ing

(Sq.

Ft)

Acco

mm

odat

ion

Land

Build

ing

Tota

lLa

ndBu

ildin

gSu

rplu

sLa

ndRs

.Rs

.Rs

.Rs

.Rs

.Rs

.

No.

68, B

audd

halo

ka

Maw

atha

,Col

ombo

-04

313

,500

,000

2

03,5

00,0

00

517

,000

,000

3

13,5

00,0

00

203

,500

,000

2

38,5

69,5

25

0A-

0R-

19.0

0P 2

5,24

0 H

ead

Offi

ce

No

305

/5.R

ajag

iriya

road

, N

awal

a 1

,043

,000

,000

-

1,0

43,0

00,0

00

1,04

3,00

0,00

0 -

464

,760

,960

0

A-

3R-

19.1

4P

- N

awal

a -

Riy

apo

la

No

74,

Co

lom

bo

Ro

ad,N

ego

mb

o 1

51,0

00,0

00

8,0

00,0

00

159

,000

,000

1

51,0

00,0

00

8,0

00,0

00

44,

561,

694

0A

- 1R

- 33

.65P

3

,740

N

egam

bo

1,5

07,5

00,0

00

211

,500

,000

1,

719,

000,

000

1,5

07,5

00,0

00

211

,500

,000

7

47,8

92,1

79

27.

3 If

land

and

bui

ldin

gs

wer

e m

easu

red

usi

ng t

he c

ost

mo

del

,the

car

ryin

g a

mo

unts

wo

uld

be

as fo

llow

s:

Gro

upAs

at 3

1Mar

ch20

1720

16Co

st

Accu

mul

ated

De

prec

iatio

n N

et B

ook

Valu

eCo

st

Accu

mul

ated

D

epre

ciat

ion

Net

Boo

k Va

lue

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Clas

s of A

sset

Free

hold

Lan

ds

722

,057

,040

-

722

,057

,040

5

91,0

19,0

40

-

591

,019

,040

Free

hold

Bui

ldin

gs

53,

666,

828

18,

553,

832

35,

112,

996

53,

666,

828

17,

212,

161

36,

454,

667

775

,723

,868

1

8,55

3,83

2 7

57,1

70,0

36

644

,685

,868

1

7,21

2,16

1 6

27,4

73,7

07

Com

pany

As a

t 31M

arch

2017

2016

Cost

Ac

cum

ulat

ed

Depr

eciat

ion

Net

Boo

k Va

lue

Cost

Ac

cum

ulat

ed

Dep

reci

atio

n N

et B

ook

Valu

eRs

.Rs

.Rs

.Rs

.Rs

.Rs

.

Clas

s of A

sset

Free

hold

Lan

ds

722

,057

,040

-

722

,057

,040

5

91,0

19,0

40

-

591

,019

,040

Free

hold

Bui

ldin

gs

53,

666,

828

18,

553,

832

35,

112,

996

53,

666,

828

17,

212,

161

36,

454,

667

775

,723

,868

1

8,55

3,83

2 7

57,1

70,0

36

644

,685

,868

1

7,21

2,16

1 6

27,4

73,7

07

27.

4 Th

ere

wer

e no

rest

rictio

ns o

n th

e tit

le o

f the

pro

pert

y pl

ant a

nd e

quip

men

t as

at th

e re

port

ing

date

. Fur

ther

ther

e w

ere

no it

ems

pled

ged

as s

ecur

ities

for

liab

ilitie

s.



Rs. Rs. Rs. Rs.

28 DEPOSITS FROM CUSTOMERSFixed and Savings Deposits at Amortised CostFixed deposits 16,962,824,891 12,923,138,718 15,219,894,669 11,766,572,803

Saving deposits 1,446,192,999 214,047,156 386,997,426 214,047,156

Interest payable on customer deposits 340,246,895 391,477,029 329,050,339 367,026,494

18,749,264,785 13,528,662,903 15,935,942,434 12,347,646,453

29 LOANS AND BORROWINGSCommercial papers and promissory notes - 3,000,000 - 3,000,000

Short-term loans and others 13,134,044,966 24,095,976,722 13,134,044,966 24,095,976,722

Debentures (Note 29.3) 5,121,541,096 5,121,541,096 5,121,541,096 5,121,541,096

Long-term borrowings (Note 29.1) 28,061,483,934 29,307,445,959 26,011,344,759 27,375,393,543

46,317,069,996 58,527,963,777 44,266,930,821 56,595,911,361

29.1 Long-Term BorrowingsBalance at the beginning of the year 29,740,006,791 11,277,100,472 27,804,228,832 10,076,843,050

Loans obtained - 25,859,253,997 - 23,625,135,000

Repayments (2,022,091,986) (7,326,578,700) (1,570,741,911) (5,826,257,282)

Amortised interest 674,221,240 (69,768,979) 107,197,216 (71,491,937)

Balance at the end of the year - Gross 28,392,136,045 29,740,006,791 26,340,684,137 27,804,228,832

Unamortised finance cost (330,652,111) (432,560,831) (329,339,378) (428,835,289)

Balance at the end of the year 28,061,483,934 29,307,445,959 26,011,344,759 27,375,393,543

29.2 Loans and BorrowingsLoans and Borrowings- CurrentDue to related companies - 42,857,167 - 43,092,001

Other Loans and borrowings 20,028,639,204 27,361,907,642 17,978,500,029 26,863,675,391

20,028,639,204 27,404,764,809 17,978,500,029 26,906,767,392

Loans and Borrowings- Non CurrentDue to related companies - - - -

Other Loans and borrowings 26,288,430,792 31,123,198,968 26,288,430,792 29,689,143,968

26,288,430,792 31,123,198,968 26,288,430,792 29,689,143,968

Total loans and borrowings 46,317,069,996 58,527,963,777 44,266,930,821 56,595,911,360


151

Year of Issue Year ofRedemption

Type of Issue

Fixed Rate Semi Annually

29.3 DebenturesRated,Senior,Unsecured,Redeemable Debenture 2015 2020 Senior -

Unsecured -Redeemable

9.75%

Highest Price Lowest Price Last Traded Price Last Traded Date

Market Summary 100.13 99.98 100.13 14.10.2016

Interest rate of comparable government securityBuying and selling prices of treasury bond as at 31st March 2017.

5 Year Bond Price (Rs.) Yield (%)Buying 89.24 12.66

Selling 89.69 12.54

Market prices and yield during the period Price (Rs.) Yield (%)5 Year Bond 95.87 11.84

Company2017 2016

Debt to equity ratio 4.35 times 5.89 times

Quick asset ratio 1.118 times 1.128 times

Interest cover 1.36 times 1.58 times


Rs. Rs. Rs. Rs.

30 CURRENT TAX LIABILITIESTax Payable as at 1st April 588,902,777 398,471,781 464,454,830 363,234,642

Current tax expense for the year (Note 11.1) 686,264,699 655,240,704 565,438,978 545,307,410

Tax paid during the year (754,409,690) (464,809,707) (616,248,373) (444,087,222)

Tax payable as at 31st March 520,757,787 588,902,777 413,645,436 464,454,830



Rs. Rs. Rs. Rs.

31 AMOUNT DUE TO RELATED COMPANIESLanka Orix Leasing Company PLC 1,777,939,720 455,263,326 63,597,182 136,366,059

LOLC Motors Limited 1,984,497 3,890,748 1,939,271 3,890,748

LOLC Finance PLC 32,987,297 3,400 102,340 -

Lanka ORIX Information Technology Services Limited 306,478,406 424,787,178 16,047,729 141,623,913

LOLC Factors Limited 3,224,240,314 3,231,801,336 - -

Prosper Realty Ltd. 1,584,184 1,350,000 1,584,184 1,350,000

LOLC Micro Credit Limited 955,276 755,422 763,286 736,755

LOLC Corporate Services (Private) Limited 1,615,562 - 564,227 -

LOLC Life Insurance Limited 12,240,344 - - -

5,360,025,600 4,117,851,409 84,598,219 283,967,475

32 TRADE AND OTHER PAYABLESFinancial liabilitiesAccrued Expenses 567,079,810 422,596,224 520,471,289 349,867,925

Creditors for cost of equipment 273,357,743 778,110,028 273,357,743 774,313,083

Other payable 169,184,348 77,246,310 165,708,934 81,336,110

Total financial liabilities 1,009,621,901 1,277,952,562 959,537,966 1,205,517,117

Non-Financial LiabilitiesOther payable 155,849,973 84,995,107 124,756,036 84,995,107

Total non-financial liabilities 155,849,973 84,995,107 124,756,036 84,995,107

Total trade and other payables 1,165,471,874 1,362,947,669 1,084,294,002 1,290,512,224


153

33D

EFER

RED

TA

X A

SSET

S &

LIA

BILI

TIES

Gro

upCo

mpa

nyAs

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6As

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6 T

empo

rary

D

iffer

ence

Ta

x Ef

fect

T

empo

rary

D

iffer

ence

T

ax E

ffect

T

empo

rary

D

iffer

ence

T

ax E

ffect

T

empo

rary

D

iffer

ence

T

ax E

ffect

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

33.1

Reco

gnise

d De

ferre

d Ta

x As

sets

Prop

erty

, Pla

nt &

Equ

ipm

ent

-

-

(24,

757,

436)

(6,9

32,0

82)

-

-

-

-

Leas

e Re

ceiv

able

s -

-

1

1,31

7,90

0 3

,169

,012

-

-

-

-

Emp

loye

e b

enefi

ts -

-

2

0,75

5,10

4 5

,811

,429

-

-

-

-

- -

7,3

15,5

68

2,0

48,3

59

- -

-

-

Gro

upCo

mpa

ny 2

017

201

6 20

1720

16 R

s. R

s. R

s. R

s.

33.1

.1M

ovem

ent i

n re

cogn

ised

defe

rred

tax a

sset

sB

alan

ce a

s at

the

beg

inni

ng o

f the

per

iod

- 9

79,2

78

-

-

Acq

uisi

tion

Thro

ugh

bus

ines

s co

mb

inat

ion

- -

-

-

Orig

inat

ions

/(R

ever

sal)

to t

he In

com

e St

atem

ent (

No

te 3

3.3)

- 1

,069

,082

-

-

- 2

,048

,360

-

-

Gro

upCo

mpa

nyAs

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6As

at 3

1st M

arch

201

7As

at 3

1st M

arch

201

6 T

empo

rary

D

iffer

ence

Ta

x Ef

fect

T

empo

rary

D

iffer

ence

T

ax E

ffect

T

empo

rary

D

iffer

ence

T

ax E

ffect

T

empo

rary

D

iffer

ence

T

ax E

ffect

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

33.2

Reco

gnise

d De

ferre

d Ta

x Lia

bilit

iesPr

oper

ty, P

lant

& E

quip

men

t 3

27,6

18,5

15

91,

733,

184

121

,499

,980

3

4,01

9,99

4 2

67,1

98,6

27

74,

815,

616

121

,499

,980

3

4,01

9,99

4

Leas

e Re

ceiv

able

s 8

38,6

30,2

93

234

,816

,482

1,

136,

881,

353

318

,326

,779

8

36,8

06,4

89

234

,305

,817

1,

136,

881,

353

318

,326

,779

Emp

loye

e B

enefi

ts (9

5,89

5,27

8) (2

6,85

0,67

8) (5

0,34

1,96

4) (1

4,09

5,75

0) (7

2,30

0,06

1) (2

0,24

4,01

7) (5

0,34

1,96

4) (1

4,09

5,75

0)

Reva

luat

ion

of P

rop

erty

, p

lant

and

eq

uip

men

t 1

11,3

26,6

50

31,

171,

462

70,

287,

980

19,

680,

635

111

,326

,650

3

1,17

1,46

2 7

0,28

7,98

0 1

9,68

0,63

5

Der

ivat

ive

Ass

et 6

0,70

1,43

0 1

6,99

6,40

0 -

-

6

0,70

1,43

0 1

6,99

6,40

0 -

-

1,2

42,3

81,6

10

347

,866

,851

1,

278,

327,

349

357

,931

,658

1,

203,

733,

135

337

,045

,278

1,

278,

327,

349

357

,931

,658



Rs. Rs. Rs. Rs.

33.2.1 Movement in recognised deferred tax liabilitiesBalance as at the beginning of the period 357,931,658 469,356,358 357,931,658 469,356,358

Reversal of deferred tax asset opening balance (Note 33.1.1) (2,048,360) - - -

Originations / (Reversal) during the year (Note 33.3) (8,016,448) (111,424,700) (20,886,380) (111,424,700)


33.3 Deferred Tax ExpenseDeferred Tax AssetsOriginations / reversal during the period (Note 33.1.1) - (1,069,082) - -

Deferred Tax LiabilitiesOriginations / reversal during the period (Note 33.2.1) (8,016,448) (111,424,700) (20,886,380) (111,424,700)

(8,016,448) (112,493,782) (20,886,380) (111,424,700)

33.3.1 Amount originating / (reversing) during the yearRecognised in profit and loss (34,928,426) (112,493,782) (46,968,090) (111,424,700)

Recognised in other comprehensive income 26,911,978 - 26,081,710 -

(8,016,448) (112,493,782) (20,886,380) (111,424,700)

34 EMPLOYEE BENEFITSPresent Value of Unfunded Gratuity Balance as at the beginning of the year 71,097,067 54,496,137 50,341,964 48,226,366

Benefit paid during the year (2,260,942) (6,631,552) (2,011,238) (3,493,948)

Expense recognised in the income statement (Note 34.1) 21,433,260 15,420,730 15,378,201 11,109,131

Expense recognised in the other comprehensive income (Note 34.2)

5,625,892 7,811,753 8,591,135 (5,499,585)

95,895,277 71,097,067 72,300,062 50,341,964

34.1 Expense Recognised in the Income StatementCurrent service cost 12,019,721 10,212,249 8,247,722 6,527,627

Interest on obligation 9,413,539 5,208,481 7,130,479 4,581,504

21,433,260 15,420,730 15,378,201 11,109,131

34.2 Expenses Recognised in other comprehensive incomeActurial Loss / (Gain) 5,625,892 7,811,753 8,591,135 (5,499,585)

5,625,892 7,811,753 8,591,135 (5,499,585)


155

The employee benefit liability was actuarial valued under the projected Unit Credit (PUC) method by professionally qualified actuary firm Messers Piyal S. Goonethilake and Associates on 31st March 2017. The principle financial assumptions used in the valuation for the current and comparative years are as follows;


Actuarial AssumptionsRate of discount 12% 11% 12.0% 11.00%

Salary increment rates 9% 8.5% - 10% 9.0% 8.50%

Retirement age 55 years 55 years 55 years 55 years

34.3 Sensitivity of the actuarial assumptions Sensitivity analysis on discounting rate and salary increment rate to Statement of Financial Position and Statement of profit and

Loss.

CompanyRate change Financial Position

- LiabilityAssumptionDiscount rate +1 77,572,906

-1 67,655,514

Future salary increases +1 67,608,702

-1 77,539,170

There are no material issues pertaining to employees and Industrial Relations of the Company.


Rs. Rs. Rs. Rs.

35 STATED CAPITALIssued and Fully Paid (Note 35.1) 1,425,946,629 1,425,946,629 1,425,946,629 1,425,946,629

No. of Shares (Note 35.2) 6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170

All shares rank equally with regard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.



Rs. Rs. Rs. Rs.

35.1 Movement in Stated CapitalBalance at the beginning of the year 1,425,946,629 1,425,946,629 1,425,946,629 1,425,946,629


35.2 Movement in Number of Ordinary sharesBalance at the beginning of the year (No.) 6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170


36 RESERVESStatutory reserve (Note 36.1) 660,369,706 565,537,506 628,919,447 544,604,281

Revaluation reserve (Note 36.2) 872,381,597 135,980,246 872,381,596 135,980,246

General reserve (Note 36.3) 231,779,789 231,779,789 288,079,789 288,079,789

Fair value reserve on AFS (Note 36.4) (129,541,982) (87,474,653) (127,214,307) (87,107,181)

Hedging reserve (Note 36.5) 47,766,929 46,270,286 47,766,933 46,270,289

Total 1,682,756,039 892,093,174 1,709,933,457 927,827,424

36.1 Statutory Reserve The reserve is created according to Direction No.1 of 2003 issued under the Finance Business Act No.42 of 2011. The

Company transfers 5% of its annual net profit after tax to this reserve in compliance with this direction.

36.2 Revaluation Reserve The revaluation reserve relates to the revaluation surplus of Property, Plant and Equipments and the Long term investments.

Once the respective revalued items have been disposed, the relevant portion of revaluation surplus is transferred to retained earnings.

36.3 General Reserve General reserves are the retained earnings of a company which are kept aside out of company’s profits to meet future (known

or unknown) obligations.


157

36.4 Fair Value Reserve on Available for Sale This reserve is maintained to recognise the fair value changes of Available for Sale Financial Assets.

36.5 Hedging Reserve The hedging reserve comprises of the effective portion of the cumulative net change in fair value of cash flow hedging

instruments related to hedge transactions that have not yet affected the profit or loss.


Rs. Rs. Rs. Rs.

37 RETAINED EARNINGSBalance brought forward 9,617,451,437 7,990,107,736 9,443,651,997 7,939,135,583

Transfers to statutory reserves

Net profit for the year 1,896,644,018 1,717,346,010 1,686,303,322 1,574,383,176

Other comprehensive income (5,625,892) (7,059,926) (8,591,135) 5,499,585

Share of Other Comprehensive Income from Equity accounted investee

199,410 (375,726) 199,410 (375,726)

Transferred to/(from) during the year (94,832,201) (86,276,410) (84,315,166) (78,700,372)

Dividends Transferred to Retained Earnings - 3,709,753 - 3,709,753

Tax on other comprehensive income (excluding tax on revaluation)

1,575,250 - 2,405,518 -

Acquisition of NCI 2,495,674 - - -


The carrying amount of the retained earnings represents the undistributed earnings held by the Company. This could be used to absorb future losses and dividend declaration.

38 MATURITY ANALYSIS OF FINANCIAL ASSETS AND FINANCIAL LIABILITIESAn analysis of the interest bearing assets and liabilities employed by the Company as at 31st March 2017, based on the remaining period at the balance sheet date to the respective contractual maturity date is given below.


Notes to the Financial Statements Ca

rrying

amou

nt31

st M

arch 2

017

Less

than

1

mon

th1-

3 m

onth

s4

- 12

mon

ths

13 -

60

mon

ths

Mor

e th

an

60 m

onth

sCa

rrying

amou

nt31

st M

arch 2

016

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

38.1

Grou

pM

atur

ity A

nalys

is of

Fin

ancia

l Ass

ets

Inte

rest

Ear

ning

Ass

ets

Cas

h an

d ca

sh e

quiv

alen

ts 2

,150

,419

,980

2

,150

,419

,980

-

- -

- 2

,280

,294

,711

Tr

adin

g as

sets

- fa

ir va

lue

thro

ugh

profi

t or l

oss

Equi

ty s

ecur

ities

201

,238

,845

2

01,2

38,8

45

- -

- -

188

,189

,393

U

nit T

rust

2,5

13,9

36,2

44

2,5

13,9

36,2

44

- -

- -

4,0

44,6

21,7

07

Inve

stm

ent s

ecur

ities

Ava

ilabl

e-fo

r-sal

e in

vest

men

t sec

uriti

es 2

,033

,067

,488

-

- 5

41,5

70,3

99

1,4

24,5

07,3

39

66,

989,

750

1,5

32,3

41,8

90

Loan

s an

d re

ceiv

able

s14

,556

,356

,196

5

,476

,299

,664

1

,567

,038

,288

7

,510

,231

,316

2

,786

,929

-

28,1

52,8

31,0

33

Der

ivat

ive

asse

ts h

eld

for r

isk

man

agem

ent

60,

701,

430

1,3

37,7

78

- 5

9,36

3,65

2 -

- 6

0,81

1,79

1 Fi

nanc

e le

ase

rece

ivabl

es, h

ire p

urch

ases

and

op

erat

ing

leas

esFi

nanc

e le

ase

rece

ivab

les

14,0

70,6

19,3

29

818

,247

,844

5

20,5

91,6

26

2,9

88,7

42,5

11

9,7

43,0

37,3

49

- 14

,745

,331

,507

H

ire p

urch

ase

rece

ivab

les

10,

655,

504

6,2

80,1

01

540

,864

2

,049

,887

1

,784

,653

-

38,

157,

954

Adva

nces

and

oth

er lo

ans

Loan

s an

d ad

vanc

es43

,778

,397

,335

4,

927,

485,

670

3,91

1,47

5,98

915

,105

,302

,256

19,8

32,0

95,8

97 2

,037

,521

33

,951

,969

,210

Fa

ctor

ing

rece

ivab

les

6,16

7,65

7,16

849

8,87

5,37

377

,094

,962

151,

293,

909

5,44

0,39

2,92

4 -

4,9

59,7

17,1

07

Trad

e an

d ot

her c

urre

nt a

sset

sLo

ans

to s

taff

1,27

5,54

5 1

,275

,545

-

- -

- 1

,339

,512

85

,544

,325

,064

16

,595

,397

,044

6

,076

,741

,729

26

,358

,553

,930

36

,444

,605

,091

6

9,02

7,27

1 89

,955

,605

,815

Mat

urity

Ana

lysis

of F

inan

cial L

iabi

litie

sIn

tere

st B

earin

g Lia

bilit

ies

Non

-der

ivativ

e lia

bilit

ies

Ban

k ov

erdr

afts

1,8

05,0

44,3

33

1,8

05,0

44,3

33

- -

- -

1,5

94,8

70,8

02

Dep

osits

liabi

litie

sO

ther

fina

ncia

l lia

bilit

ies

due

to c

usto

mer

s18

,749

,264

,785

4

,360

,436

,178

4

,883

,792

,278

6

,211

,314

,372

3

,293

,526

,035

1

95,9

23

13,5

28,6

62,9

03

Inte

rest

bea

ring

borro

win

gsC

omm

erci

al p

aper

s an

d pr

omis

sory

not

es -

- -

- -

- 3

,000

,000

Sh

ort t

erm

loan

s an

d ot

hers

13,1

34,0

44,9

66

4,1

32,0

44,9

66

2,0

40,0

00,0

00

6,9

62,0

00,0

00

- -

24,0

95,9

76,7

22

Deb

entu

re 5

,121

,541

,096

-

- 1

21,5

41,0

96

5,0

00,0

00,0

00

- 5

,121

,541

,096

Lo

ng-t

erm

bor

row

ings

28,0

61,4

83,9

34

2,0

24,6

06,9

65

135

,416

,667

4

,734

,570

,606

21

,166

,889

,696

-

29,3

07,4

45,9

59

Oth

er c

urre

nt lia

bilit

ies

5,6

33,3

83,3

43

2,1

35,7

85,2

87

273

,357

,743

-

3,2

24,2

40,3

14

- 4

,895

,961

,437

72

,504

,762

,457

14

,457

,917

,729

7

,332

,566

,688

18

,029

,426

,074

32

,684

,656

,045

1

95,9

23

78,5

47,4

58,9

19

159

Carry

ing am

ount

31st

Marc

h 201

7Le

ss th

an 1

m

onth

1-3

mon

ths

4 - 1

2 m

onth

s13

- 60

m

onth

sM

ore

than

60

mon

ths

Carry

ing am

ount

31st

Marc

h 201

6Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.Rs

.

38.2

Com

pany

Mat

urity

Ana

lysis

of F

inan

cial A

sset

sIn

tere

st E

arni

ng A

sset

sC

ash

and

cash

equ

ival

ents

1,4

87,8

49,2

03

1,4

87,8

49,2

03

- -

- -

836

,056

,671

Tr

adin

g as

sets

- fair

valu

e th

roug

h pr

ofit o

r los

sEq

uity

sec

uriti

es 2

01,2

38,8

45

201

,238

,845

-

- -

- 1

88,1

89,3

93

Uni

t Tru

st 2

,513

,936

,244

2

,513

,936

,244

-

- -

- 4

,044

,621

,707

In

vest

men

t sec

uriti

esA

vaila

ble-

for-s

ale

inve

stm

ent s

ecur

ities

1,4

91,4

86,0

89

- -

- 1

,424

,507

,339

6

6,97

8,75

0 1

,529

,178

,752

Lo

ans

and

rece

ivab

les

14,2

01,7

66,4

78

5,4

61,6

07,2

19

1,5

67,0

38,2

88

7,1

73,1

20,9

71

- -

28,1

52,8

31,0

33

Der

ivat

ive

asse

ts h

eld

for r

isk

man

agem

ent

60,

701,

430

1,3

37,7

78

- 5

9,36

3,65

2 -

- 6

0,81

1,79

1 Fi

nanc

e le

ase

rece

ivabl

es, h

ire p

urch

ases

and

op

erat

ing

leas

esFi

nanc

e le

ase

rece

ivab

les

(Gro

ss)

13,9

71,6

15,3

47

784

,237

,315

5

19,0

23,7

10

2,9

77,9

82,2

48

9,6

90,3

72,0

74

- 14

,671

,376

,772

H

ire p

urch

ase

rece

ivab

les

(Gro

ss)

1,1

32,6

29

1,1

32,6

29

- -

- -

22,

105,

368

Adva

nces

and

oth

er lo

ans

Loan

s an

d ad

vanc

es (G

ross

)33

,763

,173

,050

2

,114

,037

,569

2

,621

,192

,133

10

,808

,536

,659

18

,219

,406

,687

-

27,1

40,1

28,2

39

Fact

orin

g re

ceiv

able

s (G

ross

) 6

,167

,657

,168

49

8,87

5,37

377

,094

,962

151,

293,

909

5,44

0,39

2,92

4 -

4,9

59,7

17,1

07

Trad

e an

d ot

her c

urre

nt a

sset

sLo

ans

to s

taff

1,2

75,5

45

1,2

75,5

45

- -

- -

1,3

39,5

13

73,8

61,8

32,0

28

13,0

65,5

27,7

20

4,7

84,3

49,0

93

21,1

70,2

97,4

39

34,7

74,6

79,0

24

66,

978,

750

81,6

06,3

56,3

47

Mat

urity

Ana

lysis

of F

inan

cial L

iabi

litie

sIn

tere

st B

earin

g Lia

bilit

ies

Non

-der

ivativ

e lia

bilit

ies

Ban

k ov

erdr

afts

1,3

90,8

06,9

97

1,3

90,8

06,9

97

- -

- -

1,1

70,7

61,4

89

Dep

osits

liabi

litie

sO

ther

fina

ncia

l lia

bilit

ies

due

to c

usto

mer

s15

,935

,942

,434

3

,318

,575

,095

3

,900

,904

,964

5

,598

,713

,186

3

,117

,749

,189

-

12,3

47,6

46,4

53

Inte

rest

bea

ring

borro

win

gsC

omm

erci

al p

aper

s an

d pr

omis

sory

not

es -

- -

- -

- 3

,000

,000

Sh

ort t

erm

loan

s an

d ot

hers

13,1

34,0

44,9

66

4,1

32,0

44,9

66

2,0

40,0

00,0

00

6,9

62,0

00,0

00

- -

24,0

95,9

76,7

22

Deb

entu

res

5,1

21,5

41,0

96

- -

121

,541

,096

5

,000

,000

,000

-

5,1

21,5

41,0

96

Long

-ter

m b

orro

win

gs26

,011

,344

,759

3

19,0

08,9

17

135

,416

,667

4

,390

,029

,480

21

,166

,889

,696

-

27,3

75,3

93,5

43

Oth

er c

urre

nt lia

bilit

ies

357

,955

,962

8

4,59

8,21

9 2

73,3

57,7

43

- -

- 1

,058

,280

,558

61

,951

,636

,214

9

,245

,034

,194

6

,349

,679

,374

17

,072

,283

,762

29

,284

,638

,885

-

71,1

72,5

99,8

61


39 RELATED PARTY TRANSACTIONS The Company carried out transactions in the ordinary course of it's business with parties who are defined as related parties in Sri Lanka Accounting Standard 24 (LKAS 24) ' Related Party Disclosures', the details of which are reported below.

39.1 Identity of Related Parties The Company has related party transactions with, its subsidiary BRAC Lanka Finance PLC, equity accounted investee

Commercial Insurance Brokers (Pvt) Ltd and Lanka ORIX Leasing Company PLC, the main shareholder of the Company and with its Directors.

39.2 Transactions with Key Management Personnel

According to Sri Lanka Accounting Standard (LKAS) 24 'Related Party Disclosures', key management personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of Directors (including Executive and Non-Executive) and the heads of its core functions have been identified as key management personnel of the Company. Independent transaction with Key Management Personnel, are disclosed as follows,

(i) Loans to Directors No loans have been given to the Directors of the Company.

(ii) Compensation of Key Management Personnel

Group CompanyShort-term employment benefit 2017 2016 2017 2016

Rs. Rs. Rs. Rs.

Directors fees and other emoluments 22,773,405 53,610,116 20,980,883 43,204,615

Other KMP emoluments 22,734,530 17,179,640 22,734,530 17,179,640

45,507,935 70,789,756 43,715,413 60,384,255

Long-term employment benefits There are no long term employment benefits to Key management Personnel during the year.

39.3 Related party Transactions Accordingly, the value of all transactions carried out by the Company with its Related Companies during the year ended 31

March 2017 are summarised bellow.


161

Group

Name of the Company Relationship Nature of the Transaction Transaction value for the

year ended 31st March 2017

Rs.

Amount due from/(to) as at

31/3/2017

Rs.


31/3/2016

Rs.


Parent Interest expense 309,255,065

Transfer of funds 21,599,459,910

Funds received (21,027,600,495)

Handling fee (591,930,482)

Guarantee Fees (24,750,000)

Asset Hire Expenses (21,821,997)

Settlement of expenses by LOLC (787,119,205) (1,777,939,720) (455,263,326)


Associate Insurance Commission Received 54,482,450 - -

LOLC Finance PLC Fellow Subsidiary Rent Income (1,132,653)

Expenses shared (535,239)

C/A Balance settlement (31,319,405) (32,987,297) (3,400)

LOLC Motors Limited Fellow Subsidiary Fund Transfer Settlement of Valuation Fee Income

25,425,716

Settlement of expenses LOMO (4,493,189)

Valuation Fee Income of LOMO (18,981,050)

Interest Income Received 31,198,517 (1,984,497) (3,746,923)

Lanka ORIX Information Technology Services Ltd

Fellow Subsidiary Provision for information services (165,043,626)

Payments 256,292,378

Expenses shared (1,185,701) (306,478,406) (424,787,178)

Browns & Company PLC Fellow Subsidiary Lease vehicle purchased 358,858,634




Rs.


31/3/2017

Rs.


31/3/2016

Rs.

Ishara Traders Other Related Party Lease vehicle purchased 5,500,000

Loan settled during the year 42,857,167

Interest paid 1,072,041 - (42,857,167)

LOLC Micro Credit Ltd. Fellow Subsidiary Rent Income 1,132,653

Provision for Yard fee (8,914,286)

Expenses shared (2,050,789)

Fund Transfer (Settlement of Expenses by CLC)

9,997,881 (955,276) (755,422)

Prosper Realty Ltd. Fellow Subsidiary Provision for Rent Fee (19,161,734)

Fund Transfer Settlement of rent fee

18,927,553 (1,584,184) (1,350,000)

LOLC Corporate Services (Private) Limited

Fellow Subsidiary Provision for Secretarial Fees (6,770,724)


6,206,497 (1,615,562) -

Galoya Plantations Limited

Fellow Subsidiary Interest Income Received 40,175,278 - -

LOLC General Insurance Ltd.

Fellow Subsidiary Insurance Premium Paid 3,425,275 - -

LOLC Life Insurance Limited

Fellow Subsidiary Insurance premium payment 187,174,061 (12,240,344)

LOLC Factors Limited Fellow Subsidiary Interest on Loan 429,854,418

Loan Payable 3,209,500,000

Interest Payable 14,740,314 (3,224,240,314) (3,228,201,221)

39.3 Related party Transactions (Contd.)


163

Company



Rs.


31/3/2017

Rs.


31/3/2016

Rs.


Parent Interest expense (26,336,173)

Transfer of funds 11,651,724,810

Funds received (10,350,600,495)

Handling fee (591,930,482)

Guarantee Fees (9,750,000)

Asset Hire Expenses (21,821,997)

Settlement of expenses by LOLC (578,516,787) (63,597,182) (136,366,059)

BRAC Lanka Finance PLC Subsidiary Loan Given 1,000,000,000

Loan Recovered (1,000,000,000)

Interest on Loan 147,081,598

C/A Balance settlement by BRAC Lanka PLC.

(7,589) - 7,589


Associate Insurance Commission Received 54,482,450 - -

LOLC Finance PLC Fellow Subsidiary Rent Income (1,132,653)

Expenses shared (535,239)

C/A Balance settlement 1,565,552 (102,340) -

LOLC Motors Limited Fellow Subsidiary Fund Transfer Settlement of Valuation Fee Income

25,425,716

Settlement of expenses LOMO (4,493,189)

Valuation Fee Income of LOMO (18,981,050)

Interest Income Received 31,198,517 (1,939,272) (3,890,748)

Lanka ORIX Information Technology Services Ltd

Fellow Subsidiary Provision for information services (129,530,493)

Payments 256,292,378

Expenses shared (1,185,701) (16,047,729) (141,623,913)




Rs.


31/3/2017

Rs.


31/3/2016

Rs.

Browns & Company PLC Fellow Subsidiary Lease vehicle purchased 358,858,634 - -

Ishara Traders Other Related Party Lease vehicle purchased 5,500,000

Loan settled during the year 42,857,167

Interest paid 1,072,041 - (42,857,167)

LOLC Micro Credit Ltd. Fellow Subsidiary Rent Income 1,132,653

Provision for Yard fee (8,914,286)

Expenses shared (2,050,789)


9,805,891 (763,286) (736,755)

Prosper Realty Ltd. Fellow Subsidiary Provision for Rent Fee (19,161,734)

Fund Transfer Settlement of rent fee

18,927,553 (1,584,182) (1,350,000)

LOLC Corporate Services (Private) Limited

Fellow Subsidiary Provision for Secretarial Fees (6,770,724)


6,206,497 (564,227) -

Galoya Plantations Limited

Fellow Subsidiary Interest Income Received 40,175,278 - -

LOLC General Insurance Ltd.

Fellow Subsidiary Insurance Premium Paid 3,425,275 - -

There are no related party transactions other than those disclosed in Note 39 to the Financial Statements.

39.4 Recurrent & Non-Recurrent related party transactions Non-recurrent related party transactions There were no any non-recurrent related party transactions which aggregate value exceeds 10% of the equity or 5% of the

total assets whichever is lower of the Company as per 31 March 2017 audited financial statements, which required additional disclosures in the 2016/17 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13 (c)of the Security Exchange Commission Act.

Recurrent related party transactions There were no any recurrent related party transactions which in aggregate value exceeds 10% of the consolidated revenue

of the Group as per 31 March 2017 audited financial statements, which required additional disclosures in the2016/17 Annual Report under Colombo Stock Exchange listing Rule 9.3.2 and Code of Best Practices on Related Party Transactions under the Security Exchange Commission Directive issued under Section 13 (c) of the Security Exchange Commission Act.”

39.3 Related party Transactions (Contd.)


165

39.5 The terms and conditions of the transactions with key management personnel and their related parties were no more favorable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.

Group Company2017 2016 2017 2016

Rs. Rs. Rs. Rs.

40 CONTINGENT LIABILITIESGuarantees issued to banks and other institutions 59,723,175 45,100,000 59,723,175 45,100,000

41 CAPITAL COMMITMENTS There were no significant capital commitments which have been approved or contracted for by the Company as at the

reporting date except for the following.


Rs. Rs. Rs. Rs.

Forward exchange contracts 17,365,298,324 2,497,256,157 17,365,298,324 2,497,256,157

Facility limits not utilised 2,206,186,372 945,651,269 2,206,186,372 945,651,269

On this commitment the Company will receive US $ 110,244,999.03 and EURO 1,968,791.03 on conversion.

42 LITIGATION AND CLAIMS Litigation is a common occurrence in the finance industry due to the nature of the business undertaken. The Group has

formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing.

43 EVENTS AFTER REPORTING PERIOD No circumstances have arisen subsequent to the reporting date which would require adjustments to or disclosure in the

financial statements other than the following; The company held 99.76% of the issued share capital of BRAC Lanka Finance (BRAC) as at 31st March 2017. Its holding

diluted to 44.33% in May 2017 with the non subscription of rights issued by BRAC, parent company,Lanka Orix Leasing Company PLC purchased all unsubscribed shares in order to maintain group control and to ensure that BRAC meets the requirement for increased capital.


44 COMPARATIVE INFORMATIONThe presentation and classification of the following items in these Financial Statements are amended to ensure the comparability with the current year.

Group CompanyAs at 31st March Other

investmentsOther current

assetsOther

investmentsOther current

assets Rs. Rs. Rs. Rs.

Interest ReceivablesAs previously reported in the published financial statements for the year ended 31 March 2016

29,745,642,568 395,276,948 29,742,821,576 374,196,989

Adjustment made on Interest Receivables 342,146 (342,146) - -

Adjusted balance in the published financial statements for the year ended 31 March 2017

29,745,984,714 394,934,802 29,742,821,576 374,196,989

Intangible assets

Property, plant and equipment

Intangible assets

Property, plant and equipment

Rs. Rs. Rs. Rs.

Intangible AssetsAs previously reported in the published financial statements for the year ended 31 March 2016

1,144,826,447 - 1,070,831,071

Adjustment made on Intangible Assets 3,286,196 (3,286,196) 3,286,196 (3,286,196)


3,286,196 1,141,540,251 3,286,196 1,067,544,875

Deposits from customers

Loans and borrowings-

current

Trade and other payables

Loans and borrowings-

current

Trade and other payables

Rs. Rs. Rs. Rs. Rs.

Accrued Interest and Security DepositsAs previously reported in the published financial statements for the year ended 31 March 2016

12,764,287,741 26,894,658,987 2,637,428,654 26,398,384,528 1,798,895,088

Adjustment made on Accrued Interest - 510,105,822 (510,105,822) 508,382,864 (508,382,864)

Adjustment made on security deposits 764,375,162 - (764,375,162) - -


13,528,662,903 27,404,764,809 1,362,947,670 26,906,767,392 1,290,512,224


167

Group CompanyAs at 31st March Interest Income Other Income Interest Income Other Income

Profit on TerminationsAs previously reported in the published financial statements for the year ended 31 March 2016

10,388,686,504 864,592,167 8,628,276,049 762,454,272

Adjustment made to profit on terminations (518,186,612) 518,186,612 (518,186,612) 518,186,612


9,870,499,892 1,382,778,779 8,110,089,437 1,280,640,884

Interest Expense

Other operating expenses

Interest Expense

Other operating expenses

Costs incidental to obtaining loansAs previously reported in the published financial statements for the year ended 31 March 2016

4,032,127,452 1,969,193,656 3,466,867,161 1,487,139,723

Adjustment made to costs incidental to obtaining loans (94,323,553) 94,323,553 (94,323,553) 94,323,553


3,937,803,899 2,063,517,209 3,372,543,608 1,581,463,276

Share of Other Comprehensive

Income from Equity accounted

investee

Share of profit of equity accounted

investee (net of tax)

Share of Other Comprehensive

Income from Equity accounted

investee

Share of profit of equity accounted

investee (net of tax)

Share of Other Comprehensive Income from Equity accounted investeeAs previously reported in the published financial statements for the year ended 31 March 2016

7,637,413 - 7,637,413 -

Adjustment made to OCI 375,726 (375,726) 375,726 (375,726)


8,013,139 (375,726) 8,013,139 (375,726)


45 VALUATION OF FINANCIAL INSTRUMENTS45.1 Fair Value Hierarchy

Group Note Carrying amount Level 1 Level 2 Level 3 Total As at 31 March 2017 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

AssetsEquity Securities 14.1 201,238,845 201,238,845 - - 201,238,845

Unit Trust 14.2 2,513,936,244 2,513,936,244 - - 2,513,936,244

2,715,175,089 2,715,175,089 - - 2,715,175,089

Other InvestmentCorporate bonds 15.1.1 1,872,958,045 - 1,872,958,045 - 1,872,958,045

Treasury Bills 15.1.2 93,119,693 - 93,119,693 - 93,119,693

Unquoted equity securities 15.1.3 67,189,750 - - 67,189,750 67,189,750

Derivative assets held for risk management

15.3 60,701,430 - 60,701,430 - 60,701,430

2,093,968,918 - 2,026,779,168 67,189,750 2,093,968,918

4,809,144,007 2,715,175,089 2,026,779,168 67,189,750 4,809,144,007

As at 31 March 2016AssetsEquity Securities 14.1 188,189,393 188,189,393 - - 188,189,393

Unit Trust 14.2 4,044,621,707 4,044,621,707 - - 4,044,621,707

4,232,811,100 4,232,811,100 - - 4,232,811,100




15.3 60,811,791 - 60,811,791 - 60,811,791

1,593,353,681 - 1,526,163,931 67,189,750 1,593,353,681

5,826,164,781 4,232,811,100 1,526,163,931 67,189,750 5,826,164,781


169

45.2 Financial instruments not measured at fair value The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the

fair value hierarchy into which each fair value measurement is categorised. For cash and cash equivalents, short term receivables and payables, the fair value reasonably approximates its cost.

GroupAs at 31 March 2017

Note Level 1 Level 2 Level 3 Total Fair Value Total Carryingamount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Assets

Investment securitiesLoans & receivablesRepos 15.2 - 3,758,141,452 - 3,758,141,452 3,758,141,452

Investments in term deposits 15.2 - 9,091,563,770 - 9,091,563,770 9,091,563,770

Commercial Papers 15.2 - 1,706,650,974 - 1,706,650,974 1,706,650,974

- 14,556,356,196 - 14,556,356,196 14,556,356,196

Finance lease receivables, hire purchases and operating leasesFinance lease receivables 16.1 - 13,001,477,374 - 14,070,619,329

Hire purchase receivables 16.2 - 14,591,712 - 10,655,504

- - 13,016,069,086 - 14,081,274,833

Advances and other loansAdvances and loans 17.1 - - 43,698,128,964 - 43,778,397,335

Factoring receivables 18 - - 6,167,657,168 6,167,657,168 6,167,657,168

- - 49,865,786,132 6,167,657,168 49,946,054,503

- 14,556,356,196 62,881,855,218 20,724,013,364 78,583,685,532

LiabilitiesDeposits liabilities 28 - - 16,559,337,762 16,559,337,762 18,749,264,785

Interest bearing borrowingsShort-term loans and others 29 - - 13,134,044,966 13,134,044,966 13,134,044,966

Debentures 29 - 4,321,647,595 - 4,321,647,595 5,121,541,096

Long-term borrowings 29.1 - - 28,390,823,310 28,390,823,310 28,392,136,045

- 4,321,647,595 41,524,868,276 45,846,515,871 46,647,722,107

- 4,321,647,595 58,084,206,038 62,405,853,633 65,396,986,892


45.2 Financial instruments not measured at fair value (Contd.)

GroupAs at 31 March 2016

Note Level 1 Level 2 Level 3 Total Fair Value Total Carryingamount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Assets

Investment securitiesLoans & receivablesRepos 15.2 - - 4,593,221,027 4,593,221,027 4,593,221,027

Investments in term deposits 15.2 - - 23,559,610,006 23,559,610,006 23,559,610,006

- - 28,152,831,033 28,152,831,033 28,152,831,033

Finance lease receivables, hire purchases and operating leasesFinance lease receivables 16.1 - - 12,339,046,929 12,339,046,929 14,745,331,507

Hire purchase receivables 16.1 - - 288,090,549 288,090,549 38,157,954

- - 12,627,137,478 12,627,137,478 14,783,489,461

Advances and other loansAdvances and loans 17.1 - - 17,949,817,177 17,949,817,177 33,951,969,210


- - 22,909,534,284 22,909,534,284 38,911,686,317

- - 63,689,502,795 63,689,502,795 81,848,006,811


Interest bearing borrowingsCommercial papers & Promisory Notes

29 - - 3,000,000 3,000,000 3,000,000

Short-term loans and others 29 - - 24,095,976,722 24,095,976,722 24,095,976,722

Debentures 29 - 4,667,355,557 - 4,667,355,557 5,121,541,096


- 4,667,355,557 53,838,983,513 58,506,339,070 58,960,524,609

- 4,667,355,557 67,367,646,416 72,035,001,973 72,489,187,512


171

Company Note Carrying amount Level 1 Level 2 Level 3 Total As at 31 March 2017 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Trading assets - fair value through profit or lossEquity Securities 14.1 201,238,845 201,238,845 - - 201,238,845

Unit Trust 14.2 2,513,936,244 2,513,936,244 - - 2,513,936,244

2,715,175,089 2,715,175,089 - - 2,715,175,089




15.3 60,701,430 - 60,701,430 - 60,701,430

1,552,187,519 - 1,485,208,769 66,978,750 1,552,187,519

4,267,362,608 2,715,175,089 1,485,208,769 66,978,750 4,267,362,608

Company Note Carrying amount Level 1 Level 2 Level 3 Total As at 31 March 2016 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Trading assets - fair value through profit or lossEquity Securities 14.1 188,189,393 188,189,393 - - 188,189,393

Unit Trust 14.2 4,044,621,707 4,044,621,707 - - 4,044,621,707

4,232,811,100 4,232,811,100 - - 4,232,811,100

Other InvestmentCorporate bonds 15.1.1 1,462,200,002 1,462,200,002 - - 1,462,200,002



15.3 60,811,791 - 60,811,791 - 60,811,791

1,589,990,543 1,462,200,002 60,811,791 66,978,750 1,589,990,543

5,822,801,643 5,695,011,102 60,811,791 66,978,750 5,822,801,643


45.3 Financial instruments not measured at fair value The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level

in the fair value hierarchy into which each fair value measurement is categorised.

As at 31 March 2017 Note Level 1 Level 2 Level 3 Total Fair Value Total Carryingamount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

AssetsInvestment securitiesRepos 15.2 - - 3,754,956,245 3,754,956,245 3,754,956,245


Commercial Papers 15.2 - - 1,706,650,974 1,706,650,974 1,706,650,974

- - 14,201,766,478 14,201,766,478 14,201,766,478

Finance lease receivables, hire purchases and operating leasesFinance lease receivables 16.1 - - 12,865,911,299 12,865,911,299 13,971,615,347

Hire purchase receivables 16.2 - - 1,132,629 1,132,629 1,132,629

- - 12,867,043,928 12,867,043,928 13,972,747,976

Advances and other loansAdvances and loans 17.1 - - 32,411,724,747 32,411,724,747 33,763,173,050


- - 38,579,381,915 38,579,381,915 39,930,830,218

- - 65,648,192,321 65,648,192,321 68,105,344,672


Interest bearing borrowingsDebentures 29 - 4,321,647,595 - 4,321,647,595 5,121,541,096



- 4,321,647,595 39,474,729,103 43,796,376,698 44,596,270,199

- 4,321,647,595 53,220,744,513 57,542,392,108 60,532,212,633


173

As at 31 March 2016 Note Level 1 Level 2 Level 3 Total Fair Value Total Carryingamount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

AssetsInvestment securitiesRepos - - 4,593,221,027 4,593,221,027 4,593,221,027


- - 28,152,831,033 28,152,831,033 28,152,831,033

Finance lease receivables, hire purchases and operating leasesFinance lease receivables 17 - - 14,789,520,499 14,789,520,499 14,671,376,772

Hire purchase receivables 17 - - 14,548,167 14,548,167 22,105,368

- - 14,804,068,666 14,804,068,666 14,693,482,140

Advances and other loansAdvances and loans 18 - - 26,266,830,671 26,266,830,671 27,140,128,239


- - 31,226,547,779 31,226,547,779 32,099,845,346

- - 74,183,447,478 74,183,447,478 74,946,158,519


Interest bearing borrowingsCommercial papers & Promisory Notes

29 - - 3,000,000 3,000,000 3,000,000


Debentures 29 - 4,667,355,557 - 4,667,355,557 5,121,541,096

Long-term borrowings 29.1 - 27,804,228,832 - 27,804,228,832 27,804,228,832

- 32,471,584,389 24,098,976,722 56,570,561,111 57,024,746,650

- 32,471,584,389 35,333,028,023 67,804,612,412 69,005,366,609


46 SEGMENT INFORMATION

Group Business Segment Leasing Hire Purchase Loans Factoring Others Total

Rs. Rs. Rs. Rs. Rs. Rs.

For the year ended 31 March 2017 Total revenue 3,258,619,085 38,083,527 9,415,916,431 1,308,917,559 2,457,769,305 16,479,305,907

Net interest cost (1,597,005,291) (1,209,392) (4,968,816,974) (697,140,640) - (7,264,172,297)

Profit before operating expenses 1,661,613,794 36,874,135 4,447,099,457 611,776,919 2,457,769,305 9,215,133,610

Operating expenses (972,775,776) (67,257,888) (2,630,296,897) (617,983,535) (1,796,568,855) (6,084,882,952)

Value added tax on financial services and NBT

(128,229,088) (97,106) (398,395,903) (56,207,409) - (582,929,507)

Profit from operations 560,608,930 (30,480,859) 1,418,406,657 (62,414,025) 661,200,450 2,547,321,151

For the year ended 31 March 2016 Total revenue 3,293,839,829 72,452,727 6,400,857,123 706,509,785 779,619,206 11,253,278,671


Profit before operating expenses 2,211,914,554 69,566,335 3,907,964,587 346,410,089 779,619,206 7,315,474,772

Operating expenses (1,644,863,353) (62,250,421) (2,262,349,465) (301,214,268) (424,070,976) (4,694,748,482)


(98,837,739) (263,682) (227,734,549) (33,252,603) - (360,088,573)

Profit from operations 468,213,462 7,052,232 1,417,880,573 11,943,218 355,548,230 2,260,637,717

For the year ended 31 March 2017 Capital expenditure - - - - 361,981,255 361,981,255

Depreciation of property plant and equipment

- - - - 120,897,051 120,897,051

Provision for/(reversal of provision for)doubtful debts and bad debts written off

179,892,719 50,092,439 498,951,671 324,686,767 - 1,053,623,596


175

Group Business Segment Leasing Hire Purchase Loans Factoring Others Total


For the year ended 31 March 2016 Capital expenditure - - - - 173,487,482 173,487,482

Depreciation of property plant and equipment

- - - - 97,399,975 97,399,975

Provision for/(reversal of provision for)doubtful debts and bad debts written off

417,632,789 23,989,124 87,830,649 106,959,882 - 636,412,444

As at 31- March -2017 Total assets 14,070,619,329 10,655,504 43,778,397,334 6,167,657,168 24,863,371,737 88,890,701,072

Total liabilities 16,135,301,118 12,219,062 50,202,311,133 7,043,542,190 968,023,000 74,361,396,503

As at 31- March -2016 Total assets 14,741,920,325 39,328,927 33,967,233,752 4,959,717,107 38,428,563,802 92,136,763,913

Total liabilities 21,864,449,371 58,330,618 50,378,434,170 7,277,216,065 571,797,840 80,150,228,064

Company Business Segment Leasing Hire Purchase Loans Factoring Others Total


For the year ended 31 March 2017Total revenue 3,225,998,808 36,858,711 6,326,430,076 1,308,915,470 2,331,372,193 13,229,575,257

Interest cost (1,588,699,060) (128,790) (3,839,178,216) (697,869,912) - (6,125,875,979)

Profit before operating expenses 1,637,299,748 36,729,921 2,487,251,860 611,045,558 2,331,372,193 7,103,699,278

Operating expenses (947,778,612) (20,867,950) (1,455,598,146) (354,874,493) (1,672,140,473) (4,451,259,674)


118,688,859 9,622 286,818,124 52,394,242 - (457,910,846)



Company Business Segment Leasing Hire Purchase Loans Factoring Others Total


For the year ended 31 March 2016Total revenue 3,316,439,436 50,885,830 4,702,795,152 706,466,261 614,143,642 9,390,730,321


Profit before operating expenses 2,230,028,334 49,279,026 2,773,181,740 351,553,973 614,143,642 6,018,186,714

Operating expenses (1,574,449,479) (47,304,606) (1,506,798,519) (291,800,797) (326,922,779) (3,747,276,180)


(84,860,868) (127,860) (156,983,507) (28,685,553) - (270,657,788)


For the year ended 31 March 2017Allowance for impairment and write off

180,823,308 57,553,990 147,715,399 324,686,767 1,297,774 712,077,238

For the year ended 31 March 2016Allowance for impairment and write off

400,198,191 21,299,557 41,347,391 106,959,882 1,849,598 571,654,619

As at 31 March 2017Total assets 13,971,615,347 1,132,629 33,763,173,050 6,546,928,552 23,478,247,705 77,761,097,283

Total liabilities 16,539,034,882 1,340,761 39,967,482,850 7,265,705,033 - 63,585,563,249

As at 31 March 2016Total assets 14,671,376,772 22,105,368 27,140,128,239 4,959,717,107 37,565,626,017 84,358,953,503

Total liabilities 23,280,999,750 35,077,489 41,636,581,727 7,608,868,487 - 72,561,527,453

46 SEGMENT INFORMATION (CONTD.)


177

47 FINANCIAL RISK MANAGEMENT Overview The Company has exposure to the following risks from financial instruments:

1 Credit risk

2 Liquidity risk

3 Market risk

4 Operational risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

Risk management framework The board of directors has overall responsibility for the establishment and oversight of the Company’s risk management

framework. The Board has established the Integrated Risk Management Committee (IRMC), which are responsible for developing and monitoring Company risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the board of directors on their activities.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Company Audit Committee and the IRMC are responsible for monitoring compliance with the Company’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in these functions by Enterprise Risk Management division (ERM). ERM undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Company Audit Committee.

Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to

meet its contractual obligations, and arises principally from the Company’s loans and advances to customers and other Company's, and investment debt securities. For risk management purposes, credit risk arising on trading assets is managed independently.

Management of credit risk Facilities granted to customers (Lease / Hire purchase / Loans) Credit department has a Credit committee formed internally, is responsible for management of the Company’s credit risk,

including:

1. Formulating credit policies in consultation with Branch and Regional Heads, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.


47 FINANCIAL RISK MANAGEMENT (CONTD.)2. Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated

to branch and Regional Heads, Senior Marketing Officers at Head Office. Larger facilities require approval by Company/Group Credit, Head of Company Credit, Company Credit Committee or the board of directors as appropriate.

3. Reviewing and assessing credit risk. Company Credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

4. Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band and market liquidity (for investment securities).

5. Developing and maintaining the Company’s risk grading in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive/committee as appropriate. Risk grades are subject to regular reviews by Company Risk.

6. Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to Company Credit who may require appropriate corrective action to be taken.

7. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Company in the management of credit risk.

Each Branch and Regional Head is required to implement Company credit policies and procedures, with credit approval authorities delegated from the Company Credit Committee. Each Branch and Regional Head is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.

Regular audits of business units and Company Credit processes are undertaken by ERM.

Allowances for impairment The Company establishes an allowance for impairment losses on assets carried at amortised cost that represents its estimate

of incurred losses in its lease and loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and, for assets measured at amortised cost,individually non-significant impairment established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write-off policy The Company writes off a loan or an investment debt security balance, and any related allowances for impairment losses,

when Board of Directors determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status.


179

Group CompanyExposure to credit risk Finance lease Hire Purchase Total Finance lease Hire Purchase Total


1. Lease and hire purchase portfolioCarrying amount (Note 16) 14,070,619,329 10,655,504 14,081,274,833 13,971,615,347 1,132,629 13,972,747,976

Assets at amortised costindividually significant impairment

Gross amount 64,040,404 31,114,525 95,154,929 64,040,405 31,114,524 95,154,929

Allowance for impairment (64,040,404) (31,114,525) (95,154,929) (64,040,405) (31,114,524) (95,154,929)

Carrying amount - - - - - -

for the rest of portfolio where individually non-significant Impairment is applicable

Gross amount 14,182,852,296 50,987,804 14,233,840,100 14,064,705,553 32,599,249 14,097,304,802


Carrying amount 14,070,619,329 10,655,505 14,081,274,833 13,971,615,347 1,132,629 13,972,747,976

14,070,619,329 10,655,505 14,081,274,833 13,971,615,347 1,132,629 13,972,747,976

Group CompanyExposure to credit risk Advances and

loansFactoring

receivablesTotal Advances

and loansFactoring

receivablesTotal


2. Advances and other loansCarrying amount (Note 17&18) 43,778,397,335 6,167,657,168 49,946,054,502 33,763,173,050 6,167,657,168 39,930,830,217

Assets at amortised costindividually significant impairment

Gross amount 236,424,962 356,104,191 592,529,153 156,487,263 356,104,191 512,591,454


Carrying amount - - - - - -

for the rest of portfolio where individually non-significant Impairment is applicable

Gross amount 43,972,737,659 6,190,824,361 50,163,562,021 33,856,877,213 6,190,824,361 40,047,701,574


Carrying amount 43,778,397,335 6,167,657,168 49,946,054,504 33,763,173,049 6,167,657,168 39,930,830,217

43,778,397,335 6,167,657,168 49,946,054,504 33,763,173,049 6,167,657,168 39,930,830,217


47 FINANCIAL RISK MANAGEMENT (CONTD.)3. Trade & Other Receivables The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However,

management also considers the demographics of the Company’s customer base, including the default risk of the industry in which customers operate, as these factors may have an influence on credit risk.

The Credit Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases Company references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Credit Committee ; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.

More than 59 percent of the Company’s customers have been transacting with the Company for over one year. In monitoring customer credit risk, customers are Companied according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties.

4. Cash and cash equivalents The Company held cash and cash equivalents of Rs.1,488 million at 31 March 2017 (2016 : Rs.836 million) which represents its

maximum credit exposure on these assets.

5. Excessive risk concentration Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same

geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities

that are settled by delivering cash or another financial asset.

Management of liquidity risk The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to

meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Company central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Company central


181

Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Company’s and other inter-Company facilities, to ensure that sufficient liquidity is maintained within the Company as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Company central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements.

The Company relies on bank borrowings and deposits from customers and Company’s, as its primary sources of funding. While the Company’s bank borrowings have maturities of over one year, deposits from customers and Company’s generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Company’s liquidity risk and the Company actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.

Exposure to liquidity risk The key measure used by the Company for managing liquidity risk is the ratio of net liquid assets to deposits from customers.

For this purpose net liquid assets are considered as including cash and cash equivalents and Treasury bills and Repos maturing with in next financial year. A similar, but not identical, calculation is used to measure the Company’s compliance with the liquidity limit established by the Company’s lead regulator, [Central Bank of Sri Lanka - CBSL]. Details of the reported Company ratio of net liquid assets to deposits from customers at the reporting date and during the year were as follows:


Rs. Rs. Rs. Rs.

89.11 238.42 98.45 234.77

Maturity analysis for financial assets and liabilities Note no 38 of the financials statements summarises the maturity profile of the undiscounted cash flows of the company’s financial assets and liabilities as at 31 March 2017. The Company’s expected cash flows on these instruments vary significantly from this analysis.

Market Risk Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Management of market risks Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The company’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels. The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the company’s income statement.


47 FINANCIAL RISK MANAGEMENT (CONTD.)

Group CompanyIf Market rates up by 1 % the effect of the same to the Interest

Income/(Expense)

If Market rates drop by 1 % the effect of

the same to theInterest Income/

(Expense)

If Market rates up by 1 % the effect of the same to the Interest

Income/(Expense)

If Market rates drop by 1 % the effect of

the same to theInterest Income/

(Expense) Rs. Rs. Rs. Rs.

Effect on Rate sensitive Assets 442,091,626 (442,091,626) 340,133,645 (340,133,645)

Effect on Rate sensitive Liabilities (259,545,631) 259,545,631 (259,545,631) 259,545,631

Sensitivity of profit or loss 182,545,995 (182,545,995) 80,588,014 (80,588,014)

Operational Risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s

involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

• Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

• Requirements for the reconciliation and monitoring of transactions;

• compliance with regulatory and other legal requirements;

• documentation of controls and procedures;

• requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

• requirements for the reporting of operational losses and proposed remedial action;

• development of contingency plans;

• training and professional development;

• ethical and business standards; and

• risk mitigation, including insurance where this is effective.


183

Compliance with Company standards is supported by a programme of periodic reviews undertaken by ERM. The results of ERM reviews are discussed with the department heads to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

48. CAPITAL MANAGEMENT The Company’s capital management is performed primarily considering regulatory capital.

The Company’s lead regulator, the Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for the Company. The Company is required to comply with the provisions of the Finance Companies (Capital Funds) Direction No.01 of 2003,

Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No.02 of 2006 and Finance Companies (Minimum Core Capital) Direction No.01 of 2011 in respect of regulatory capital.

The Company’s regulatory capital consists primarily of tier 1 capital, which includes ordinary share capital, retained earnings and statutory reserves.

The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Company recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

In Rs.Mn In Rs.Mn As at As at

31.03.2017 31.03.2016

Capital Element Ordinary share capital 1,426 1,426

Statutory Reserve 629 545

General Reserve 288 288

Retained earnings (Excluding share of profits of Equity Accounted Investee) 10,957 9,368

Tier I capital/ Total Capital 13,300 11,627


Shareholder Information

ANALYSIS OF ORDINARY SHARES AS AT 31ST MARCH

2017 2016Range No. of

ShareholdersNo. ofShares

% ofShares

No. ofShareholders

No. ofShares

% ofShares

1 - 1,000 580 139,168 0.00 527 130,255 0.00

1,001 - 10,000 194 838,303 0.01 192 858,766 0.01

10,001 - 100,000 124 4,930,089 0.08 133 5,029,861 0.08

100,001 - 1,000,000 26 9,492,094 0.15 26 9,513,835 0.15

Over 1,000,000 Shares 6 6,362,311,516 99.76 6 6,362,178,453 99.76

Total 930 6,377,711,170 100.00 884 6,377,711,170 100.00

SHAREHOLDERS AS AT 31ST MARCH

2017 2016No. of % of Issued No. of % of Issued

Shares Capital Shares Capital

1 Lanka ORIX Leasing Company PLC 6,308,876,426 98.92 6,308,876,426 98.92

2 Browns Investments PLC 40,000,000 0.63 40,000,000 0.63

3 Sinharaja Hills Plantation Pvt Limited 5,445,851 0.09 5,302,027 0.08

4 Chemical Industries (Colombo) Ltd/CIC Charitable & Educational Trust Fund

4,000,000 0.06 4,000,000 0.06

5 Ceylon Biscuits Limited 2,000,000 0.03 2,000,000 0.03

6 Seylan Developments PLC 1,989,239 0.03 2,000,000 0.03

7 Miss N.R. Mather 1,000,000 0.02 1,000,000 0.02

8 Mrs. R.L. Mather 1,000,000 0.02 1,000,000 0.02

9 Mr. S.R. Mather 1,000,000 0.02 1,000,000 0.02

10 Mr. D.N.N. Lokuge 890,660 0.01 890,660 0.01

11 Mr. A.N. William 650,000 0.01 650,000 0.01

12 Mr W Gunarathne 529,017 0.01 422,717 0.01

13 Mr. W.V.A.N. Fernando & Mrs.K.M.M.V.R.Jayasuriya 500,000 0.01 500,000 0.01

14 People's Leasing Finance PLC/ K L Udayananda 415,664 0.01 460,573 0.01

15 Dr. H.S.D.Soysa 400,100 0.01 400,100 0.01

16 Bansei Securities Capital (Pvt) Ltd/ Mr. C.P.A. Gunasekera 399,564 0.01 400,000 0.01

17 Mr. P.B.Jayasundara 260,000 0.00 260,000 0.00

18 Mr. S.M.M.Abdul Ghaffoor 200,000 0.00 200,000 0.00

19 Mr. H.E.P.Babapulle & Mrs I J Babapulle 200,000 0.00 200,000 0.00

20 Mr. J.B.W Kelegama 200,000 0.00 200,000 0.00

6,369,956,521 99.88 6,369,762,503 99.88

The Public Shareholding as at 31st March 2017 was 1.076% comprising 928 shareholders

185

HIGHEST, LOWEST AND CLOSING SHARE PRICES AS AT 31 MARCH

2017 2016Rs. Rs.

Highest 4.20 4.80

Lowest 2.40 3.50

Closing 2.60 3.80

SHAREHOLDING AS AT 31 MARCH

2017 2016No. of Shares

% of Shares

No. of Shares

% of Shares

Residents 6,377,678,540 100.00 6,377,678,940 100.00

Non Residents 32,630 - 32,230 -

Total 6,377,711,170 100.00 6,377,711,170 100.00


Summarised Quarterly Statistics

COMPANY

Income Statement (Rs.‘000)2016/17 2015/16

For the 3 months ended 30-Jun -16 30-Sep -16 31-Dec -16 31-Mar -17 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16

Gross income 2,467,456 2,821,439 3,040,580 2,568,728 1,955,696 2,156,058 2,273,121 1,725,214

Other Income/(Expenses) 494,940 337,193 347,767 1,161,718 150,769 112,149 89,239 936,497

Interest Costs (1,435,864) (1,422,144) (1,600,460) (1,667,408) (637,828) (699,822) (850,250) (1,184,644)

Profit before operating expenses 1,526,532 1,736,488 1,787,887 2,063,038 1,468,637 1,568,385 1,512,110 1,477,067

Other operating expenses (1,046,972) (1,162,570) (1,149,496) (1,550,133) (976,411) (1,001,915) (953,832) (1,085,775)

Results from operating activities 479,560 573,918 638,391 512,905 492,226 566,470 558,278 391,292

Income tax expense (133,419) (159,807) (178,090) (47,155) (137,351) (157,772) (155,603) 16,843

Net profit after tax 346,141 414,111 460,301 465,750 354,875 408,698 402,675 408,135

Financial Position (Rs.'000)

As at 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16

Assets 85,035,413 84,550,023 87,046,695 77,761,097 45,073,448 51,650,493 53,608,834 84,358,953

Liabilities 72,936,841 72,053,800 74,100,216 63,585,563 34,442,283 40,603,615 42,159,915 72,561,527

Net Assets 12,098,572 12,496,223 12,946,479 14,175,534 10,631,165 11,046,878 11,448,919 11,797,426

Share capital & reserves 12,098,572 12,496,223 12,946,479 14,175,534 10,631,165 11,046,878 11,448,919 11,797,426

Share capital 1,425,947 1,425,947 1,425,947 1,425,948 1,425,947 1,425,947 1,425,946 1,425,946

Reserves 10,672,625 11,070,276 11,520,532 12,749,588 9,205,218 9,620,931 10,022,973 10,371,480

187

GROUP

Income Statement (Rs.‘000)2016/17 2015/16

For the 3 months ended 30-Jun -16 30-Sep -16 31-Dec -16 31-Mar -17 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16

Gross income 3,124,134 3,607,544 3,891,880 3,397,979 2,219,358 2,565,001 2,834,148 2,251,993

Other Income/(Expenses) 519,474 352,998 381,059 1,214,485 153,890 117,758 92,728 1,026,416

Interest Costs (1,643,414) (1,689,273) (1,943,155) (1,988,331) (702,279) (845,847) (1,042,170) (1,347,508)

Profit before operating expenses 2,000,194 2,271,269 2,329,784 2,624,133 1,670,969 1,836,912 1,884,706 1,930,901

Other operating expenses (1,327,889) (1,630,160) (1,645,284) (2,064,480) (1,109,368) (1,133,702) (1,161,332) (1,650,435)

Results from operating activities 672,305 641,109 684,500 559,653 561,601 703,210 723,374 280,466

Income tax expense (136,655) (249,097) (195,915) (69,670) (152,851) (202,254) (202,387) 14,744

Net profit after tax 535,650 392,012 488,585 489,983 408,750 500,956 520,987 295,210

Financial Position (Rs.’000)As at 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16

Assets 94,846,043 95,984,480 98,704,697 88,890,701 49,323,106 57,893,939 62,300,350 92,136,764

Liabilities 82,368,880 83,131,680 85,428,209 74,361,397 38,586,924 46,649,854 50,535,863 80,150,228

Net Assets 12,477,163 12,852,800 13,276,488 14,529,304 10,736,182 11,244,085 11,764,487 11,986,536

Share capital,reserves & non controlling interest

12,477,163 12,852,800 13,276,488 14,529,304 10,736,182 11,244,085 11,764,487 11,986,536

Share capital 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947

Reserves 10,989,470 11,366,350 11,847,905 13,100,663 9,263,940 9,766,636 10,280,353 10,509,544

Non controlling interest 61,746 60,503 2,636 2,694 46,295 51,502 58,187 51,045


31st Dec 31st March For the year ended 2007 2008/2009 2010 2011 2012 2013 2014 2015 2016 2017(Rs. Mn)

Operating ResultsProfit before interest 1,399 2,146 1,722 2,047 5,405 4,110 4,321 4,132 5,373 8,320

Profit before tax 406 514 362 741 3,245 1,603 1,289 1,728 2,008 2,205

Profit after tax 328 415 354 664 2,964 1,168 936 1,426 1,574 1,686

AssetsTotal assets 7,976 9,451 12,534 21,351 26,398 27,229 32,934 42,385 84,359 77,761

LiabilitiesTotal Liabilities 6,681 7,776 10,505 17,656 19,635 19,392 24,078 32,270 72,561 63,586

Shareholders' FundsStated capital 418 418 418 1,426 1,426 1,426 1,426 1,426 1,426 1,426

Reserves 878 1,257 1,612 2,269 5,337 6,411 7,430 8,689 10,371 12,750

Shareholders' funds 1,296 1,675 2,030 3,695 6,763 7,837 8,856 10,115 11,797 14,176

Investor RatiosLong term borrowings to shareholders funds

2.02:1 0.94:1 0.69:1 1.85:1 1.43:1 0.58:1 0.83:1 0.66:1 2.32:1 1.83:1

Total borrowings to shareholders funds

4.1:1 4.64:1 4.55:1 4.19:1 2.73:1 1.87:1 1.62:1 2.91:1 5.97:1 4.35:1

Net Asset value per share (Rs.)

0.20 0.26 0.32 0.58 1.06 1.23 1.39 1.59 1.85 2.22

Earnings per share(Rs.) 0.05 0.07 0.06 0.10 0.46 0.18 0.15 0.22 0.25 0.26

Return on capital employed(%)

25 28 19 23 57 16 11 15.03 14.37 12.99

Return on assets(%) 4 2 3 4 12 4 3 3.79 2.48 2.08

Non Financial InformationNumber of branches (Including service centres)

11 22 26 40 50 53 53 58 60 61

Number of employees 221 276 388 413 511 539 610 670 801 1,099

Ten Year Summary

189

2012/13 2013/14 2014/15 2015/16 2016/170

2000

4000

6000

8000

10000

PROFIT BEFORE AND AFTER INTEREST EXPENSE

Profit before interest Profit after interest

Rs. Mn

2013 2014 2015 2016 20170

200

400

600

800

1,000

1,200

NUMBER OF EMPLOYEES

2013 2014 2015 2016 20170

10

20

30

40

50

60

70

80

NUMBER OF BRANCHES INCLUDING SERVICES CENTRES

2013 2014 2015 2016 20170

20,000

40,000

60,000

80,000

100,000

120,000

NUMBER OF CUSTOMERS


(Rs. Mn) 2007 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Sources of income

Lease income 889,209 771,110 510,411 854,536 1,837,041 2,591,200 3,162,957 2,820,335 2,730,576 2,752,713

Hire purchase income 955,694 1,571,718 1,414,179 1,633,327 1,708,993 1,055,987 495,423 122,104 6,575 809

Loan income - 7,323 113,129 292,738 732,975 1,330,038 2,645,630 3,450,943 3,924,042 5,830,662

Vehicle hire income 48,380 56,241 42,242 34,133 16,583 13,189 14,046 17,511 15,944 16,518

Factoring income 113,867 270,410 304,777 460,887 830,050 723,414 694,703 521,284 702,716 1,303,971

Interest on overdue rentals 60,659 147,073 110,733 126,866 191,754 281,793 445,595 536,034 516,335 763,980

Collection from contracts written off

- - - - - - 55,843 121,480 213,900 229,550

Other income 23,169 116,001 116,001 177,757 2,205,055 217,184 259,867 581,506 1,288,654 2,341,618

2,090,978 2,939,876 2,611,472 3,580,244 7,522,451 6,212,805 7,774,064 8,171,197 9,398,742 13,239,821

Distribution of incomeTo banks and other lenders 1,000,460 1,640,440 1,362,588 1,309,331 2,167,290 2,514,873 3,039,090 2,406,103 3,372,544 6,125,876

To government as taxation 472,061 166,050 166,050 224,778 366,115 550,047 471,911 471,378 704,540 976,382

To employees as emoluments

134,165 214,870 253,183 381,732 411,034 464,518 571,070 723,426 870,769 1,103,658

To providers of services 100,162 228,494 386,355 847,652 1,299,046 1,185,150 1,570,038 1,731,158 2,217,817 2,525,919

To shareholders as dividends

70,583 35,292 - - - - - - - -

Depreciation 51,012 66,023 52,636 44,047 47,360 57,178 54,546 95,380 87,034 109,606

Provision for doubtful debts 53,527 80,454 85,436 115,414 267,322 272,586 1,131,450 1,317,731 571,655 712,077

Reserves(including provision for deferred taxation)

209,008 508,253 305,224 657,290 2,964,284 1,168,453 935,959 1,426,021 1,574,383 1,686,303

2,090,978 2,939,876 2,611,472 3,580,244 7,522,451 6,212,805 7,774,064 8,171,197 9,398,742 13,239,821

Sources and Distribution of Income

191

Statement of Value Added

Company 2016/17 (%) 2015/16 (%)(Rs.'000) (Rs.'000)

Value addedIncome 10,898,203 8,110,088

Other income 2,341,618 1,288,654

13,239,821 9,398,742

Cost of services (2,525,919) (2,217,817)

Provision for losses (712,077) (571,655)

10,001,825 6,609,270

Distribution of value addedTo employees 11% 13%

Remuneration and other benefits 1,103,658 870,769

To government 10% 11%

Income tax,value added tax and VAT on financial services 976,382 704,540

To banks and other lenders 61% 51%

Interest and bank charges on borrowings 6,125,876 3,372,544

To providers of capital - -

Dividends to shareholders - -

To expansion and growth 18% 25%

Depreciation 109,606 87,034

Retained profits 1,686,303 1,574,383

10,001,825 100% 6,609,270 100%

DISTRIBUTION OF VALUE ADDED

10%

FY - 2015/16

FY - 2016/17

To Employees

To Goverment

To Bank & Other lenders

To Expansion & Growth

36%

1%3%36%

17%

7%18%

11%

13% 10%

11%

61%

51%

25%


AAccounting PoliciesThe specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

Accrual BasisRecognising the effects of transactions and events when they occur, without waiting for receipt or payment of cash or cash equivalents.

Associate Company-Equity accounted investeeAn associate is an entity in which the investor has significant influence and which is neither a subsidiary nor an interest in a joint venture

Available- For-Sale Financial AssetsNon derivate financial assets that are designated as available for sale or are not classified as

(a) Loans and receivables,(b) Held to maturity investments or(c) Financial assets at fair value through profit or loss.

CCapital Adequacy RatioThis is ratio between core capital and risk weighted assets.

Cash BasisRecognising the effects of transactions and events when receipts or payments of cash or cash equivalent occur.

Cash EquivalentsShort term highly liquid investment that are readily convertible to known amount of cash and which are subject to an insignificant risk in change in value.

Consolidated Financial StatementsFinancial Statements of a Group presented as those of a single company.

ContingenciesA condition or situation existing on the statement of financial position where the outcome will be confirmed only by occurrence or non occurrence of one or more future event.

Corporate GovernanceThe process by which corporate entities are governed. It covers the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.

Credit RiskCredit Risk is the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms & conditions.

DDeferred TaxationSum set aside for tax in the financial statements that may become payable/receivable in a financial year other than the current financial year.

DepreciationDepreciation is the allocation of the depreciable amount of an asset over its estimated useful life.

Derivatives A derivative is a financial instrument or other contract, the value of which changes in response to some underlying variable (e.g., an interest rate), that has an initial net investment smaller than would be required for other instruments that have a similar response to the variable, and that will be settled at a future date.

EExecutionsAdvances granted to customers under leasing, hire purchase and loan facilities. Equity Method The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post acquisition changes in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

Equity MethodThe equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition changes in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.

Glossary Terms

193

FFair ValueFair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction.

Financial AssetsAny asset that is cash, an equity instrument of another entity or contractual right to receive cash or another financial asset from another entity.

Core CapitalCore capital is the minimum amount of capital that finance company should have on hand to comply with the regulatory requirement. Core capital consists of equity capital and declared reserves.

Finance LeaseA contract where by a lessor conveys to the lessee the right to use an asset for rent over an agreed period of time which is sufficient to amortise the capital outlay of the lessor. The lessor retains ownership of the asset but transfers substantially all the risk and rewards incidental to ownership of the asset to the lessee.

Financial LiabilityIs a contractual obligation to deliver cash or another financial asset to another entity

GGoodwillAny excess of the cost of the acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction and is recognised as an asset.

Gross PortfolioTotal rental receivable of the advances granted to customers under leasing, hire purchase and loan facilities.

HHire PurchaseA hire purchase is a contract between hirer and financier where the hirer takes on hire a particular article from the financier, with the option to purchase the article at the conclusion of the agreed rental payments.

IImpairmentAmount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

Interest CostThe sum of monies accrued and payable to the sources of borrowed working capital.

Investment Propertyinvestment Property is a property (land or a building - or part of a building -or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.

Investment Securities Securities acquired and held for yield or capital growth purposes and are usually held to maturity.

KKey Management PersonnelKey Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

LLeaseA lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right touse an asset for an agreed period of time.


Liquid Assets Assets that are held in cash or in a form that can be converted to cash readily, such as deposits with other banks, Bills of Exchange and Treasury Bills and Bonds.

NNegative GoodwillAny excess, as at the date of the exchange transaction, of the acquirer’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition and is treated as income in the period it arises.

Net PortfolioTotal rental instalment receivable excluding interest of the advances granted to customers under leasing, hire purchase and loan facilities.

Non-Controlling InterestPart of the net results of operations and of net assets of a subsidiary attributable to interests who are not owned, directly or indirectly through subsidiaries, by the Parent.

Non Performing PortfolioFacilities granted to customers who are in default for more than six months.

OOperating LeaseAn operating lease is a lease other than a finance lease.

PProvisionAmount set aside against possible losses or net receivable of facilities granted to customers, as a result of them becoming partly or wholly uncollectible.

RRelated PartiesParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.

Related Party TransactionsA transfer of resources or obligations between related parties, regardless of whether a price is charged.

Residual ValueThe estimated amount that is currently realisable from disposal of asset, after deducting estimated cost of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

SSegmental AnalysisAnalysis of financial information by segments of an enterprise specifically, the different industries and the different geographical areas in which it operates.

Shareholder's Funds(equity)Total of issued and fully paid ordinary share capital and reserves.

Stated CapitalAll amount received by the Company or due and payable to the Company-

(a) In respect of the issue of shares , (b) In respect of calls on shares.

Subsidiary CompanySubsidiary is a company that is controlled (power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities) by another company known as the Parent.

Substance over FormThe consideration that the accounting treatment and the presentation in Financial Statements of transactions and the events should be governed by their substance and financial reality and not merely by legal form.

TTier 1 CapitalCore capital representing permanent shareholders’ equity and reserves created or increased by appropriations of retained earnings or other surpluses.

Glossary Terms

195

Tier 11 CapitalSupplementary capital representing general provisions and other capital instruments which combine certain characteristics of equity and debt, such as hybrid capital instruments and unsecured subordinated term debt.

UUnearned IncomeUnearned interest is an accounting method used by lending institutions to deal with long-term, fixed-income securities. Initially recorded as a liability, the unearned interest will eventually be recorded as income in the lending institution's books over the life of the loan as time passes and the interest is earned.

VValue AdditionValue of wealth created by providing leasing and other related services considering the cost of providing such services.

RATIOSMethod of computation and indicates

DDebt to Equity(Gearing)RatioTotal debts divided by equity. The extent to which debt contributes to fund total assets, compared to the contribution from equity.

EEarnings Per Share (EPS)Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. Share of current year’s earnings attributable to an ordinary shares in use.

IInterest CoverEarnings before interest and tax divided by interest expense. Ability to cover or service interest charges of the debt holders.

MMarket CapitalisationNumber of ordinary shares in issue multiplied by market value of a share. Total market value of all ordinary shares in issue.

NNet Assets Value per Ordinary ShareOrdinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

Non Performing RatioTotal gross non-performing portfolio divided by total gross portfolio. Percentage of total gross non-performing portfolio against the total gross portfolio.

PPrice Earnings Ratio (PE Ratio)Market price of a share divided by earnings per share (EPS). Number of years that would be taken to recoup shareholders' capital outlay in the form of earnings.

RReturn On Assets(ROA)Net profit expressed as a percentage of average total assets. Overall effectiveness in generating profit with available assets; earning power of invested total capital.

Return on Equity (ROE)Net profit, less preference share dividends if any, expressed as a percentage of average ordinary share holders' funds. Earning power on shareholders’ book value of investment (equity).


Notes


NOTICE IS HEREBY GIVEN THAT THE 25TH ANNUAL GENERAL MEETING of the above Company will be held on 20th September 2017 at 10.00 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardanepura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Annual Report and Financial Statements for the year ended 31st March, 2017, with the Report of the Auditors thereon.

2. To re-elect as Director Mr L Jayaratne, who retires by rotation in terms of Article 70 of the Articles of Association of the Company.

3. To re-elect as Director Mr P D J Fernando, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

4. To re-elect as Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

5. To re-appoint as Auditors M/s KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.

BY ORDER OF THE BOARDCommercial Leasing & Finance PLC

LOLC Corporate Services (Pvt) Ltd Secretaries

25th August 2017Rajagiriya (in the greater Colombo)

Note:1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A

Proxy need not be a member of the Company

2) The completed Form of Proxy should be deposited at the registered office of the Company, 68, Baudhaloka Mawatha, Colombo 04, not later than 10:00am on 18th September 2017.

3) A Form of Proxy accompanies this Notice

Notice of Meeting

199

Form of Proxy

I / We ……………………….…………………………………………………………………………………………………………………………

of …………………………………………………………………………………………………………………… being a member/members of

the above named Company hereby appoint …..…………………………………………………………………………………………………

……………………………………………………………… of ……………………………………………………………………… whom failing

Mr Priyantha Damian Joseph Fernando of Colombo or failing himMr Luxhman Jayaratne of Colombo or failing himMr Don Manuwelge Don Krishan Thilakaratna of Colombo

as my/our proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on 20th September 2017, and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

For Against

1 To re-elect as Director Mr L Jayaratne, who retires by rotation in terms of Article 70 of the Articles of Association of the Company.

2 To re-elect as Director Mr P D J Fernando, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3 To re-elect as Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

4 To re-appoint as auditors M/s KPMG Chartered Accountants at a remuneration to be fixed by the Directors

dated this ……….………………….. day of ……………., Two Thousand Seventeen

………………………………………Signature of Shareholder

Note:1) a proxy need not be a member of the Company2) Instruction as to completion appear on the reverse hereof

INSTRUCTIONS AS TO COMPLETION

1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2 The completed Form of Proxy should be deposited at the registered office of the Company, 68, Bauddhaloka Mawatha, Colombo 04 not less than 48 hours before the time appointed for the holding of the Meeting.

Form of Proxy

Designed & produced by

Printed by Printage (Pvt) LtdPhotography by Taprobane Street

www.clc.lk

for value creation or value creation€¦ · for value creation our potential or value creation...

Documents