nation lanka finance plc
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PRIVATE AND CONFIDENTIAL
Nation Lanka Finance PLC
Factual Memorandum
07 January 2011
CORPORATE FINANCE � PRICING ANALYSIS
ADVISORY
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International.2
The Board of Directors,
Nation Lanka Finance PLC,
55 1/1, Iceland Building,
Galle Road,
Colombo 03,
Sri Lanka
07 January 2011
Attn: Mr. Chandra Gamage
Dear Sir,
Final report regarding the Pricing Analysis of Nation Lanka Finance PLC
We enclose our Final Report with regard to the Pricing Analysis of Nation Lanka FinancePLC (�NLF�), for the purpose of proposed rights issue of shares.
This report has been prepared on the basis of fieldwork carried out up to 05 January
2011. We have completed the work required to enable us to report fully in accordance
with the terms of reference set out in our Engagement Letter dated 06 December
2010. We have not undertaken to update our report for events and circumstances
arising after that date. In carrying out our work, we have relied upon informationprovided by the management of NLF. We have not audited or carried out due diligence
procedures on the information and therefore we make no representations as to its
accuracy and completeness.
Our report is for your information only and should not be quoted or referred to, in wholeor in part, without our prior written consent.
The terms of reference for this report, included as part of the Engagement Letter, havebeen agreed by you and we will not accept responsibility to any other party to whom thereport may be shown or who may acquire a copy.
The report should be read in conjunction with the Engagement Letter, which has been
attached as Annexure 1 to the report.
Yours faithfully
KPMG Ford, Rhodes, Thornton & Co.
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Factual Memorandum
Glossary
1. Introduction
2. Executive Summary
3. Organisational Structure
4. Historical Financial Information and Analysis
- Income Statement
- Balance Sheet
5. Consolidated Management Accounts of NLF
6. Analysis of Subsidiaries
7. Projected Financial Information and Analysis
8. SWOT Analysis
Pricing Analysis
1. Methodology and Approach
2. Pricing Analysis and Interpretation
- Net Asset Value
� Net Asset Value � Adjusted
� Net Assets Analysis
Earnings Based Methodology
CoCo/CoTrans Analysis
DCF Methodology
3. Pricing Analysis of Subsidiaries
Appendices
1. Terms of Engagement
2. Sources of Information
ContentPRIVATE AND CONFIDENTIAL
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Glossary of Terms
First Lanka Treasuries LimitedFLTL
ALLI Alliance Finance Company PLC
ARPI Arpico Finance Company PLC
Bn Billion
BS Balance Sheet
CAPEX Capital Expenses
CBSL Central Bank of Sri Lanka
CF Cash Flow
CICL Ceylinco Investment Corporation Limited
Client Nation Lanka Finance PLC
Company Nation Lanka Finance PLC
CRL Softlogic Finance PLC
CSB Ceylinco Stockbrokers (Private) Limited
CSE Colombo Stock Exchange
DCF Discounted Cash Flow
EBM Earnings Based Methodology
FCFE Free Cash Flow to Equity
FY Financial Year
Millennium Housing Developers LimitedMHDL
KPMG KPMG Ford, Rhodes, Thornton & Co.
LKR Sri Lankan Rupees
LoE Letter of Engagement
MBSL Merchant Bank of Sri Lanka PLC
Management Management of Nation Lanka Finance PLC
M/E Months Ended
Mgt. Acc. Management Accounts
MI Minority Interest
Mn Million
NAV Net Asset Value
NLF Nation Lanka Finance PLC
No. Number
PLC Public Limited Company
PPE Property, Plant and Equipment
P/S Price to Sales Ratio
PV Present Value
RBO Retirement Benefit Obligations
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Introduction
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Executive Summary
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Organizational Structure, Directors and ShareholderInformation
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Board of Directors
CEO
DirectorInvestment and
Treasury
AGM System Reviewand Internal Audit
DirectorFinance
DirectorCredit
DirectorReal Estate
AGMFinance
AGMBranch
AGMReal Estate
AGMHR and Admin
HeadICT
Senior ManagerK�gala
Senior ManagerMatara
Senior ManagerKandy
Manager
Kegalle
Manager
A�pura
Manager
Ratnapura
Assistant
ManagerPanadura
OIC
Galle
Assistant
ManagerNegambo
Manager
Jaffna
Manager
Dambulla
AssistantManager
(x3)
Manager
Leasing andCredit
Senior ManagerRecoveries
Senior ManagerLegal
AssistantManager
Legal
AssistantManager
Inv and Tre
3.Organizational Structure, Directors and Shareholder InformationOrganizational Structure
Support Staff
Source: Management
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Nation Lanka Finance PLC
First Lanka TreasuriesLtd
100%
Asian Finance Ltd89.40%
Millennium HousingDevelopers Ltd
66.13%
Ceylinco StockBrokers (Pvt) Ltd
73.65%
Millennium HousingLtd
100%
Ceylinco HousingCorporation Ltd
100%
Millennium VillaHousing Development
Ltd51.18%
Ceylinco ConstructionCompany Ltd
100%
3.Organizational Structure, Directors and Shareholder InformationGroup Structure
Ceylinco TowersLimited100%
Ceylinco InvestmentCorporation Ltd
100%
Board of Directors
Mr. N.B.S.B.Balalle
Mr. W.G.B.M. Ranaweera
Mr. W.B.B.C.J. Fernando
Mr. C.K. Gamage
Mr. V.J. Alahendra
Mr.S.N. Jayasinghe
Mr. H.C De Sahabandu
Mr. W.T. WeerasooriyaSource: Management
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Historical Financial Information and AnalysisPRIVATE AND CONFIDENTIAL
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4.Historical Financial Information and AnalysisBalance Sheet
Key points
Total assets to liabilities ratio was below one in the FY2010 due to the excess liabilities recorded than the total assets
Source: Management
NLFPLC, FLTL, CICL and CTWL indicated negative NAVs as at the Pricing Analysis Date.
NLFPLC made a negative NAV of LKR 323.924Mn as at the Pricing Analysis Date. The
noteworthy point is that the losses of these two companies were LKR (159.186)Mn for
the year ended 30 November 2010.
Analysis of NAVs of Subsidiaries
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2006
Audited
2007
Audited
2008
Audited
2009
Audited
2010
Audited
L K R T h o u s a n d s
0.20
0.40
0.60
0.80
1.00
1.20
1.40
T i m e s
Tot al as set s Tot al liabilities Tota l a ss et s to lia bilit ies
Total Assets to Total Liabilities Analysis
Source: Audited Financial Statements
Total assets to total liabilities analysis identifies the units of liabilities covered by a unit of
assets. The ratio declined consistently from 1.16 times in the FY2006 to 0.93 in the
FY2010. Decline in the total assets to liabilities ratio after the FY2008 can be attributable
to the decline in assets at a higher rate than the decline in liabilities.
In the FY2010, the ratio came down below 1 as total liabilities exceeded total assets,
causing the NAV of the Company to be negative in the same year.
(500,000)
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
NLFPLC CSB CDL CTL CICL CTWL
L K R T h o u s a n d s
Total assets Total liabilities Net asset value
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Analysis of Subsidiaries
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6.Analysis of Subsidiaries
CSB
Income Statement
Y/E 31 March
Currency LKR '000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Revenue 69,561 46,925 46,779 99,714
Direct operating expenses (7,232) (6,853) (6,149) (6,665)
Gross profit 62,329 40,072 40,630 93,050
Other income 9,473 8,587 8,646 1,663
Administ ra tive and genera l expenses (46,847) (44,750) (40,566) (42,460)
Distribution cost (11,054) (2,903) (5,635) (23,200)
Finance expenses (7,663) (11,243) (18,045) (2,103)
Profit before taxation 6,238 (10,238) (14,970) 26,951
Taxation (3,212) 156 (377) (7,118)
Profit for the year 3,026 (10,081) (15,347) 19,832
20%
0%
20%
40%
60%
80%
100%
120%
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
%
Direct operating expenses Other income
Administrative and general expenses Distribution cost
Finance expenses Taxation
150%
100%
50 %
0%
50 %
100%
150%
200%
250%
300%
350%
FY2008
Audited
FY2009
Audited
FY2010
Audited
%
Revenue Direct operating expenses
Other incom e Adm inis trative and genera l expenses
Distribution cost Finance expenses
Analysis of Historical Profitability
Common Size Analysis- IS
YoY Growth - IS
20,000
40,000
60,000
80,000
100,000
120,000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
L K R T h o u s a n d s
40%
20%
0%
20%
40%
60%
80%
100%
Revenue GP PBT PAT
Source: Audited Financial Statements
Source: Audited Financial Statements
Source: Audited Financial Statements Source: Audited Financial Statements
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6.Analysis of Subsidiaries
MHDL
Income Statement
Y/E 31 March
Currency LKR '000
FY2006
Audited
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Revenue 867,810 833,028 646,875 337,408 150,889
Cost of sales (571,209) (575,512) (384,126) (280,733) (100,245)
Gross profit 296,601 257,515 262,749 56,675 50,644
Other income 21,789 4,539 59,465 31,304 21,420
Sell ing and market ing expenses (31,765) (34,932) (21,745) (12,456) (4,217)
Administrative expenses (184,586) (157,568) (189,622) (170,780) (78,821)
Loss on disposal of subsidiary (28,026) (32,315)
Provision for permanent
diminution in value (3,605) (6,117)
Excess on acuisition
66,695
Finance cost (35,253) (55,698) (102,926) (46,283) (21,114)
Profit before taxation 66,787 76,946 (20,105) (147,658) (64,403)
Taxation (949) (1,280) (3,533) (1,979) (526)
Profit for the year 65,838 75,666 (23,638) (149,636) (64,929)
Attributable to:
Equity holders of the parent (16,944) (135,491) (66,191)
Minority interest (6,693) (14,145) 1,263
- - (23,638) (149,636) (64,929)
100,000
200 ,000
300 ,000
400 ,000
500 ,000
600 ,000
700 ,000
800 ,000
900 ,000
1 ,000 ,000
F Y 2 0 0 6
Aud i ted
F Y 2 0 0 7
Aud i ted
F Y 2 0 0 8
Aud i ted
F Y 2 0 0 9
Aud i ted
F Y 2 0 1 0
Aud i ted
L K R T h o u s a n d s
50 %
40 %
30 %
20 %
10 %
0%
10 %
20 %
30 %
40 %
50 %
R e v e n u e G P P B T P A T
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
FY2006
Audited
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
%
Cost of sales Selling and marketing expenses
Administrative expenses Finance cost
Analysis of Historical Profitability
Common Size Analysis- IS
Source: Audited Financial Statements
Source: Audited Financial Statements
Source: Audited Financial Statements
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6.Analysis of Subsidiaries
CICL
Income Statement
Y/E 31 March
Currency LKR '000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Revenue 168,707 358,702 282,823 112,592
Direct expenses (126,907) (246,623) (191,294) (67,402)
Gross profit 41,800 112,079 91,528 45,191
Other inome 36,245 12,943 16,832 3,796
Administrative expenses (39,711) (66,818) (90,172) (24,584)
Narketing and other expenses (2,339) (10,227) (10,342) (1,079)
Finance expenses (28,287) (90,807) (106,464) (68,743)
Profit before taxation 7,709 (42,830) (98,617) (45,419)
Taxation (3,323) 337 (336)
Profit for the period 4,386 (42,493) (98,954) (45,419)
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
L K R T
h o u s a n d s
50%
40%
30%
20%
10%
0%
10%
20%
30%
40%
50%
Revenue GP PBT PAT
0%
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
FY2007
Aud ited
FY2008
Aud ited
FY2009
Aud ited
FY2010
Aud ited
%
D irec t expenses O the r inom e
A dm in is tra tive ex penses N a rke ting and othe r expenses
F inance expenses
1 5 0 %
1 0 0 %
5 0%
0 %
5 0 %
1 0 0 %
1 5 0 %
2 0 0 %
2 5 0 %
3 0 0 %
3 5 0 %
4 0 0 %
F Y 2 0 0 8
A u d i t e d
F Y 2 0 0 9
A u d i t e d
F Y 2 0 1 0
A u d i t e d
%
R e v e n u e D ire c t e x p e n s e s
O th e r in o m e A d m in is t r a t iv e e x p e n s e s
N a rk e t in g a n d o th e r e x p e n s e s F in a n c e ex p e n s e s
Analysis of Historical Profitability
Common Size Analysis- IS
YoY Growth - IS
Source: Audited Financial Statements
Source: Audited Financial Statements
Source: Audited Financial Statements
Source: Audited Financial Statements
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Projected Financial Information and Analysis
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SWOT Analysis
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8. SWOT Analysis
More opportunities in North East area with new developments
Positive growth in SME sector
A Demand for credit products that is needed to the different market segments. ex:
seasonally structured loans, credit with agriculture and business advices to the
farmers and small industries
Reducing interest rates and treasury bill rates
New markets and developments in Agricultural sector
Projected economic growth 5.5% 7% and flowing the income with development
projects (Like high ways development.)
Accelerated energy power projects will make massive amount of industries in all overthe country
Current government high focus on rural area development
Development in tourism, fisheries and plantation land
Value appreciation, as most of them purchase lands as an investment when bank
rates go down
Developments in tea small holders, gem mining etc. New public development
projects by the government
Market trends for eco friendly manufacturing business
Demand for new agricultural equipments and machineries
Recovery of world economy will enable Sri Lankan economy to stabilize which in turnhelp a company like ours
Credit schemes from ADB ,IMF
Development in insurance brokering in market.
Development in vehicle valuation business, Importing and selling vehicles and vehicle
inputs
Development in financial consultancy in market
New market opportunities for operating leases and hire purchases
Negative public confidence due to Ceylinco issue
Interest rates changes
Government tax policies on financial sector
Environmental restrictions on real estate
Legal barriers and restrictions due to GKL issue
Stock market falling down
CBSL restrictions and announcements
IT development better customer services in the financial sector
Marketing strategies of competitors
Loss of key staff
Low market demand for motor vehicles and properties
Opportunities Threats
Source: Management
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PRIVATE AND CONFIDENTIAL
Nation Lanka Finance PLC
Pricing Analysis07 January 2011
CORPORATE FINANCE � PRICING ANALYSIS
ADVISORY
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Methodology and Approach
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1. Methodology and Approach � Alternative Presentation
The methodology applied in our Pricing Analysis is summarised below:
Key points
The primary methodologies used for deriving the price include the DCF and Market Multiple Methodologies
The other methodologies includes Net Assets and Earnings Methods.
DCF Public Market comparables
Historical financialstatements
Assumptions
Projected FinancialStatements
DCF Pricing
DCF summary
CoCo multiples andmetrics
Consider comparabilityto target
P/E and P/BV metricsanalysis
Summary Pricingoverview
Projected free cashflow
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Key points
The computed Cost of Equity is 19.30%
The required rate of return has been computed using a build up model where a risk premium is considered over the risk free rate
Expected Return
In theoretical terms the Cost of Equity should reflect the average rate of return required by the equity holders.
The built up cost of equity is analogous to the Capital Asset Pricing Model (�CAPM�) in that the risk free interest rate as represented by the latest available treasury
bond rate plus an equity risk premium attributed to the unsystematic risk specific to the Company is considered.
Ke = Rf + Equity Risk Premium
As such, we have considered in the Pricing Analysis a risk free rate of 9.30% which is the 10 year treasury bond rate as at 15 September 2010, being the closest available rate to the
Pricing Analysis Date according to CBSL and factored in an equity risk premium of 10% representing a premium for economic, political and business risk. Thus for the
purpose of this Pricing Analysis the required rate of return is 19.30%
Computation of Cost of Equity
Risk Free Rate
9.30%
=+
EquityRisk Premium
10.00%
Cost of Equity(Required Rate of Return)
19.30%
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Pricing Analysis and Interpretation
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5858
Key points
The value of CSB, based on DCF was LKR 265.613Mn as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesCSB
The value of the subsidiary has been derived by discounting the future FCFE at a discount
rate of 19.30%. The discount rate is summation of the risk free rate of 9.30% as at the
Pricing Analysis Date and the premium on risk free rate amounted 10%. The premium
over the risk free rate reflects the negative NAV and profitability and the forecast risk.FCFE is the cash belonging to the equity holders after settling expenses of investing
activities and subsequent to the net debt activities.
A constant growth rate of 0% had been applied to derive sustainable FCFE which may
materialize after the FY2015. The terminal value has been calculated by utilizing the
following formula.
TV = (FCFE2015 * (1+G)) / (Ke G)
Terminal year (FY2015) cash flow has been discounted using the discount factor of the
same year i.e. 0.4665.
The total value of the subsidiary consists of the PV of FCFE of the forecasted period and
PV of terminal year cash flow.
NAV Methodology
As at 30 November 2010
LKR '000
Mgt. Acc.
Total assets 329,260
Total liabilities 230,516
NAV 98,743
No. of shares in issue '000 2,563
NAV per share 38.52
DCF Methodology - CSB
2011 2012 2013 2014 2015
Net income 32,245 37,275 42,757 45,328 48,658
Plus
Depreciation 4,458 4,878 5,467 6,702 8,006
Less
Change in WC (677) 3,434 4,915 5,373 5,953
Net CAPEX (2,303) (6,200) (6,800) (9,000) (10,500)
Net borrowings (37,500) (20,000)
FCFE (3,777) 19,387 46,340 48,402 52,117
2011 FCFE for 4 months (1,259)
Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655 PVs (1,187) 15,322 30,699 26,878 24,259
PV of future CF 95,971
CSB Valuation
FCFE in the FY2015 52,117
Constant growth rate 0%
Terminal year multiplier 6.99
TV 364,452
PV of TV 169,641
PV of future CF 95,971
Total value of equity of CSB 265,613 No. of shares in issue '000 2,563
Value per share 103.62
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5959
Key points
The price per share of CSB was LKR 50.69 under EBM as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesCSB
Normalized Earnings
Y/E 31 March
Currency LKR '000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Mgt. Acc. 8 M/E
30 Nov 2010
Profit for the year 3,026 (10,081) (15,347) 19,832 48,579
Adjustments
Profit on disposal of PPE (2,164) (6,691) (7,005)
Sundry income (12) (6) (6) (105)
Normalized earnings 850 (16,778) (22,358) 19,727 48,579
Earnings Based Methodology
Currency LKR '000 Period 1 Period 2 Period 3 Period 4
Annualized earnings (10,902) (20,498) 5,699 55,155
Weight age 1 2 3 4 10
(10,902) (40,996) 17,097 220,620 185,818
Weighted average earmings 18,582
Required rate of return 14.30%
Capitalized weighted
average earnings129,943
Number of shares 2,563
Value per ordinary
share50.69
Annualized Earnings
Currency LKR '000 Period 1 Period 2 Period 3 Period 4Current year 8 months earnings (11,185) (14,905) 13,152 48,579
Previous year 4 months earnings 283 (5,593) (7,453) 6,576
Annualized earnings (10,902) (20,498) 5,699 55,155
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6060
Key points
The value of MHDL under DCF methodology was LKR 402.543Mn as at the Pricing
Analysis Date
3.Pricing Analysis of SubsidiariesMHDL
NAV Methodology
As at 30 November 2010
LKR '000
Mgt. Acc.
Total assets 656,381
Total liabilities 303,785
352,596
MI (53,757)
NAV 298,840
No. of shares in issue '000 9,890
NAV per share 30.22
DCF Methodology - MHDL2011 2012 2013 2014 2015
Total cash inflows 548,926 882,808 927,406 955,063 1,031,758
Outflows
Payments for Construction (349,777) (676,248) (733,231) (741,832) (801,738)
BOI Payments (8,868) (8,391) (8,059) (7,768) (7,888)
Selling & Marketing Expenses (9,000) (12,000) (14,400) (17,280) (20,736)
Finance Expenses (11,210) (6,645) (2,690)
Administrative Expenses (75,758) (81,756) (86,553) (93,981) (99,499)
Income Tax Expenses (5,642) (9,011) (8,095) (10,132) (10,695)
Opearting CF 88,671 88,757 74,377 84,070 91,202
Loan Repayments (25,642) (23,743) (25,695) (6,497)
Investment in New Project
(150,000)
FCFE 63,029 65,014 48,682 (72,427) 91,202
2011 FCFE for 4 months 21,010
Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655
PVs 19,809 51,383 32,251 (40,219) 42,452
PV of future CF 105,676
MHDL Valuation
FCFE in the FY2015 91,202
Constant growth rate 0%
Terminal year multiplier 6.99
TV 637,778
PV of TV 296,866
PV of future CF 105,676
Total value of equity of MHDL 402,543
No. of shares in issue '000 9,890
Value per share 40.70
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6161
Key points
The value per share of MHDL was LKR (23.94) under EBM as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesMHDL
Earnings Based Methodology
Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5
Annualized earnings 22,261 4,675 (93,623) (70,630) 4,769
Weight age 1 2 3 4 5 15
22,261 9,350 (280,870) (282,520) 23,845 (507,933)
Weighted average earmings (33,862)
Required rate of return 14.30%
Capitalized weighted
average earnings(236,799)
Number of shares 9,890
Value per ordinary
share(23.94)
Normalized Earnings
Y/E 31 March
Currency LKR '000
FY2006
Audited
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Mgt. Acc. 8 M/E
30 Nov 2010
Profit for the year 65,838 75,666 (23,638) (149,636) (64,929) 16,468
Adjustments
Profit on disposal of PPE (16,996) (1,376) 13,757 (2,227)
Sundry income (485) (2,333) (255)
Excess on acuisition (66,695)
Profit on disposal of subsidiary 28,026 (3,486) 32,315
Normalized earnings 48,842 8,971 2,527 (141,698) (35,096) 16,468
Annualized Earnings
Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5
Current year 8 months earnings 5,981 1,685 (94,466) (23,397) 16,468
Previous yea r 4 months ea rnings 16,281 2,990 842 (47,233) (11,699)
Annualized earnings 22,261 4,675 (93,623) (70,630) 4,769
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6262
Key points
The price of CICL was LKR 50.797Mn under DCF methodology as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesCICL
NAV Methodology
As at 30 November 2010
LKR '000
Mgt. Acc.
Total assets 367,331
Total liabilities 558,848
NAV (191,517)
No. of shares in issue '000 600
NAV per share (319.16)
DCF Methodology - CICL
2011 2012 2013 2014 2015
Cash Inflows 112,368 65,418 32,862 17,503 10,712
Adjustments
Cash outflow from operating act ivit ies (14,897) (21,289) (6,324) (1,792) (120)
Cash outflow from investing act ivit ies (82,150) (4,300)
Cash out flow from financ ing activ it ies (3,623) (23,731) (27,546) (23,528)
FCFE 11,699 16,098 (1,008) (7,817) 10,592
2011 FCFE for 4 months 3,900
Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655
PVs 3,677 12,723 (668) (4,341) 4,930
PV of future CF 16,321
CICL Valuation
FCFE in the FY2015 10,592
Constant growth rate 0%
Terminal year multiplier 6.99
TV 74,066
PV of TV 34,476
PV of future CF 16,321
Total value of equity of CICL 50,797
No. of shares in issue '000 600
Value per share 84.65
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6363
Key points
The value of CICL, based on EBM was LKR (557.05)Mn as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesCICL
Earnings Based Methodology
Currency LKR '000 Period 1 Period 2 Period 3 Period 4
Annualized earnings (30,880) (87,374) (67,893) (17,175)
Weight age 1 2 3 4 10
(30,880) (174,748) (203,678) (68,701) (478,007)
Weighted average earmings (47,801)
Required rate of return 14.30%
Capitalized weighted
average earnings(334,270)
Number of shares 600
Value per ordinary
share(557.05)
Normalized Earnings
Y/E 31 March
Currency LKR '000
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Mgt. Acc. 8 M/E
30 Nov 2010
Profit for the year 4,386 (42,493) (98,954) (45,419) (1,285)
Adjustments
Profit on disposal of PPE (2,900) (2,308) (8,999) (992)
Sundry income (3,234) (645) (385) (190)
Lnad trading profit (1,069)
Normalized earnings (1,748) (45,446) (108,338) (47,670) (1,285)
Annualized Earnings
Currency LKR '000 Period 1 Period 2 Period 3 Period 4Current year 8 months ea rn ings (30,297) (72,225) (31,780) (1,285)
Previous year 4 months earnings (583) (15,149) (36,113) (15,890)
Annualized earnings (30,880) (87,374) (67,893) (17,175)
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6464
Key points
The price of NLFPLC, under DCF methodology was LKR 65.631Mn as at
the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesNLFPLC
NAV Methodology
As at 30 November 2010
LKR '000
Mgt. Acc.
Total assets 2,096,866
Total liabilities 2,420,791
(323,924)
Less
Preference shares (61,814)
NAV (385,738)
No. of shares in issue '000 39,972
NAV per share (9.65)
DCF Methodology - NLF
2011 2012 2013 2014 2015
Cash inflow from operating activities 1,065,579 2,514,686 2,478,632 2,878,786 3,598,649
Cash outf low f rom operati ng act iv it ie s (2,187,430) (2,847,178) (3,160,826) (3,572,462) (4,308,147)
Net cash flow from operat ing act ivit ies (1,121,851) (332,492) (682,194) (693,677) (709,499)
Cash inflow from investing activities 362,483 162,000
Net c ash flow from inves ting ac tivities 362,483 162,000 - - -
Cash inflow from financing activities 961,000 540,000 720,000 720,000 720,000
Ca sh outflow from fina nc ing ac tiv ities (183,043) (366,085) (38,443) (3,648)
Net cashflow from finacing activities 777,957 173,915 681,557 716,352 720,000
FCFE 18,589 3,423 (637) 22,676 10,501
FCFE for 4 months 12,393
Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655
PVs 11,685 2,705 (422) 12,592 4,888
PV of future CF 31,448
NLF Valuation
FCFE in the FY2015 10,501
Constant growth rate 0%
Terminal year multiplier 6.99
TV 73,437
PV of TV 34,183
PV of future CF 31,448
Total value of equity of NLF 65,631 No. of shares in issue '000 39,972
Value per share 1.64
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6565
Key points
The price of NLFPLC under EBM was LKR (2.114)Bn as at the Pricing Analysis Date
3.Pricing Analysis of SubsidiariesNLFPLC
Earnings Based Methodology
Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5
Annualized earnings 49,984 35,268 (177,729) (547,560) (386,344)
Weight age 1 2 3 4 5 15
49,984 70,535 (533,188) (2,190,240) (1,931,718) (4,534,626)
Weighted average earmings (302,308)
Required rate of return 14.30%
Capitalized weighted
average earnings(2,114,045)
Number of shares 39,972
Value per ordinary
share(52.89)
Normalized Earnings
Y/E 31 March
Currency LKR '000
FY2006
Audited
FY2007
Audited
FY2008
Audited
FY2009
Audited
FY2010
Audited
Mgt. Acc. 8 M/E
30 Nov 2010
Profit for the year 53,561 60,489 29,446 (265,811) (734,519) (159,186)
Adjustments
Profit on disposal of PPE (9,973) (4,972) (1,625) (13,320) (978)
Profit on disposal of investment property 54,365
Sundry income (133) (2,268) (1,544) (602) (342)
Normalized earnings 43,455 53,249 26,277 (279,733) (681,474) (159,186)
Annualized Earnings
Currency LKR '000 Period 1 Period 2 Period 3 Period 4 Period 5Current year 8 months earnings 35,499 17,518 (186,488) (454,316) (159,186)
Previous year 4 months earnings 14,485 17,750 8,759 (93,244) (227,158)
Annualized earnings 49,984 35,268 (177,729) (547,560) (386,344)
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6666
Key points
The value of FLTL, based on DCF was LKR 23.146Mn as at the Pricing Analysis
Date
3.Pricing Analysis of SubsidiariesFLTL
NAV Methodology
As at 30 November 2010
LKR '000
Mgt. Acc.
Total assets 36,687
Total liabilities 148,092
NAV (111,405)
No. of shares in issue '000 100
NAV per share (1,112.94)
FLTL Valuation
FCFE in the FY2015 4,526
Constant growth rate 0%
Terminal year multiplier 6.99
TV 31,654
PV of TV 14,734
PV of future CF 8,412
Total value of equity of FLTL 23,146
No. of shares in issue '000 100
Value per share 231.23
DCF Methodology - FLTL
2011 2012 2013 2014 2015
Cash inflows 2,110 9,795 10,855 11,319 12,026
Less
Loan installment (1,875) (7,500) (7,500) (7,500) (7,500)
FCFE 235 2,295 3,355 3,819 4,526
2011 FCFE for 4 months 157
Discount factor 0.9429 0.7903 0.6625 0.5553 0.4655
PVs 148 1,814 2,222 2,121 2,107
PV of future CF 8,412
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Appendices
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Appendix 1Terms of Engagement
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Appendix 1Terms of Engagement (Continued)
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Appendix 1Terms of Engagement (Continued)
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Appendix 1Terms of Engagement (Continued)
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Appendix 2Sources of Information
All the following documents and information have been considered factual for this Pricing Analysis Audited financial statements for the year ended 31 March 2006, 2007, 2008, 2009 and 2010
Management accounts for the 6 months ended 30 September 2010
Information provided by the Management of Nation Lanka Finance PLC
The Central Bank of Sri Lanka www.cbsl.lk
The Colombo Stock Exchange� www.cse.lk
PRIVATE AND CONFIDENTIAL