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primefinance.lk

AN

NU

AL R

EPOR

T 2018/19

A N N U A L R E P O R T 2 0 1 8 / 1 9

CORPORATE INFORMATION

Name of the Company

Prime Finance PLC

Legal Form

Public Limited Liability Company domiciled in Sri Lanka and incorporated on 10 September 2004 under the- Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007.

The Company is licensed under the Finance Business Act, No. 42 of 2011.

A registered Financed Leasing Establishment in terms of Finance Leasing Act No. 56 of 2000.

Date of Incorporation

10 September 2004

Colombo Stock Exchange Listing

12 September 2012

Company Registration No.

PB 351 PQ

VAT Registration No.

134011947 - 7000

Directors

Mangala GoonatillekeChairman / Independent Non-Executive Director

Brahmanage PremalalNon-Independent Non-Executive Director

Sandamini Rukmal PereraExecutive Director

Mahinda PereraNon-Independent Non-Executive Director

Nandana A. WickramageNon-Independent Non-Executive Director

Dhammika KalapugeIndependent Non-Executive Director

Anura PathirageNon- Independent Non-Executive Director

Hennayake BandaraIndependent Non-Executive Director

Registered Office

No. 61, D. S. Senanayake Mawatha, Colombo 08.Tel : + 94 112 679 280-82, 011 777 7222Fax : + 94 112 679 284Email : [email protected] : primefinance.lk

Secretaries & Registrars

S S P Corporate Services (Private) LimitedNo. 101, Inner Flower Road, Colombo 03.

Bankers

Bank of CeylonCommercial Bank of Ceylon PLCDFCC Bank PLCHatton National Bank PLCNational Development Bank PLCNations Trust Bank PLCPeople’s BankSeylan Bank PLCSampath Bank PLC

Lawyers

Paul Ratnayake AssociatesNo. 59 Gregory Road, Colombo 7

De Livera AssociatesShrubbery Garden Rd, Colombo 4

Sudath Perera AssociatesNo. 5, 9th Lane, Nawala Road, Nawala 10107

Auditors

M/s. Ernst & Young Chartered AccountantsNo. 201, De Saram Place, P.O Box 101, Colombo 10.

Available FormsPrime Finance PLCAnnual Report 2018/19

PrintAvailable onrequest

CD-RomPosted to all Shareholders

OnlineAvailable as PDF

With a far-sighted vision and focused strategies, we have consistently maintained a sustainable track record. By demonstrating growth in profitability and asset portfolios, we are on the right track towards sustainable progress. This has created the right platform to explore new possibilities which will propel us to a new dimension of growth.

With this solid foundation in place, we are focused to enhance the trust and confidence of all stakeholders infusing greater optimism and confidence.

“As the premier Real Estate organisation that boasts of a heritage that spans more than two decades in Sri Lanka, Prime Group is considered the foremost trustworthy real estate solutions provider”

“With the intention of strengthening our balance sheet and improving profitability, we have embarked on investing in and developing Real Estate on our own strength.”

Brahmanage PremalalGroup Chairman

Rasika KaluarachchiChief Executive Officer

Group Chairman’s messaGePage 8

“In September 2018, the Company was assigned an Investment grade of BBB- (Stable outlook) by ICRA Lanka Limited for the commendable performance shown over the recent past with the support of its sustainable Business Model.”

Mangala GoonatillekeChairman

Chairman’s reviewPage 10

Chief exeCutive offiCer’s reviewPage 12

Financial Highlights � 6Group Chairman’s Message � 8Chairman’s Review � 10Chief Executive Officer’s Review � 12Board of Directors � 14Corporate Management � 20Senior Management � 23

CREATING VALUE

Stakeholder Engagement and Materiality � 27Value Creation Model � 28Operational Review � 30

CAPITAL MANAGEMENT

Financial Capital � 36Manufactured Capital � 39Intellectual Capital � 41Human Capital � 44Social and Relationship Capital � 48Natural Capital � 52

Risk Management � 54Corporate Governance � 61Board Audit Committee Report � 92Board Integrated Risk Management Committee Report � 94Board Related Party Transactions Review Committee Report � 95Board Remuneration and Nomination Committee Report � 96Annual Report of the Board of Directors on the Affairs of the Company � 97Directors’ Statement on Internal Control Over Financial Reporting � 104Chief Executive Officer’s and Assistant General Manager - Finance’s Responsibility Statement � 105Statement of Directors’ Responsibilities for Financial Reporting � 106

FINANCIAL INFORMATION

Independent Auditor’s Report � 108Statement of Financial Position � 112Statement of Comprehensive Income � 114Statement of Changes in Equity � 115Statement of Cash Flows � 116Notes to the Financial Statements � 118Statement of Value Added � 184Investor Information � 185Annual General Meeting � 192Form of Proxy � 193Corporate Information � Inner Back Cover

Cont

ents

THE INTEGRATED REPORTING FRAMEWORKThis year we present our first Integrated Annual Report which demonstrates our commitment towards meeting our stakeholders’ expectations by providing them with balanced and relevant information on our value creation process.

Through this Report, we seek to put in place a solid foundation for progressing further on the journey of Integrated Reporting. This demonstrates how we create value for our stakeholders with different forms of capital inputs, outputs and outcomes. This Annual Report has been prepared based on the guidelines issued by the Integrated Reporting Framework published by the International Integrated Reporting Council (IIRC).

We aim to provide insights of Prime Finance PLC’s strategy, governance, performance and outlook for the future.

Scope and Boundary

The Report covers the operations of Prime Finance PLC for the period from 1 April 2018 to 31 March 2019. The Company adopts an annual reporting cycle and its annual report for the financial year ending 31 March 2019 is available for download at www.primefinance.lk. There were no significant changes to the Company’s size, structure during the year, nor any material restatements of non-financial information published in previous years unless specifically mentioned.

Materiality

In determining the content to be included in this Integrated Report we have adopted the principle of materiality. The material topics on capital management have been selected following feedback received from our stakeholders, the Company’s strategic aspirations and risks and opportunities stemming from the operating landscape.

Guiding Principles

We subscribe to and report under several domestic and international regulations, standards and frameworks. This year, our reporting is aligned to the following standards and practices.

� Integrated Reporting Framework issued by the IIRC

� International Financial Reporting Standards and Sri Lanka Accounting Standards

� Companies Act No 7 of 2007

� Regulatory requirements under the Colombo Stock Exchange

� Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka

Feedback

We understand that Integrated Reporting is an evolving process, and we welcome your feedback, suggestions on our Annual Report.

Please contact:Assistant General Manager - Finance

Prime Finance PLCNo. 61, D. S. Senanayake Mawatha, Colombo 08.

Telephone: + 94 117 777 222, + 94 112 679 280-82, Email : [email protected]

Our Vision

Our Mission

To become the most preferred, progressive and innovative financial solutions provider in Sri Lanka.

To offer financial solutions geared to achieve the goals and aspirations of a progressive nation and illuminate the potential of its people through dynamic team players by proffering a highly customised and innovative product portfolio.

Core ValuesCustomer CentricAt Prime Finance PLC, the customer comes first. Our primary focus is to provide personalised and flexible services.

Winning with IntegrityWe are passionate about becoming the unrivaled industry leader by achieving superior results for our stakeholders.

Employee ValueWe value our colleagues as we do our customer. We are committed to provide opportunities to our employees for professional and personal development.

Serving CommunitiesWe invest our time and resources to support the communities in which we live and work, improving the quality of life for everyone.

Prime Finance PLCAnnual Report 2018/19

6

finanCial hiGhliGhts

Financial Highlights

2018/2019 2017/2018 Change %

Profitability (Rs. 000)

Income 1,100,822 532,771 107%

Operating Income 692,878 323,321 114%

Profit/ (Loss) before VAT on Financial Services, NBT & Debt Repayment Levy 328,252 36,148 808%

Profit/(Loss) before Income Tax 272,037 27,124 903%

Taxation Expenses (93,392) (14,033) 566%

Profit/(Loss) for the Year 178,645 13,091 1265%

Profit for the Year after OCI 178,997 13,136 1263%

Assets & Liabilities (Rs. 000)

Loans & Receivables 4,305,016 2,680,734 61%

Due to Customers 2,746,322 2,399,150 14%

Total Equity 1,620,779 613,075 164%

Total Assets 5,705,879 3,671,375 55%

Investor Informations (Rs.)

Net Asset Value per Share 20.46 17.03 20%

Earnings per Share - Basic 2.61 0.42 522%

Dividend per Share NIL NIL

Financial Indicators (%)

Return on Average Assets (after tax) 3.81% 0.49%

Return on Average Equity (after tax) 15.99% 2.82%

Growth in Profit 1264.67% 418.86%

Growth in Total Assets 55.42% 115.74%

Capital Adequacy Ratios (%)

Core Capital to Risk Weighted Assets (Tier I) (minimum 6%) 27.28% 21.00%

Total capital to risk weighted assets (Tier I & II) (minimum 10%) 28.41% 21.00%


7

Rs. Mn

Gross Income

0

200

400

600

800

1,000

1,200

20192018201720162015

Rs. Mn

Net Interest Income

0

100

200

300

400

500

600

20192018201720162015

Rs. Mn

Interest Income

0

200

400

600

800

1,000

20192018201720162015

Rs. Mn

Shareholders’ Fund

0

500

1,000

1,500

2,000

20192018201720162015

Rs. Mn

Growth in Total Assets

0

1,000

2,000

3,000

4,000

5,000

6,000

20192018201720162015

Rs. Mn

Growth in Customer Deposit

1,000

1,500

2,000

2,500

3,000

20192018201720162015

We made good progress on the financial targets in 2018/19. The financial analysis below shows the key financial figures over the past year.

522%

Earnings Per ShareGrowth

20%

Net Asset Value Per ShareGrowth

164%

Shareholders’ FundsGrowth


8

Group Chairman’s messaGe

“As the premier Real Estate organisation that boasts of a heritage that spans more than two decades in Sri Lanka, Prime Group is considered the foremost trustworthy real estate solutions provider”

Brahmanage PremalalGroup Chairman

Dear Stakeholders,

I am filled with a sense of pride as I place before you the Annual Report and Audited Financial Statements for the year ended 31 March 2019, which reflects Prime Finance PLC’s second year of operations under the wings of the Prime Group. Reaffirming the sagacity of our decision to rebrand as Prime Finance PLC, the Company performed strongly despite facing one of the most challenging years. As always, the key pillars of our growth were the unique Business Model, ethical operations, customer focus, teamwork and safeguarding shareholder investment. While this should be the principal motivation for all businesses, it was easier said than done against a backdrop of economic volatility and political upheaval.

Within the first 12 months of operations, Prime Finance PLC has been able to build greater brand recognition by way of group synergies of its parent company, Prime Group, proving its credentials as a rapidly growing financial services provider in the country. As the premier Real Estate organisation that boasts of a heritage that spans more than two decades in Sri Lanka, Prime Group is considered the foremost trustworthy real estate solutions provider – counting 22 years of extensive experience in land, housing, apartments and property development. Currently, its land and property development projects span 18 districts, covering the depth and breadth of Sri Lanka. It has successfully completed over 5,000+ land projects and over 35 apartment projects in Colombo and the suburbs.


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Finance PLC through a Rights issue to increase the capital of the Company. This capital infusion gears the Company to remain focused on a path of stable organic growth and expansion. The Company has succeeded in maintaining its capital well above the minimum capital requirement stipulated by the Central Bank of Sri Lanka with plans to increase the capital base further in the future to expand its business. While we expect wider operating conditions to remain fairly volatile and subdued in the year under review, Prime Finance PLC, being in an early stage of growth, will undoubtedly have a busy year ahead.

Appreciation

I would like to congratulate the Chairman, Board of Directors, the CEO, and the entire team of Prime Finance PLC for delivering a strong financial performance beyond expectations. Our customers have displayed loyalty and confidence in placing their trust with us, which will be nurtured with due care. My sincere appreciation goes to the Governor of the Central Bank of Sri Lanka and the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka for their continuous support and guidance. I wish to appreciate the strategic direction extended by the Chairman and the Board of Directors of Prime Finance PLC who have set the Company on the right track. As your Company gains momentum, we are confident and optimistic about the opportunities that lie ahead which could be harnessed to our full potential to maximise returns to all stakeholders.

Brahmanage PremalalGroup Chairman - Prime Group

25 June 2019Colombo

Financial Performance

The Prime brand played a key role in supporting the excellent performance by Prime Finance PLC during the year. The Company’s financial performance was exceptional in 2018/19 as evidenced by our results for the year. Gross income rose to Rs. 1,101 Million compared to Rs. 532 Million in the previous year, recording a substantial growth of 107% in revenue during the financial year under review, despite heavy pressure from negative macro-economic factors in the business environment.

The profit before tax for the financial year sustained its upward trend, growing to Rs. 272 Million from Rs. 27 Million in the previous year. Profit after tax increased by 1265% to Rs.179 Million, as compared to Rs. 13 Million in the previous year. The Company maintained a cost to income ratio of 40% throughout the year. The loan portfolio has shown a steady growth of 61% year-on-year, recording a sum of Rs. 4,305 Million at the end of the year under review while total assets grew by 55% year-on-year to Rs. 5,706 Million.

Corporate Stewardship

Prime Finance PLC has inherited a legacy of total compliance to Corporate Governance regulations from the holding company. Towards this end, we have a Board of Directors which reflects diversity, experience, professional outlook and a common commitment to maintain the highest standards of good governance across the Company. Prime Finance PLC is compliant with the latest directions issued for finance companies by the Central Bank of Sri Lanka along with the Code of Best Practice on Corporate Governance jointly issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

Looking Ahead

During the year under review, as the holding company, Prime Lands Pvt Ltd infused Rs. 864 Million capital into Prime

“During the year under review, as the holding

company, Prime Lands Pvt Ltd infused

Rs. 864 Million capital into Prime Finance PLC

through a Rights issue to increase the capital of

the Company.”


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Chairman’s review

Dear Stakeholders,

I take pride in presenting the details of our performance for the financial year 2018/19, which reflects the strong foundation set in place in the previous year. I am pleased to state that the Company recorded a remarkable growth as it further entrenched its credentials in the market. The Company performed well above the industry growth despite operating against the backdrop of an almost stagnant economy, steep rupee devaluation and a political stalemate which hurt business sentiments.

State of the Economy

During the period under consideration, the Sri Lankan economy expanded at 3.2% as compared to the growth of 3.4% in the previous year. The year proved favourable for agricultural activities which grew by 4.8% in 2018, indicating a recovery from the effect of extreme weather conditions experienced in the previous year. Meanwhile, the growth momentum in industry activities slowed considerably during the year to 0.9% from 4.1% in the previous year, due to the contraction in construction, mining and quarrying activities during the year. Service sector, which is the largest production sector within GDP, grew by 4.7% in 2018 compared to the expansion of 3.6% in the previous year. Within the service sector, financial services continued to be the main contributor to economic expansion followed by wholesale and retail trade activities.

During the year, the Central Bank of Sri Lanka allowed for greater exchange rate flexibility while strengthening reserve buffers to ensure resilience against external shocks. The tight monetary policy stance which prevailed in 2017 continued in 2018 as well. Following the lacklustre economic performance in the first quarter of 2018 relative to the respective period of the previous year, the Central Bank of Sri Lanka decided to relax the stance moderately in April 2018.

The exports sector performance was unimpressive in 2018, except for the earnings from tourism. The trade deficit widened to US$ 10.3 Billion during the year 2018, ballooning by 10% in comparison to the corresponding period of 2017, due to a higher growth in

“In September 2018, the Company was assigned an Investment grade of BBB- (Stable outlook) by ICRA Lanka Limited for the commendable performance shown over the recent past with the support of its sustainable Business Model.”

Mr. Mangala GoonatillekeChairman


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the sector increased by 8.2% to Rs.183.7 Billion at the end 2018, mainly on account of the increase in capital due to steps taken by LFCs to enhance the minimum core capital to meet the Rs. 1.5 Billion requirement by 01 January 2019 and due to accumulation of profits for the financial year 2017/18.

Shareholder Value Creation

While striving for operational and financial excellence, the Company also remains focused on adding value to shareholder investment. Shareholders’ funds as at 31 March 2019, together with the funds raised from the Rights issue, represents Rs. 1,621 Million, reflecting a growth of 164% compared to the preceding year. Growth of earnings per share and net assets per share stands at 522% and 20% respectively. Return on Assets (ROA) and Return on Equity (ROE) are 4% and 16% going on par with industry averages. Core capital to risk weighted assets (Tier I) is 27.28% and total capital to risk weighted assets (Tier I & II) is 28.41% while statutory minimum requirement is 6% and 10% respectively. In September 2018, the Company was assigned an investment grade of BBB- (Stable Outlook) by ICRA Lanka Limited for the commendable performance shown over the recent past with the support of its sustainable business model.

Awards

The Annual Report of Prime Finance PLC was conferred the Bronze Award at the 54th Annual Report Awards Ceremony of CA Sri Lanka held in December 2018, for establishing creditability and transparency through financial reporting under the category of Finance Companies and Leasing Companies’ sector whose total assets count up to Rs. 20 Billion.

Good Governance

The Board of Prime Finance PLC consists of industry leaders holding decades of expertise. The chief strength of the Board lies in the wealth of combined experience of diverse professionals from Marketing,

import expenditure alongside a marginal growth in exports. During the period, export earnings improved only by 4.7% while import expenditures increased by 6%.

Tough Industry Conditions

Credit growth declined for two consecutive years amongst finance companies due to fiscal and macro prudential policy measures taken to curtail importation of motor vehicles and lending towards vehicles, adverse weather conditions, and spillover effects that continued to affect economic activities. The industry’s asset quality deteriorated considerably in the second half of 2018. Increased funding cost and higher allowance for loan losses resulted in decreased profits. Expansion of total assets slowed down, recording a growth rate of 5.6% (Rs. 76.3 Billion) during the year, reaching Rs. 1,431.3 Billion compared to the 11.8% growth reported in 2017. The asset base of the sector mainly consists of loans and advances which accounted for 79.4% of the sector assets. Finance leases accounted for the highest share of loans and advances, representing 52.8% followed by other secured loans (38%). The expansion in finance leases contributed to 84.5% of the credit growth while 16.1% was through secured loans and advances. The hire purchase portfolio contracted during the year by Rs. 8 Billion (29.7%). However, the growth of finance lease portfolio for the year 2018 was 14.7% compared to 13% recorded in year 2017.

Customer deposits still dominate the major portion of liabilities, which accounted for 50.1% of the total liabilities of the sector. Borrowings recorded a growth of 17.1% (Rs. 67.8 Billion) in 2018, a shift from the negative growth recorded in the year 2017. Deposit growth slowed down to 4.4%, compared with the growth of 29.4% recorded in the corresponding period of 2017. The sector showed a reliance on bank borrowings over deposits due to flexibility and negative public perception towards Licensed Finance Companies (LFCs), which reduced the funds mobilised through deposits. The capital elements of

Legal to Accounting fields. The Company has further adopted a comprehensive Governance and Risk Management Framework that protects the entity against any fallout from weak risk and governance. The Company has appointed several Board Sub Committees such as the Board Audit committee, Board Remuneration and Nomination Committee, Board Integrated Risk Management Committee, and the Board Related Party Transaction Review Committee which are active and keenly monitored by Board members.

Way Ahead

The Company aims to become more stable, efficient and compliant; not necessarily the largest, but definitely one of the most successful on all fronts. Its performance is on a upward trend and growth rate-wise, one of the best in the industry. The entity has the required Management expertise to steer it towards achieving its corporate goals.

Acknowledgements

The progress of this year has been inspired by the visionary leadership of our Group Chairman, Mr. Brahmanage Premalal, supported by fellow Directors of the Board, the Chief Executive Officer, the Senior Management and Staff of the Company. Furthermore, the guidance and advice extended to us by the Governor of the Central Bank of Sri Lanka and the Director - Department of Supervision of Non-Bank Financial Institutions has been exemplary. Buoyed by our exceptional performance in the face of adversity, we look to add further value to our shareholders and stakeholders in the years ahead.

Mangala GoonatillekeChairman

25 June 2019Colombo


12

Chief exeCutive offiCer’s review

“With the intention of strengthening our balance sheet and improving profitability, we have embarked on investing in and developing real estate on our own strength.”

Mr. Rasika KaluarachchiChief Executive Officer

Finance companies provide fuel to the engines of growth, boosting small and medium businesses to build and grow, creating wealth from the ground up. Partnering customers at their risky business stages and supporting them till they are on solid ground is something Prime Finance PLC does responsibly, backed by a wealth of expertise. The testimonial to this claim is the mature and agile manner in which the Company navigated a volatile 2018/19 financial year while ensuring its customer base felt its supportive presence. The sector faced stringent capital requirements and potential earning headwinds stemming from higher credit costs. I am proud to state that the Company remained patient and disciplined in the face of the external headwinds while its agility and spirit of entrepreneurship ensured it was able to deliver sustainable value to all stakeholders. The results achieved by Prime Finance PLC in the financial year under review are exemplary, especially against a backdrop of an economic slowdown and various stresses in the finance sector due to restrictive monetary policies. Our unique business model, deep expertise and group synergies propelled our growth momentum during the year under review.

Robust Financials

Committed to create long term value for our shareholders, the Company steered itself towards sustainable growth whilst relentlessly focusing on operational efficiencies, which facilitated a remarkable financial performance amidst a challenging business environment. The Company increased its total operating income to Rs. 693 Million during the year, reflecting an increase of 114% compared to the last year. Even more commendable is the total profit before tax of Rs. 272 Million (operating profit before taxes on financial services is Rs. 328 Million) the Company recorded as compared to Rs. 27 Million in the preceding year. The total asset base depicted a remarkable growth of 55%, closing the year at Rs. 5.7 Billion. Growth of earnings per share and net assets per share stands at 522% and 20% respectively. Return on Assets (ROA) and Return on Equity (ROE) are 4% and 16% respectively, on par with industry averages. Core capital to risk weighted assets (Tier I) is 27% and total capital to risk weighted assets (Tier I & II) reached 28%. The year under consideration was one of consolidation in keeping with the management’s philosophy, while building more value to the benefit of all stakeholders. However, strident growth and profitability numbers recorded for the year under review were extraordinary.


13

at the cutting edge in technical knowledge and customer service management. The continued strength of the Company is built on hard work and dedication of all the people who work for us.

The Company’s ability to manage challenging operating conditions and yet emerge profitable is a direct cause of the wealth of management experience that inspires its dynamic teams to meet all key performance indicators. A flat hierarchy and clearly spelt out individual and team goals ensure the baton is never dropped. I am pleased to state that our success in 2018/19 was expertly managed while commendably reducing operational costs and lowering overheads. The presence of industry veterans on the Board brings invaluable insights - with their diverse mix of professionalism and industry backgrounds - ensuring the strategic direction of the Company.

Considering the volatile operating conditions prevailing in the country, a decision was taken to diversify our business model further. With the intention of strengthening our balance sheet and improving profitability, we have embarked on investing in and developing real estate on our own strength. This was in addition to leveraging group synergies by financing the existing customers of Prime Group to purchase property, which has been highly lucrative thus far, especially due to the enormous and consistent backing received from Prime Lands Pvt Ltd, the market leader in Sri Lanka for aspiring property owners. The ‘Prime Group’, the largest conglomerate in the Real Estate/Residencies Industry in Sri Lanka, was awarded the ‘Best Property Developer in 2018,’ rated one of the ‘25 Great Work Places in Sri Lanka 2018’ for the fourth consecutive year and selected one of ‘Asia’s 100 Greatest Brands’.

Future Outlook

As the Company grows in size and scope, it positions us as one of the most rapidly evolving finance companies in the industry. Having doubled growth rates in the year under review, in terms of industry growth rates Prime Finance PLC is far outpacing and leading its peers. Operating in a fast-growing industry, we remain aware that our

Infusing Trust & Confidence

Our values shape our priorities for how we conduct business, provide services, interact with each other and support stakeholders. All our decisions are aligned to our business commitments to customers, rating agencies and shareholders. Prime Finance PLC demonstrated sustained business success by effectively managing risk through a challenging financial year. The recently conferred investment grade rating of BBB- (Stable Outlook) by ICRA Lanka (Pvt) Limited further reaffirms the confidence and trust Prime Finance PLC holds among funding institutions and customers. This positive perception of the Company has helped attract deposits and expand business volumes.

Moreover, maintaining impeccable good governance practices has helped balance the Company’s performance in relation to all its responsibilities simultaneously safeguarding and creating maximum value for all stakeholders. Prime Finance PLC is fully geared to serve its ever-growing clientele with an extensive, comprehensive and individualised array of services under a one-stop shop concept in order to meet all financial needs spanning Fixed Deposits, Business loans, Leasing, Educational Loans, Housing loans, Real Estate, etc. Intelligent deployment of our resources to ensure they meet and exceed customer expectations at all customer touch points drives greater customer loyalty.

Valuable Contributions

One of the reasons of Prime Finance PLC’s exceptional financial growth during the year under review is the depth of expertise and skill in financial services that is reposed amongst our staff collectively. Our people, both the front line staff - who interface with customers directly and our back office teams, are the backbone of our operations, keeping our business well-oiled and functioning smoothly. Prime Finance PLC has set in place highly effective talent recruitment and retention strategies in finding staff who are the best fit for the job. Our people exhibit the passion and excitement needed to grow at a rapid pace, supported by regular training and development programmes to keep them

future expansion will hinge on how fast we evolve our technology platform to support our products and service portfolio. Unwilling to let complacency creep into any aspect of our operation, we have adopted cutting edge technology solutions to serve customer needs and enhance efficiencies. The Company is committed to investing in technology to ensure we remain ahead in the digital disruption in the financial services sector.

Our commitment to employees and business partners remains real and tangible through the investments we make in them and the sustainable approach with which we conduct our business. As an ethical corporate entity, we remain closely engaged with the community, supporting notable causes that have a far reaching impact on our stakeholders. Looking at our performance this year, we remain optimistic about the future.

Appreciation

I would like to take this opportunity to express my gratitude to the Group Chairman, Chairman, Executive Director and the Board for placing their confidence in my leadership. Backed by their wise counsel, leading the dynamic team at Prime Finance PLC was a pleasure. The determination and commitment shown by our people during this demanding year has been exceptional. Our shareholders need to be thanked for the confidence they placed in the Company. I would like to express my gratitude to regulators, business partners and customers for their unwavering support throughout the year. While our strong financial performance will effectively measure progress of our growth journey, we will continue to build on our strong and solid foundation to achieve profitable growth, high levels of customer satisfaction, efficient internal business processes, rising employee satisfaction, and sustainable value.


25 June 2019Colombo


14

BoarD of DireCtors

Mr. Brahmanage PremalalGroup Chairman/ Non-Independent Non-Executive Director

Appointed to the Board on 07 February 2017.

Mr. Mangala GoonatillekeChairman/ Independent Non-Executive Director


Mrs. Sandamini Rukmal PereraExecutive Director



15

Mr. Brahmanage PremalalGroup Chairman/ Non-Independent Non-Executive Director

Appointed to the Board on 07 February 2017, he is a member of the Board Remuneration and Nomination Committee.

Mr. Premalal Brahmanage, a prominent figure in the Sri Lankan business landscape, is the co-founder and Chairman of Prime Group, a holding Company with investments in real estate, property development and financial services through its subsidiaries.

He is an alumnus of Thurston College, Colombo and a fellow member of the Chartered Institute of Management Accountants (UK), Chartered Business Administrator (Canada) and holds a Postgraduate Diploma in Marketing from the University of Sri Jayewardenepura.

He was conferred with the prestigious UCD Entrepreneur of the Year in 2011 considering his vast experience in the real estate industry and exposure to many other industries as an entrepreneur. Mr. Brahmanage was honored to be nominated as one of the top 50 A-List Sri Lankan Businessmen by the Lanka Monthly Digest (LMD) in 2018 in recognition of his contribution to the nation’s growth. He was also honoured to be recognised as one of the Asia’s Greatest Brand Leaders in 2017. Under his leadership, Prime Group has won the most prestigious award in the industry for ‘Best Developer’ awarded by Property Guru at the Asia Property Awards 2018.

Mr. Mangala GoonatillekeChairman/ Independent Non-Executive Director

Appointed to the Board on 06 February 2017, he was appointed as the Chairman of the Company w.e.f. 03 March 2017. He is the Chairman of the Board Related Party Transactions Review Committee. He is also a member of the Board Integrated Risk Management Committee and the Board Audit Committee.

Mr. Goonatilleke is a financial professional with over 30 years post qualification experience. He has held senior managerial positions in leading public, multinational and private companies during his career.

He serves as the Group Director at Douglas & Sons (Pvt) Ltd and DSL Group of Companies. Mr. Goonatilleke is an associate member of the Chartered Institute of Management Accountants (UK) and Certified Global Management Accountants.

He is a passed finalist of the Institute of Chartered Accountants of Sri Lanka and holds a post Graduate Diploma in Management from the Postgraduate Institute of Management of University of Sri Jayewardenepura.

He also serves as an Independent Non-Executive Director at Colombo Land & Development PLC and has previously served on the Board of Vallibel Finance PLC, LB Finance PLC and Pan Asia Bank PLC, in addition to having held directorates in several other public companies.

Mrs. Sandamini Rukmal PereraExecutive Director


Mrs. Perera is one of the co-founders and the Deputy Chairperson of Prime Group with over 25 years of experience in the real estate industry. She was recognised as the third most powerful businesswoman in Sri Lanka by Echelon Magazine, a leading business magazine in Sri Lanka in 2013 and was awarded the ‘Honored Leaders Excellence Award 2014’ for excellence in women’s empowerment from World Consulting and Research Corporation in New Delhi. She is also the recipient of ‘Best Woman Entrepreneur’ - Large Category 2014/2015 in professional & career women award from Women in Management in Sri Lanka. She has also won several other awards on ‘innovation and entrepreneurship’ in the global arena. Being an entrepreneur she has achieved remarkable results for her own organisation as well as her professional career.

Mrs. Perera holds a MSc in Strategic Marketing from the Asia e-University, Malaysia, and is a member of the Sri Lanka Institute of Marketing (SLIM) and a practicing marketer. She is passionately involved in social and environmental protection activities and contributes immensely towards empowering women in Sri Lanka.


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BOARD OF DIRECTORS

Mr. Mahinda PereraNon-Independent Non-Executive Director


Mr. Hennayake BandaraIndependent Non-Executive Director

Appointed to the Board on 03 March 2017.

Mr. Dhammika KalapugeIndependent Non-Executive Director



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Mr. Mahinda PereraNon-Independent Non-Executive Director

Appointed to the Board on 07 February 2017, Mr. Perera is currently the Chairman of the Board Integrated Risk Management Committee and is also a member of Board Remuneration and Nomination Committee and the Board Related Party Transactions Review Committee.

He is an Independent Director in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange and Section A.5.5 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka but is classified as Non-Independent Non-Executive Director in terms of Finance Companies (Corporate Governance) Direction No. 03 of 2008.

Mr. Perera counts over 30 years of professional experience in the commercial sector in finance, management and legal disciplines. He is a Fellow of the Chartered Institute of Management Accountants (FCMA, UK) and a CGMA. He has also obtained a Master’s Degree in Business Administration (MBA) from the Postgraduate Institute of Management of the University of Sri Jayewardenepura and a Bachelor of Laws (LLB) from the Open University of Sri Lanka keeping in line with his career developments. He was admitted to the Bar as an Attorney-at-Law in 2008.

He has wide experience in manufacturing and export industries having held senior positions in commercial entitles in multiple sectors such as food and beverage, packaging and ceramic industries. In addition to many years of experience in accounting and finance, he has gained extensive experience in corporate management as a Director/ Chief Executive Officer of listed and unlisted companies. He also has held board positions in several listed and unlisted entities. Mr. Perera also served as an Executive Director of Varners

International (Pvt) Ltd, which provides legal advice and professional services on corporate and regulatory matters to clients. At present he is engaged in providing legal advice on commercial and corporate law as well as professional consultancy services.

Mr. Dhammika KalapugeIndependent Non-Executive Director

Appointed to the Board on 07 February 2017, he is the Chairman of the Board Remuneration and Nomination Committee and a member of the Board Related Party Transactions Review Committee.

Mr. Kalapuge is a Director at SIPCOM - 1 (Pvt) Ltd, a Company involved in total people development. He was the former Vice President–Marketing at DFCC Bank and also held senior marketing positions at Sampath Bank, Eagle Insurance and Eagle NDB Fund Management and had served as a Chief Examiner at the Institute of Bankers of Sri Lanka.

Over the last two decades, he has conducted nearly 2,700 inspirational workshops in Management, Entrepreneurial Development, Customer Care, Service Excellence, Relationship Marketing and Motivation with over 700 leading public and private sector institutions in Sri Lanka and abroad with nearly 350,000 participants. In year 2000 he was presented with the Sri Lanka Institute of Marketing first ever ‘Recognition Award’ for the contribution made to enhance the professional competence of the customer interface community in Sri Lanka.

Mr. Kalapuge is a member of the Chartered Institute of Marketing (CIM, UK), is a Post Graduate Diploma holder of CIM (UK), a Diploma holder of Marketing from Marketing Council of Australia and a Fellow of the Australian Marketing Institute.

He also holds an Advanced Diploma in Business Administration from the Association of Business Executives (UK) and is a fellow member.

Mr. Hennayake BandaraIndependent Non-Executive Director

Appointed to the Board on 03 March 2017, he is the Chairman of the Board Audit Committee and a member of the Board Integrated Risk Management Committee.

Mr. Bandara is the former General Manager/CEO of National Savings Bank and a Director, NSB Fund Management Company Ltd. He is a past President of Association of Professional Bankers of Sri Lanka (APB) and Association of Accounting Technicians of Sri Lanka (AATSL). He served as a Director of World Savings Banks Institute, Institute of Bankers of Sri Lanka, Sri Lanka Banks’ Association (Guarantee) Ltd, Financial Ombudsman Sri Lanka, Chilaw Finance PLC, National Wealth Corporation Ltd, NetWealth Securities Ltd and as a Council Member of CA Sri Lanka.

He is a recipient of the award for ‘Excellence in Business Management’’ from CMA Sri Lanka and has undergone training programs on Postal Savings Banking System in Japan and advanced training program on Risk Management in Banking in Sweden and Tanzania. Mr. Bandara was a member of the Expert Group appointed by the Central Bank of Sri Lanka to provide expertise to Registered Finance Companies (RFCs) and Specialised Leasing Companies (SLCs).

Currently he serves as the Vice President of Institute of Certified Management Accountants of Sri Lanka and Advisory Council Member of APB Sri Lanka.

Mr. Bandara is a fellow member of CA Sri Lanka (FCA), Institute of Certified Management Accountants of Sri Lanka (FCMA), AAT Sri Lanka (FMAAT), a member of the Association of Professional Bankers Sri Lanka and holds B(Com) Special Degree from the University of Sri Jayewardenepura.


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BOARD OF DIRECTORS

Mr. Anura PathirageNon-Independent Non-Executive Director

Appointed to the Board on 03 March 2017.

Mr. Nandana A. WickramageNon-Independent Non-Executive Director



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Mr. Nandana A. WickramageNon-Independent Non-Executive Director

Appointed to the Board on 07 February 2017. Commencing the career at the bottom of the ladder in sales, Mr. Nandana A. Wickramage is today a well-reputed and respected corporate leader.

Prior to his retirement from executive duties he served on the main Boards of CBL group (Ceylon Biscuits Pvt Ltd and CBL Investments Pvt Ltd) the largest FMCG conglomerate in Sri Lanka as a Group Director for over 17 years and thereafter served in the capacity of Non-Executive Director on the main boards of Prime Group (Prime Lands Pvt Ltd & Prime Lands Residencies Pvt Ltd) the local leader in real-estate and JAT Holdings Pvt Ltd a local leader in the wood coating and paint industry. Mr. Wickramage also held executive directorships on the boards of CBL Foods International (Pvt) Limited, Plenty Foods (Pvt) Limited, Convenience Foods PLC and CBL Canneries (Pvt) Limited.

Currently Mr. Nandana Wickramage serves on the main boards of Prime Finance PLC, Allianz Insurance Lanka Limited and Allianz Life Insurance Lanka Limited as a Non Executive Director. In addition he also provides consultancy and strategic advisory services to a multitude of leading private companies.

Mr. Wickramage is a Master Practitioner of NLP – Certified by the American Board of Neuro-Linguistic Programming (ABNLP) and International Hypnosis Association LLC. (IHA). He holds a Post Graduate Diploma in Marketing Management (UK), Post Graduate Diploma in Sales Management (UK), Post Graduate Diploma in Retail Management (UK) and is a Fellow of the Society of Sales & Marketing (UK) and a Certified Master Trainer.

As a passionate leader and hands-on practical marketer, Mr. Nandana Wickramage is renowned for his ability to turnaround brands driving them to market leadership, a trait he has demonstrated across various sectors. Over his 37 years professional career, he has built a strong reputation as an excellent creative conceptualizer, a brilliant strategist, a great motivator and local and international trainer cum Peak Performance Coach. What is perhaps most amazing is his versatility. His creativity reaches far beyond the confines of Leadership or Marketing. He is a highly accomplished lyricist, having written over 500 songs of which many have become local chart toppers.

Mr. Wickramage’s leadership and his professional excellence have also been recognised by local and international bodies where he has been presented with many prestigious Global and Local awards, the most notable of them being Global Brand Leadership Award in 2010, Prestige Golden MACO Special Award 2010 – Business Sector (Marketing & Sales), Marketing Leader of the Year 2010 - Asian Mass Media Awards 2010, Marketing professional of the year (Asian Region) at CMO Asia Awards 2011, Most Outstanding Marketing Professional of the Year (Global) at World Brand Congress 2011, listed amongst 50 Most Talented CEO Awards at World Marketing Summit 2013, Peoples’ Leader 2014 awarded by IPM Sri Lanka and Global Marketing Excellence Award for the contribution made to Marketing by World Marketing Congress in 2014.

Mr. Anura PathirageNon-Independent Non-Executive Director

Appointed to the Board on 03 March 2017. He is a member of the Board Audit Committee.

Mr. Pathirage is a professional in the finance field counting over 20 years of experience in the private sector. He holds a B.Sc. Management (Special) Degree with Second Class Hons., from the University of Sri Jayewardenepura and is a Chartered Tax Advisor of the Institute of Chartered Accountants of Sri Lanka. He is an associate member of the Sri Lanka Institute of Taxation and a member of AAT Sri Lanka.

Currently he is serving as the Head of Finance of Prime Group and prior to that Mr. Pathirage was the Senior Management Consultant at Baker Tilly - Sri Lanka, Chartered Accountants. He was a Director of Corporate Secretaries Practice (Pvt) Ltd, the secretarial unit of the accountancy firm. He also gained over six years of financial management experience overseas in the areas of international trade and tourism as the Chief Accountant of Cyprea Group of Companies in Maldives as well as apparel and insurance sector in Sri Lanka.


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Corporate manaGement


Mr. Samantha FernandoChief Operating Officer

Mr. T.M. Manjula TennakoonAssistant General Manager - Finance

Mr. Niroshan PereraHead of Branch Operations

Mr. Mahadevan SuthakarHead of Risk and Compliance/ Compliance Officer

Mr. Indika DissanayakeHead of Information Technology

Mrs. Eresha KumburulandaHead of Legal


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Skills and Experience

Mr. Rasika Kaluarachchi is an exceptional and dynamic professional with proven expertise in the banking and finance industry for over 20 years. Mr. Kaluarachchi holds a Master’s Degree (MBA) in Banking and Finance from the Postgraduate Institute of Management (PIM) of the University of Sri Jayewardenepura, Postgraduate Dip. in Business Management from the University of Colombo and a BSc Degree from the University of Sri Jayewardenepura. He has contributed to several research projects in credit, risk management and marketing in the financial services sector. He is also recognised as an expert in corporate strategic management and marketing.

Current Appointments

He currently serves as the Chief Executive Officer of Prime Finance PLC.

Previous Appointments

He possesses wide and diverse experience having held various senior positions in leading finance companies registered with the Central Bank of Sri Lanka. Prior to joining Prime Finance PLC, he functioned as the Chief Executive Officer at TKS Finance for six years. Furthermore, he has held the position of Head of Credit and Marketing at Abans Finance PLC for six years, AGM Operations at Sarvodaya Development Finance Limited and Executive positions at LOLC Finance PLC, People’s Leasing & Finance PLC and LB Finance PLC.

Mr. Samantha FernandoChief Operating Officer


Mr. Samantha Fernando counts over three decades of experience in the leasing and finance industry covering the areas of recovery, credit, marketing and overall operations in leading finance companies in Sri Lanka.


He currently serves as the Chief Operating Officer of Prime Finance PLC.


His fast rising career began at LB Finance as Senior Executive - Recoveries which laid a strong foundation to his professional achievements over 11 years from 1988 to 1999. He then joined People’s Leasing & Finance PLC Head Office in Colombo in the year 2000 as a First Marketing Executive and functioned up to becoming a Senior Manager which added another 14 years of experience and career milestones to his professional journey. Prior to joining Prime Finance PLC in 2017, he overlooked credit operations at Richard Pieris Finance Ltd in the position of Head of Leasing and Asset Financing.

Mr. T.M. Manjula TennakoonAssistant General Manager - Finance


Mr. Majula Tennakoon has had a lucrative academic career, and well honed experience in the financial industry. He is a member of the Institute of Chartered Accountants of Sri Lanka and a member of the Institute of Certified Management Accountants of Sri Lanka. He holds a Bachelor of Business Administration Special Degree from the University of Colombo, a Diploma in Taxation from Sri Lanka Institute of Taxation while being a Certified Information System Auditor. He is presently reading for an MBA at the Postgraduate Institute of Management (PIM) of the University of Sri Jayewardenepura.


He currently serves as Assistant General Manager - Finance of Prime Finance PLC.

Previous appointments

He commenced his career as a Management Trainee at George Steuart & Co. Ltd and has over 12 years of experience in non-bank financial institutions. He served in numerous positions at The Finance Company PLC, which include Administrative Manager, Branch Manager, Head of Internal Audit and his last stint with them as Chief Manager Finance.


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CORPORATE MANAGEMENT

Mr. Niroshan PereraHead of Branch Operations


Mr. Niroshan Perera holds a Bachelor of Accountancy Special Degree from the University of Sri Jayewardenepura. He also holds an MBA from the University of Colombo.


He currently serves as Head of Branch Operations at Prime Finance PLC.


He started his career in Ernst & Young as an Audit Trainee and counts over 15 years of experience purely in the Finance industry. He has held various senior positions in leading finance companies in Sri Lanka covering credit, marketing and recoveries functions.

Mr. Mahadevan SuthakarHead of Risk and Compliance / Compliance Officer


Mr. Mahadevan Suthakar is an Associate Member of the Institute of Bankers of Sri Lanka (AIB - Sri Lanka) and Chartered Institute for Securities and Investments (ACSI - UK). He obtained a Master’s Degree in Business Administration with a specialisation in Finance (MBA Finance) from the University of Sri Jayewardenepura and a Bachelor of Business Administration from the University of Jaffna. Mr. Suthakar is currently reading for a Master of Science in Financial Mathematics from the University of Colombo.


He currently serves as Head of Risk and Compliance/ Compliance Officer at Prime Finance PLC.


His career spans over a decade in the financial services sector having held several positions in the fields of internal audit,

accounting & finance (financial reporting, treasury management, tax planning & management and payroll management), risk management and compliance.

Mr. Suthakar last held the position of Head of Risk & Compliance/ Compliance Officer of Abans Finance PLC up to December 2017.

Mr. Indika DissanayakeHead of Information Technology


Mr. Indika Dissanayake counts over 20 years of experience in the field of IT. He was graduated with an Upper Class Honours Degree in Information Technology from London Metropolitan University. He holds NCC (UK) International Higher Diploma, NCC (UK) International Diploma and other IT Diplomas. Additionally, he has completed Australian Computer Society examinations (ACS) and BCS examinations. He is a Certified Ethical Hacker, a Certified Microsoft System Engineer and has completed other Microsoft certifications.


He currently serves as Head of IT at Prime Finance PLC.


Mr. Dissanayake has held numerous roles in the field of IT in the organisations which he has previously worked in, among them are the positions of Assistant General Manager IT at Entrust Limited, Systems Engineer at AE Logistics Pvt Ltd, Branch Manager and Lecturer cum Network Administrator at IDM Computer Studies (Pvt) Ltd.

Mrs. Eresha KumburulandaHead of Legal


Mrs. Eresha is a result oriented, multi-disciplined, seasoned legal professional with sound academic foundation and more than 19 years’ in providing thought leadership in the area of legal compliances

and corporate governance. She passed out from Sri Lanka Law Collage with Honours Pass and she got her Bachelor of Arts Degree from the University of Kalaniya. She did her Post Graduate Advanced Diploma in Corporate Law at the Institute of Advanced Legal Studies in Sri Lanka Law Collage and passed with a Merit Pass. She got her Masters of Business Administration from the Asia e-University, Malaysia.


Mrs Kumburulanda leads the Legal Division of the Company.


Mrs. Kumburulanda started her career as an Intern at National Development Bank and thereafter did her apprenticeship at Samaratne Associates, a leading law firm in Sri Lanka. After taking oaths, she practiced as a lawyer at the Kurunegala Bar. Her corporate career as an Attorney started with Paul Rathnayake Associates, where she got the opportunity to handle corporate clients such as LB Finance Ltd, and Coats Tootal (Pvt) Ltd. Further, she received the opportunity to associate with senior legal practitioners in the industry. Then she joined Abans Environmental Services (Pvt) Ltd as a Legal Officer, Company Secretary & HR Manager. Her next move was in the finance sector as Manager- Legal at Bartleet Finance Limited where she liaised with different types of litigation matters in the financial sector. She then joined Epsi Computers (Pvt) Ltd as the Manager – Legal & HR & Company Secretary where she enhanced her knowledge in software and hardware industry related laws. After that she worked as Group - Head of Legal at Informatics group over 10 years, where she gained immense knowledge in corporate agreements and litigation including International Arbitration at Singapore Arbitration Center & Notarial Work.


23

senior manaGement

Mrs. Rasangi WithanaSenior Manager Funding

Mrs. Sumudu WanniachchiManager Recoveries

Mrs. Jenita JeevakumaranManager Human Resources

Mr. Chryshan FerdinandoManager Credit Operations

Mr. Senaka KumarasingheHead of Administration and Investigations

Mr. Sanjeewa PremachandraManager Internal Audit


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SENIOR MANAGEMENT

Mrs. Rasangi WithanaSenior Manager Funding


Mrs. Withana holds a Special Honors Degree in Information Technology [BSc(Hon).IT] from the Sri Lanka Institute of Information Technology (SLIIT) and an MBA from the University of Wolver Hampton (UK). She has completed a certificate course in Islamic Banking & Finance from the Institute of Bankers of Sri Lanka (IBSL).


Mrs. Rasangi Withana currently holds the position of Senior Manager Funding at Prime Finance PLC, where she manages the fixed deposit and savings portfolio of the Company.

Previous appointments

Prior to joining Prime Finance PLC, she was attached to Asian Finance Ltd as a Branch Manager. She has over 13 years of industry experience.

Mrs. Sumudu WanniachchiManager Recoveries


Mrs. Sumudu possesses 31 years of experience in the field of leasing and finance in the areas of credit, branch operations, and collections with exposure to litigation & debt recovery.


Mrs. Wanniachchi leads the Recoveries Division of the Company.


Her wide experience in the financial services includes Managerial & Senior Managerial positions at Commercial Leasing & Finance PLC, LB Finance PLC, Asian Finance PLC and Bartleet Finance PLC.

Mrs. Jenita JeevakumaranManager Human Resources


Mrs. Jenita Jeevakumaran counts 13 years of experience in the Banking and Finance Industry. She holds a Master’s degree in Business Administration (MBA) from Cardiff Metropolitan University, UK and a Professional Qualification in Human Resource Management (AMCIPM) from the Chartered Institute of Personnel Management. She is also a Certified Management Accountant of the Institute of Certified Management Accountants, Australia.


Mrs. Jeevakumaran leads the Human Resource Division of the Company.


Mrs. Jeevakumaran started her career with Seylan Bank and continued her career with HSBC, LB Finance PLC and Envoy Holdings.

Mr. Chryshan FerdinandoManager Credit Operations


Mr. Chryshan possesses over 26 years of experience in the field of Leasing and Finance. Prior to joining Prime Finance PLC, he has held various positions at Commercial Leasing & Finance PLC, Ceylinco Leasing Corporation Ltd. and Arpico Finance Company PLC.


He currently serves as Manager Credit Operations at Prime Finance PLC.

Mr. Senaka KumarasingheHead of Administration and Investigations


Mr. Senaka Kumarasinghe has held many senior positions in Criminal Investigation Department (CID) and retired as an Assistant Superintendent of Police (ASP) after working 32 years in CID. He has obtained his training at the FBI headquarters in USA and Australian Federal Police. He holds a Diploma in Criminology from the University of Sri Jayewardenepura and a diploma in Human Rights from the Police Academy.

Mr. Kumarasinghe has also been a former committee member (legal) for investigation of corruption, mismanagement and irregularities at the Ministry of Internal Transport and former Chairman of the Police Inspectors Association of Sri Lanka.


He currently serves as Head of Administrations and Investigations at Prime Finance PLC.


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Mr. Sanjeewa PremachandraManager Internal Audit


Mr. Sanjeewa Premachandra is an Associate Member of the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and a passed finalist of the Association of Accounting Technicians of Sri Lanka (AATSL). He holds a Bachelor of Economics Special Degree from the University of Colombo and counts over 10 years of experience in the field of internal audit, accounting and finance in the finance and insurance industry.


He currently serves as Manager Internal Audit at Prime Finance PLC.


Mr. Sanjeewa started his career as a Trainee at CNR & Co., Chartered Accountants. Before joining Prime Finance PLC, he served at Group Internal Audit Division of Merchant Bank of Sri Lanka and Finance PLC for over eight years and held various positions.

Creating Value

The key pillars of our growth are our unique Business Model, ethical operations, customer focus, and teamwork.


27

stakeholDer enGaGement anD materiality

Scope and Boundary

This is the 2nd Integrated Report presented by Prime Finance PLC. The Report presents extensive information relating to the Company’s strategy, business model, material risks, governance, performance, and future prospects. This report lays out a detailed record of our performance within the framework of the economy and relationship to the social and environmental aspects of the operation. It presents our approach to management of capital inputs and the value creation processes that drive the Company towards its objectives. Shareholders will find adequate details to assess the Company’s performance for the financial year ending 31 March 2019.

Materiality

In this Report, Prime Finance PLC has reported on issues that are of significant importance to the business and its stakeholders at both internal and external levels. The material topics were selected based on concerns expressed by our stakeholders identified as a result of a stakeholder engagement process.

Stakeholder Engagement

Prime Finance PLC closely engages with all its stakeholders who are engaged in or impacted by its business operations. The Company’s relationships with customers, employees, community and environment determine its sustainable approach to business. A stakeholder is also a member without whose support the Company would cease to exist. The Company considers each stakeholder as an important pillar of its success and engages with them through various channels to ensure they are aware of our progress. This dialogue also serves to address any concerns they may have. Since different stakeholders have different requirements, Prime Finance PLC deems it essential that these requirements are met comprehensively and in a timely manner.

� Employees

As the lifeblood of the organisation, the Company has a host of responsibilities towards this stakeholder group including training and development, recognition and rewards, career progression, work life balance, and health and safety. The Company engages with its employees through an open door policy, staff meetings, emails, performance appraisals, and social networking events.

� Customers

The Company engages with Customers through one-to-one meetings, customer surveys, feedback forms, official website, and propaganda campaigns, media and CSR projects. The Company serves its customer expectations through product diversity, service quality, favourable pricing of products, efficient and speedy transactions, product information, confidentiality of data and customer grievance handling.

� Shareholders

The Company engages with shareholders through the Annual General Meeting, the annual report, interim financial statements, website and investor forums. In turn, they expect the Company to protect their sustainable earnings growth and deliver to them robust financial returns and timely payment of returns while growing their wealth.

� Community

The Company engages closely with the Community by providing support through CSR and philanthropic activities.


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value Creation moDel

Financial Capital

Shareholders’ Funds : LKR 1,621 Mn

Customer Deposits : LKR 2,746 Mn

Borrowings : LKR 975 Mn

Manufactured CapitalInvestment in IT Systems LKR 6 MN

Intellectual CapitalBrand Image, Trust, Confidence and Ethics

Human CapitalNo of Employees : 128

Social and Relationship CapitalRelationships built with the Customers, Business Partners and Other Stakeholders.

Natural Capital

Our Environmentally-friendly Business Practices

CAPITAL INPUTSSHAREHOLDER RETURNS AND ENGAGEMENT

VALUES : CUSTOMER CENTRIC | WINNING WITH INTEGRITY |

Value Driven Culture

Sound Internal

Contorls

High Tech Platform

Efficient Work

Processes and Trained Staff

Value Creating Processes

Environmental Implications

Fiscal and Monetary

Policy

Political and Economic

Environment

Adoption of New

Technology

Demographic Changes

Operating Environment

Legal and Regulatory Framework

VISION : To become the most preferred, progressive and innovative financial solutions provider in Sri Lanka.


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Shareholder Value CreationNet Asset Value Per Share : LKR 20.46

Earnings Per Share : LKR 2.61

EmployeeValue Creation

Payments to Employees : LKR 114 Mn

Customer Value CreationTotal Loan Disbursements : LKR 3,788 Mn

Interest Paid to Depositors : LKR 209 Mn

GovernmentTax Contributions : LKR 109 Mn

CommunityEngaging with the Community

Environmental ImpactResponsible Lending Practices and Environmentally Friendly Business Practices.

OUTPUTS AND OUTCOMESSHAREHOLDER RETURNS AND ENGAGEMENT

EMPLOYEE VALUE | SERVING COMMUNITIES

Diversification

Market penetration and

profitability

Differentiation of Product offerings

Customer centric service

proposition

Strategic Priorities

Effective Corporate

Governance

Strength of the Prime

Group

Risk Management

Skilled work force and

competencies

Excellent Financial

Performance

Investment Grade Credit

Rating

Enablers


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operational review

Global Economic Outlook

The global economic expansion declined in the second half of 2018 after a strong performance in manufacturing and trade in the previous year. The impact of increased trade tensions and tariff hikes between USA and China caused ripples across other markets due to which business confidence fell, financial conditions tightened and higher policy uncertainty prevailed. Trade tensions increasingly took a toll on business confidence and, so, financial market sentiment worsened, with financial conditions tightening for vulnerable emerging markets in the spring of 2018 and then in advanced economies later in the year, weighing on global demand.

Meanwhile, the euro area economy lost more momentum than expected as consumer and business confidence weakened and car production in Germany was disrupted by the introduction of new emission standards; investment dropped in Italy as sovereign spreads widened; and external demand, especially from emerging Asia, softened. Elsewhere, natural disasters hurt activity in Japan. Conditions have eased in 2019 as the US Federal Reserve signaled a more accommodative monetary policy stance and markets became more optimistic about a US–China trade deal, but they remain slightly more restrictive than in the fall. As a result of these developments, global growth is now projected to slow from 3.6% in 2018 to 3.3% in 2019, before returning to 3.6% in 2020.

Sri Lankan Economic Context

The Sri Lankan economy weakened during 2018, recording 3.2% in 2018 compared to 3.4% in the previous year. The total size of the Sri Lankan economy was estimated at US dollars 88.9 Billion, while the per capita GDP was recorded at US dollars 4,102 in 2018, which was marginally lower than in the previous year. The external sector of the economy was volatile during the year due to both global and domestic factors. Globally, monetary policy normalisation, particularly in the US, resulted in global

financial conditions tightening. Sri Lanka also experienced these headwinds, particularly from mid-April 2018, which were exacerbated following the political uncertainties and the downgrade of the country’s Sovereign rating in the fourth quarter of the year. Domestically, the trade deficit surpassed US dollars 10 Billion for the first time in history with higher growth in import expenditure outpacing the growth in export earnings, which were at a record level during the year under review.

In 2018, the Central Bank followed a market based exchange rate policy and allowed a sharper depreciation of the rupee, but intervened in the domestic foreign exchange market, particularly at times when large capital outflows and undue speculation caused excessive volatility in the market. In order to address the widening trade deficit, the Central Bank and the government implemented a series of measures to curb non-essential imports by increasing tariffs, imposing margin requirements, tightening loan-to-value ratios on selected types of lending, and suspending the issuing of letters of credit (LCs) on concessionary permits for vehicle imports. Meanwhile, the financial sector continued to expand in 2018, supported by the moderate but stable growth of the banking sector. The Central Bank strengthened the prudential policy measures, including the implementation of Basel III requirements and the adoption of Sri Lanka Accounting Standard - SLFRS 9 during the year.

Although successive governments have expressed their intention to reform the economy through a number of policy documents, the key stumbling block has been the implementation of such proposals effectively while ensuring policy consistency and coordination amongst all stakeholders, in a manner that would improve delivery of public services as well as strengthen ‘Doing Business’ conditions to support private sector led economic growth. However, the country can no longer afford to postpone such reforms, if Sri Lanka is to progress along a high

and sustainable growth trajectory over the medium term according to the Central Bank of Sri Lanka.

How Non-Bank Financial Institutions (NBFIs) Performed in 2018

The performance of the Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector moderated during the year in terms of credit growth, profitability and non-performing loans. Fiscal and macro prudential policy measures taken to curtail importation and credit granted for purchasing motor vehicles negatively affected the demand for core lending products in the sector. Further, a rising trend of LFCs and SLCs gradually moving away from vehicle financing to other secured lending activities was noted during the year under review. However, the sector expanded in 2018, with an asset growth of 5.6% and represented 7.6% of Sri Lanka’s financial sector assets by end 2018. The sector as a whole maintained capital at a healthy level along with adequate liquidity buffers above regulatory minimum levels. There was a marked shift in the funding mix, as increased assets were mainly funded through borrowings while deposits increased slightly compared to high growth recorded during the previous year.

The expansion of total assets slowed down, recording a growth rate of 5.6% (Rs. 76.3 Billion) during the year, reaching Rs.1,431.3 Billion compared to the 11.8% growth reported in 2017. The asset base of the sector mainly consists of loans and advances which accounted for 79.4% of the sector assets. Finance leases accounted for the highest share of loans and advances, representing 52.8% followed by other secured loans (38%).

Credit provided by the LFCs and SLCs sector grew by 7.6% (Rs. 79.9 Billion) to Rs. 1,137 Billion compared to the growth of 9.8% in the corresponding period of 2017. The expansion in finance leases contributed to 84.5% of the credit growth while 16.1% was through secured loans and advances. The hire purchase portfolio


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contracted during the year by Rs. 8 Billion (29.7%). However, the growth of finance lease portfolio for the year 2018 was 14.7% compared to growth of 13% recorded in year 2017.

Customer deposits still dominate the major portion of liabilities which accounted for 50.1% of the total liabilities of the sector. Borrowings recorded a growth of 17.1% (Rs. 67.8 Billion) in 2018, a shift from the negative growth recorded in the year 2017. Deposit growth slowed down to 4.4%, compared with the growth of 29.4% recorded in the corresponding period of 2017. The sector showed a reliance on bank borrowings over deposits due to flexibility and negative public perception towards LFCs which reduced the funds mobilised through deposits.

Lending activities of the sector showed signs of slowing down in response to fiscal

and macro prudential policy measures taken to curtail importation of motor vehicles and lending towards vehicles and the slowdown in economic activities among other domestic pressures.

Performance Review of the Company

During the financial year 2018/19, Prime Finance recorded operational and financial excellence far surpassing the industry average despite an economic slowdown in the country. The Company was successful in doubling its revenues due to focused management, stringent cost controls, aggressive marketing strategies, superior customer service and a dedicated staff. The robust financial performance during the year under review led to the Company declaring one of the highest bonuses in the industry, which reflects not only its financial strength but also the investment the Company makes to ensure its employees are capable of achieving ambitious financial

targets. Moreover, the performance can also be attributed to customer loyalty and the competitive advantage of belonging to the reputed Prime Group, which has a rich heritage of 20 years in the real estate business. The Company is also fortunate to have a wealth of knowledge and wisdom amongst its eminent Chairman and Board of Directors who have worked tirelessly to define the strategic path for Prime Finance PLC to establish its identity as a distinctly different finance company. The Company is focused on consolidating and diversifying business into low risk segments. Simultaneously, the Company is driving IT capabilities to offer industry-best customer service. Prime Finance PLC performed successfully in almost all areas of business operations and in a short period of time has remarkably transformed itself into a reputed entity in the competitive financial sector.

Five Year Summary

For the Year ended 31 March 2015 2016 2017 2018 2019

Rs. Rs. Rs. Rs. Rs.

Operating Results

Gross income 295,340,750 296,912,509 299,180,910 532,771,091 1,100,822,139

Interest Income 289,636,782 289,589,051 291,728,251 445,450,360 947,181,265

Interest expenses 131,142,196 125,889,086 133,371,807 209,450,069 407,944,234

Net interest income 158,494,586 163,699,965 158,356,444 236,000,292 539,237,031

Other income 5,703,968 7,323,458 7,452,659 87,320,731 153,640,874

Total operating income 164,198,554 171,023,423 165,809,103 323,321,022 692,877,905

Operating expenses 120,639,577 112,454,878 138,625,335 179,540,550 278,301,974

Impairment losses 116,444,776 11,813,583 9,027,486 107,632,627 86,324,280

Profit/(loss) before VAT on financial services (72,885,799) 46,754,962 18,156,282 36,147,845 328,251,649

Profit/(loss) before income tax (72,885,799) 38,422,020 8,812,546 27,123,586 272,037,347

Income tax expenses/(reversal) (28,145,030) 3,456,047 6,289,588 14,032,874 93,391,864

Profit/(loss) after tax (44,740,769) 34,965,973 2,522,957 13,090,713 178,645,483


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OPERATIONAL REVIEW

As at 31 March 2015 2016 2017 2018 2019

Restated Restated

Rs. Rs. Rs. Rs. Rs.

AssetsCash and Cash Equivalents 55,332,422 75,829,061 128,416,689 417,958,339 469,366,656Investment in Fixed Deposits - - - 152,081,166 -Financial Investments - Held for Trading 1,356 700 520 - -Loans and Receivables 854,280,775 1,169,225,527 1,166,100,905 2,680,733,887 4,305,015,825Financial Investments - Available for Sale 56,300 56,300 56,300 56,300Financial Investments at Fair Value Through Other Comprehensive Income - - - - 56,300Financial Investments - Held to Maturity 20,989,927 72,294,832 89,482,222 122,468,456Financial Investments at Amortised Cost - - - - 387,329,553Financial Investments 62,917,381 16,602,880 - - -Other Financial Assets 292,286,542 83,843,230 213,682,831 1,294,521 8,936,585Inventories - Real Estate Stock 8,031,216 2,607,728 38,532,048 129,266,607 386,746,646Other Non Financial Assets - - - 11,415,435 11,938,288Other Assets 44,761,960 45,503,191 43,706,195 -Investment Property - - - 105,439,534 105,439,534Property, Plant and Equipment 19,346,374 23,919,889 21,792,581 28,525,141 27,809,300Intangible Assets - - - 2,222,312 3,240,589Deferred Tax Asset - - - 19,913,154 -Total Assets 1,358,004,253 1,489,883,336 1,701,770,291 3,671,374,853 5,705,879,276

2015 2016 2017 2018 2019

Rs. Rs. Rs. Rs. Rs.

Liabilities

Due to Banks and Other Financial Institutions 10,691,213 47,225,971 39,424,575 427,680,261 1,094,217,290

Due to Customers 1,034,978,467 1,105,657,981 1,311,055,978 2,399,149,502 2,746,322,013

Other Financial Liabilities 2,803,084 1,614,474 6,434,521 5,092,825 6,575,856

Other Non-Financial Liabilities 30,057,653 20,295,824 26,231,948 223,210,024 180,847,764

Post Employment Benefit Liability 1,347,764 1,556,138 2,184,180 3,167,412 4,318,233

Deferred Tax Liability - - - - 6,472,052

Income Tax Payable - - - - 46,346,705

Total Liabilities 1,079,878,181 1,176,350,388 1,385,331,202 3,058,300,026 4,085,099,914

2015 2016 2017 2018 2019

Rs. Rs. Rs. Rs. Rs.

Shareholders’ Funds

Stated Capital 225,000,000 225,000,000 225,000,000 508,500,000 1,372,500,000

Reserves 53,126,072 88,532,948 91,439,089 104,574,827 248,279,363

Total Equity 278,126,072 313,532,948 316,439,089 613,074,827 1,620,779,363


33

� The Company increased its revenue to Rs. 1,101 Million during the year, reflecting an increase of 106.62% compared to the last financial year. The Company recorded a total net profit after tax of Rs. 178.6 Million, thereby recording a 1264.67% increase over last year’s profit.

� Total operating profit before taxes increased by 808.08% to Rs. 328 Million compared to Rs.36Million in the previous year, and the Company maintained cost to income ratio of 40% throughout the year despite the unfavorable economic conditions.

� The Company’s total asset base depicted a growth of 55.42% closing the year at Rs. 5.7 Billion over the previous year’s total assets of Rs. 3.7Billion.

� Loans and receivables has shown a steady growth of 61% year-on-year (YoY) recording a loan portfolio of Rs. 4,305 Million at the end of the year under review.

� The Company’s asset quality remained strong due to proactive recovery strategies deployed during the year. The aggressive recovery drive derived positive results improving the NPA ratio to 5.6% from 7.4% in the previous year and maintained 66% provision cover. NPA has been maintained below the industry averages throughout the year.

� The Company always manages a very comfortable and low risk mix of funding and has a healthy mix from different sources. Public deposits count for 67% and bank funding accounts for 27%. The Company issued 43.2 Million ordinary shares by way of a Rights issue to holders of ordinary shares of the Company at a price of Rs. 20.00 per share and raised Capital of Rs. 864 Million in July 2018.

� With the Rights issue, the stated capital of the Company has increased to Rs. 1,372,500,000 representing 79,200,000 shares. Further, the shareholder’s funds as at 31 March 2019 together

with the funds raised from Rights issue represents Rs. 1,621 Million, and the core capital of the Company with the said issue amounting to Rs. 1,592 Million ensures that the Company is well above the regulatory requirements of minimum core capital of Rs. 1,500 Million. The said issue of shares supports the stability of the Company and the Company now can further leverage to enhance its Balance Sheet Growth.

� In September 2018, the Company was assigned an investment grade of BBB - stable outlook by ICRA Lanka Limited grace to the commendable performance shown over recent past with the support of its sustainable business model.

Strategies Used Against Industry Challenges

Challenge Company Strategy

Regulatory Compliance

The ever-changing regulatory environment poses a constant challenge for financial institutions of all types. The Company has been constantly working towards remaining in line with the regulatory requirements by timely reporting, auditing and process streamlining.

Customer Retention

Competition for financial service clients becomes fiercer day-by-day. The Company makes the best efforts in catering to customer needs via greater personalisation, more automated services, and easier access to services by customers.

Employee Retention

As a Company that lives by the concept of ‘Balancing the Best Interests’, Prime Finance has been working towards improving employees work-life balance. The Company has been continuously promoting a learning and innovation culture where employee skills are frequently updated via training sessions and constant attention being given to improving employee health and welfare.

Competition The Company has been working towards strengthening the Company image via social media campaigns, new CSR programs, improving the product portfolio and continuous upgrades to in-house processes and facilities.

Macro-economic volatility

Despite the highly turbulent economic and political background, the Company has been determined in achieving its objectives and has been strategic in its approach towards finding new opportunities in every situation.


34

OPERATIONAL REVIEW

Description of Each Product, its Performance During the Year and Future Outlook

Product Performance in the Year Future Outlook

Term Loans This loan is offered to customers to facilitate their personal financial requirements and for the purchase of durable goods. During the year, the Company has granted term loans amounting to Rs. 272.3 Million.

Investment in this product will be curtailed in the future due to the unsecured nature of this product.

Easy Payment Loans

Easy payment loan facility is created for real estate customers who purchase properties from Prime Lands real estate projects through tripartite agreements. During the year, the Company has granted easy payment loans amounting to Rs. 653.1 Million.

Since these are low risk loans that are 100% guaranteed by the parent Company, the monthly investments on this loan will be increased in the future.

Real Estate The Company secured a turnover of Rs. 364 Million from real estate and gross profit of Rs. 73Million for the financial year. The total investment made in real estate during the year is Rs. 477 Million and the stock stood at Rs. 387 Million as at the year end representing a growth of 197% YoY.

The Company will increase the investments in real estate stocks which has a low risk yield taking the advantage of group’s expertise in real estate.

Loans against Deposits

The Company offers loans against deposits to meet immediate cash requirements of depositors, where the Company provides up to 85% of the deposit value as credit for monthly interest deposits and up to 90% for interest at maturity deposits. During the year the Company has granted Loans against deposits amounting to Rs. 144 Million.

Since becoming a real time solution provider for financial needs of customers is one of the Company’s priorities, loans against deposits will be increased to provide better customer service.

Mortgage Loans This loan product facilitates the financial needs for the purpose of purchasing, refinancing, developing properties or consolidating debts by mortgaging assets. During the year the Company has granted Mortgage loans amounting to Rs. 1,507.6 Million.

As mortgage loans falls under the100% secured, low risk loan category, the investment on providing mortgage loans will be increased.

Finance Lease During the year, the Company has granted leasing facilities amounting to Rs. 707.1 Million.

The Company will continue to increase the investment based on the demand.

Personal Loans Personal loan provides the borrower with funds in a lump sum that the borrower can use at their discretion. During the year the Company has granted loan facilities amounting to Rs. 5.5 Million.

Investments considered would be moderate compared to other loan facilities as repayments are highly subjective to the prevailing economic conditions.

PD Loans A PD loan is a type of short-term borrowing facility where a borrower will be extended credit based on his income and credit profile. During the year the Company has granted loan facilities amounting to Rs. 15.3 Million.

Investments will be reduced considering the unsecured nature of the loan type.

Fixed & Savings Deposits

During the year the Company was able to attract Rs. 1,929 Million new fixed deposits.

The funding sources will be increased.

Capital Management

As we strive for operational and financial excellence, we are focused on adding value to shareholder investment.


36

finanCial Capital

Managing Financial capital is a salient function in the value creation process of the Company. As a finance company, we are entrusted with public funds by way of deposits by customers, investments by shareholders, bank borrowings

and reserves built up over time. Prime Finance PLC has a responsibility to secure, protect and manage these funds in a way that guarantees adequate returns amongst key stakeholders of the Company. As a testimonial to its commitment, the Company demonstrated prudent management of its Financial Capital.

Profitability

The Company displayed a strong financial performance during the year with a Profit before tax of Rs. 272 Million, reflecting a 903% upward increase, while marking a net profit after tax of Rs. 179 Million. This reflected a growth of 1,265% from the previous financial year’s net Profit after tax of Rs. 13 Million. The growth in profitability was supported by the strong strategies applied over core lending business, primarily to boost revenue and interest margins, while striving to keep cost of funding at optimally low levels.

Net Interest Income

The Company’s Net Interest Income grew by 128% during the year as a result of the steady growth in the lending portfolio, rising from Rs. 2,681 Million in 2017/18 to Rs. 4,305 Million in 2018/19. The healthy average interest spread of 7.8% and the net interest margin of 12% maintained throughout the year also added to the growth in the Net Interest Income.

Increase in interest income has outgrown the increase in the interest expense during the year. Interest income has marked an increase of 113% during the year compared to previous year by recording a total interest income of Rs. 947 Million. The composition of the interest income is as follows.

Rs. Mn

Profit/(Loss) After Tax

-50

0

50

100

150

200

20192018201720162015

Rs. Mn

Net Interest Income

0

100

200

300

400

500

600

20192018201720162015

Rs. Mn

Interest Income to Interest Expense

0

200

400

600

800

1,000

20192018201720162015

Interest Expense Rs.Interest Income Rs.


37

A major portion (75%) of the interest income for the financial year consists of interest income from loans and advances. The advance portfolio growth is as follows.

Rs. Mn

Advance Portfolio Growth

0

100

200

300

400

500

600

20192018201720162015

Diversification of Advance Portfolio

The Company maintains a healthy portfolio of which 55% is secured by property mortgages, while 73% of the total advance portfolio is backed by collaterals, thus reducing the credit risk of the Company by maintaining healthy interest margins. The advance portfolio represents 75% of the total assets of the Company.

%

Composition of Advance Portfolio

Other 2%

Lease Rentals Receivable & Stock Out on Hire 21%

Mortgage Loan 38%

Loans against Deposits 2%

Easy Payment Loans 17%

Short Term Loans 6%

Term Loans 14%

%

Interest Income Composition

Interest Income on Other Investment 1%

Interest Income on Overdue Interest 3%

Interest Income from Sri Lanka Government Securities 4%

Lease Rentals Receivable & Stock Out on Hire 17%

Loans and Advances 75%

Operating Income

Increased business volumes and real estate investment resulted in 114.30% growth in the operating income of the Company. During the year, the Company recorded real estate income of Rs. 73 Million which was twice the real estate income recorded in the previous financial year. The total investment in real estate income for the year under review was Rs. 477 Million, while the total real estate inventory ended up at Rs. 387 Million with a steady yield expected next financial year. Further, increased fees and commission income also resulted in growth in operating income.

Rs. Mn

Operating Income

0

100

200

300

400

500

600

700

800

20192018201720162015


38

FINANCIAL CAPITAL

Asset Growth

During the year the Company’s total assets grew by 55.42% compared to the previous year. The Loans and Advances, Lease Rentals Receivable & Stock Out on Hire were the main contributors to the growth.

%

Asset Composition

Inventories - Real Estate Stock 6.78%

Other Non-Financial Assets 0.21%

Investment Property 1.85%

Property, Plant & Equipment 0.49%

Intangible Assets 0.06%

Other Financial Assets 0.16%

Financial Investments at Amortised Cost 6.79%

Financial Investments at Fair Value Through Other Comprehensive Income 0.001%

Lease Rentals Receivable & Stock Out on Hire 15.54%

Loans and Advances 59.91%

Cash & Cash Equivalents 8.23%

Shareholder Funds

Rs. Mn

Shareholders' Fund

0

500

1000

1500

2000

20192018201720162015

ReservesStated Capital

Following the Rights issue, the Company’s stated capital increased by Rs. 864 Million, recording a total stated capital of Rs. 1,373 Million. Respectively, the number of shares increased to 79,200,000. The increase in net profit after tax resulted in increased reserves and together with the stated capital, total shareholders’ funds recorded a growth of 164% from the previous financial year.

Regulatory Capital

Core capital adequacy ratio and total risk weighted capital adequacy ratio stood well above the industry standards during the year. Tier 1 core capital amounted to Rs. 1,588 Million which reflected a core capital ratio of 27.28% while the total risk-weighted capital ratio stood at 28.42% (minimum ratio - 10%) and this is notably higher than the industry averages. However, the effect of SLFRS 9 impacted both Tier 1 and total capital ratios resulting in a marginal drop in the ratios.

%

Capital Adequacy Ratios

10

20

30

40

50

60

20192018201720162015

Total capital to risk weighted assets (Tier I & II) (minimum 10%)

Core capital to risk weighted assets (Tier I) (minimum 6%)

Investor Information

EPS

Rs.

Earnings per Share

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

20192018201720162015

Despite the increased number of shares due to the rights issue, the Company recorded earnings per share value of Rs. 2.61 at the end of the year, reflecting a 522% growth compared to the previous year. The outstanding growth in income and profit figures resulted in the highest EPS value the Company has ever recorded in its history.

ROA & ROE

%

ROA & ROE

-15

-10

-5

0

5

10

15

20

20192018201720162015

ROEROA

In comparison to the industry’s average performance in the financial year, the Company’s strong profitability drove investor ratios such as ROA, EPS and ROE upward, closer to optimistic targeted levels.


39

manufaCtureD Capital

The Company’s Manufactured Capital is made up of its branch network, Information and Communication Technology (ICT) infrastructure and other property, plant, and equipment used in its business operations.

Manufacturing Capital is represented by the physical infrastructure which facilitates our value creation and helps us to serve customers in a satisfactory manner.

Branch Network

Prime Finance PLC has established its footprint across seven regions in the country and possesses strategically located branches in Kandy, Colombo, Kurunegela, Wennappuwa, Negombo, Kalutara and Gampaha.

The Company’s branches provide the full range of products and services in its portfolio to customers at any of its seven branch locations. The friendly staff and pleasing ambience coupled with high quality of service deliver a seamless banking experience. The branches are backed by robust IT systems that are continuously upgraded to benefit both staff and customers. The Head Office and branches are fully equipped and automated with online access to support the staff.

Colombo

Kalutara

KandyWennappuwa

Negombo

Gampaha

Kurunegala

Negombo Branch

No. 33, Old Chilaw Road (Opposite St Peter’s Church), Negombo.

'0312 233 36670312 224 910

[email protected]

Wennappuwa Branch

No. 23/1, Chilaw Road, Wennappuwa.

'0312 250 90670312 255 577

[email protected]

City Office

No. 61, D.S. Senanayake Mawatha, Colombo 08.

'0112 679 280-82'0112 679 289-90

[email protected]

Kaluthara Branch

No. 336, Galle Road, Kalutara North, Kalutara.

'0342 235 91670342 235 618

[email protected]

Gampaha Branch

No. 35A, Queen Mary’s Road, Gampaha.

'0332 231 52270332 248 980

[email protected]

Kandy Branch

12, 4th Floor, Heerassagala Road, Mulgampola, Kandy.

'0812 237 96270812 237 963

[email protected]

Kurunegala Branch

No. 155, Puttalam Road, Kurunegala.

'0372 229 05070372 229 051

[email protected]


40

MANuFACTuRED CAPITAL

Customer Touch Points

The Company ensures the highest level of customer convenience by ensuring easy access. Besides this, the Company interacts with customers through various touchpoints. Customers of Prime Finance have access to the branches to make their monthly rental and installment payments while its SMS alerts service provides timely reminders to customers on when their installment payments are due.

Determined to provide an enhanced experience, the Company, during the year under review, re-launched its website to make it user-friendly for customers to navigate the site and access information with just a few clicks. Furthermore, existing customers and potential customers are constantly being updated on new products, services and other facilities offered via social media and other mass media platforms. Its strategic campaigns serve to attract inquiries from potential customers. In order to sustain a high level of customer service, continuous staff training and skill development programmes were conducted through the year under review to improve service excellence standards.

IT Strategy

Our IT strategy is aligned with our business strategy and as such, all improvements in our IT infrastructure are undertaken with the sole purpose of improving our operational efficiency and to drive the organisation to gain a competitive edge in the industry. During the year under review, the Company invested in new servers and put in place a disaster recovery plan, which ensures zero downtime and also stores customer data in a secure manner with adequate firewalls. The organisation has made information security a key deliverable and thus will partner reputed experts in the field.

Contribution of Property Plant & Equipment to Performance

The Company’s Property, Plant and Equipment made an improved contribution to overall performance in comparison to the preceding year as denoted below.

%

PPE Composition

Office Equipment 48%

Motor Vehicle 15%

Furniture & Fittings 27%

Equipment 8%

Machinery 1%


41

intelleCtual Capital

Disruption has become the norm across many sectors. The rapid changes taking place in how business is transacted is accelerated through technology and this requires Prime Finance PLC to remain agile in order to stay abreast of

changing trends. In such a scenario, the knowledge held within the organisation is considered critical to drive it forward to meet future demand.

Brand Equity

As a subsidiary of Prime Lands, the Company benefits from the renowned brand value and the reputation for excellence and the trust that the ‘Prime’ brand has earned in Sri Lanka. The power of the ‘Prime’ brand is an overwhelming presence in the Company’s strategic and operational decision-making and in its interactions with customers, suppliers and in engagement with the community. It is an immensely powerful foundation for the Company’s marketing efforts, whether in leasing and financing operations or in deposit canvasing and other operations.

Being part of Prime family has helped immensely in making Prime Finance a household name for financing requirements and came to the fore during mass media and social media campaigns initiated to create awareness and reach customers more effectively. Further, the Company’s strengthened IT platforms facilitates effective customer interactions and provides more customised service experience with its advanced IT presence which has helped the Company in becoming a real-time solutions provider to stay ahead of industry competition.

Widening Customer Base

During the year under review, the Company provided facilities to a total of 2,354 customers which indicates a 30% increase from the previous year (2017/2018: 1,815), while the deposit base increased from 5,577 customers to 6,553 customers.

Brand Value

As a Company that places great importance in creating value for its stakeholders in every aspect, Prime Finance follows an ethical code of conduct of business practices and operations. Staying true to its core values and principals, the Company constantly promotes integrity, competence, diligence, respect and acting in an ethical manner with the public, clients, prospective clients, employees and partners.

The Company continuously places integrity of the profession and the interests of clients above its own, uses reasonable care and exercises independent professional judgement when conducting investment analysis, making investment recommendations, taking investment actions and engaging in other professional activities.

During the year under review, the Company approached value creation through CSR activities to create synergies between CSR and economic performance, with the aim of responding to the expectations of its many different stakeholders. The Company provides internships for school leavers to experience working in the financial services sector. Further, continuous developments in IT processors and systems to improve work efficiency and service to customers contributed significantly towards creating greater value.


42

INTELLECTuAL CAPITAL

Investo

rs & C

usto

mers

Man

age

me

nt &

Em

plo

yees

Co

mm

un

ity

& G

ove

rnm

ent

Su

pp

liers

& B

usi

ne

ss P

artn

ers

Vision & Mission

Management Approach & Strategies

Technology

Sustainability

Risk Management

Corporate Governance

Financial Performance

� Strong capital base paired with good governance.

� Higher returns to investors through increased profitability despite challenging and volatile business environment.

� Focused strategies on balancing financial growth and risk.

� Adherence to financial reporting guidelines and standards.

Internal Operations

� Integrated IT software and business model thriving for efficiency & effectiveness.

� Sound management philosophy and approach guiding the skilled workforce.

� Finance processes, IT and the workforce aligned with business priorities.

� Focused process improvements.

� Sound internal control system.

Learning & Growth

� Promoting a culture of innovation and employee empowerment.

� Continuous training and development followed with updating knowledge to suit the latest industry requirements.

� Comfortable work environment providing employees better motivation and bringing out the best in them.

Contribution to Society

� Value to society approach - continous commitment to serve the community.

� Contribution towards Corporate Social Responsibility (CSR).

� Ethical conduct of business.

� Optimised resource utilisation.

Value Creation Process


43

Rating and Awards

The value of the Prime Finance PLC brand is reflected in its ratings. In September 2018, the Company was assigned an investment grade of BBB- Stable Outlook by ICRA Lanka Limited for the commendable performance shown over the recent past with the support of its sustainable business model.

Under the Finance Companies & Leasing Companies sector (Total assets up to Rs. 20 Billion), Prime Finance PLC won the Bronze Award at CA Sri Lanka’s 54th Annual Report Awards ceremony in December 2018 for establishing credibility and transparency through financial reporting.

Leveraging on IT

The Company invests in adoption of technological advancements to serve customers better and enhance business operations. The challenge all businesses faces today is the disruption caused by new technology development. Infrastructure developments and enhancements in internal software were carried out to keep abreast with the changing business environment without any interruption.

Compliance is a focus we always adhere to in all aspects. The information technology platform is geared to accommodate potential growth while ensuring security of customer data and privacy.

Currently, Prime Finance PLC uses fully integrated software applications for business operations and finance operations.

This application supports the growth needs and integration of other financial applications and platforms.

Information security is a prime concern to safeguard customer information and to assure critical business process confidentiality. Communication systems, information systems and storage systems are tightened with IS security protocols. To ensure uninterrupted business operations, a disaster recovery plan is in place where the information systems and information replication takes place to assure the accessibility at any time.

To support mobility and enhance HR functions, a cloud based state-of-the-art Human Resource Information System (HRIS) was introduced to Prime Finance PLC during the year. The Company’s road map is to move towards total digitalisation within few years. Currently, targeted projects are in place to achieve this goal.

ICT Infrastructure Highlights

� Availability of eFinancial system which supports growth and integration with other platforms

� Featured enhancements carried out to cover business needs

� Information security enhancements

� Highly automated systems and disaster recovery programmes in place

� Implementation of state-of-the-art human resource management system

Financial Strength & Stability

The financial stability of a financial institution is a key consideration for depositors. With the trusted Prime brand in the forefront, the Company is able to open more doors and more wallets, harnessing the latent savings potential in chosen geographical markets to widen its savings and fixed deposit base. The brand association is a key reason why fixed deposit customers seek out Prime Finance as a home for their savings. Over and above the solid backing from its parent company, Prime Finance has demonstrated a prudent approach to balancing business growth and risk which is further demonstrated in the Company’s strong balance sheet and recognised by financiers and investors who associate with the Company.

Going ahead, the Company plans to strengthen its Intellectual Capital while moving towards total digitalisation. In keeping with tighter compliance requirements, the Company will strengthen its disaster recovery plans which are already benchmarked much above required levels.

CA Sri Lanka annual report award ceremony


44

human Capital

Prime Finance’s greatest endeavour is to attract, develop, recognize and retain a professional set of employees who collaborate energetically to achieve the corporate vision. Effective recruitment and retention strategies and the

warm and empowering work culture have attracted some of the best talents in the financial service industry. The Company’s culture has been further enriched by recruiting people with diverse skill set. Our commitment and dedication of our Employees’ is a key pillar of our success also is significant factor that sets us apart in the industry.

Philosophy

Prime Finance has an employee-oriented culture, which brings out the best in our staff, thus embodying the concept ‘When you value your people and take care of them in return they will take care of the business’. Creating a conducive work environment helps employees to reach their fullest potential whilst increasing their level of satisfaction. The Company has

provided its staff with adequate resources to accomplish their tasks. In the strategy formulation and execution process, the ideas of the staff are given due consideration. There are various measures that have been used such as continuous process improvements and employee involvement that had played vital role in achieving the goals.

Integrated HR Policies

Human Resource (HR) strategies and integrated HR policies and practices are aligned with the Company’s vision ‘To become the most preferred, progressive and innovative financial solutions provider in Sri Lanka’. The freedom given to employees in the workplace serves to drive innovations and creativity. Their contribution is clearly linked with the

Annual trip to Anantaya Resort and Spa Chilaw on 5 & 6 October 2018


45

organisation’s short and long term objectives. The organisation has in place HR management processes, practices and policies in place which result in delivering higher tangible and intangible return on investment from its human capital. During the year under review, the Company’s focus was to develop employees and enhance employee engagement through training, rewarding and recognition. Recognition of the workforce is one of the key areas of competitive advantage of the Company. Significantly, HR is a core function of the Company and Head of HR is within the Executive Management Team of the Company

Equal Opportunity Employer

Prime Finance PLC is an equal opportunity employer and adopts a zero tolerance policy against discrimination on the basis of gender, caste, ethnicity & religion etc. The Company strives to improve its gender balance year on year in the non-field staff cadre.

Recruitment & Retention

Prime Finance’s robust workplace culture is built on structured recruitment and retention strategies which enable us to attract passionate and talented employees who are nurtured within the company. By ensuring the Company recruits for the right fit, it is easier for the companies to retain those employees.

Prime Finance facilitates an environment that enhances the sense of ownership or belonging amongst employees, thereby creating high employee engagement levels

in the organisation. The performance driven culture ensures high employee engagement, retention, as such employees are rewarded periodically, encouraged to participate in CSR, welfare, annual trips and talent shows to build a lasting bond with fellow workers.

Learning & Development

As the business landscape becomes increasingly competitive, building a professional, skilled team becomes a critical factor for success. By investing in employees, the organisation is able to improve its performance and exceed customer expectations. Prime Finance PLC has drawn up a structure of evaluation and training plan for its employees, which is monitored by Non-Executive Director, Mr. Dhammika Kalapuge, who is one of the Nation’s leading inspirational Trainers. His valuable inputs have helped strengthen our training and development plans. Employees are also encouraged to strive to earn higher academic and technical credentials to help them move up faster in their ladder. During the year under review, technical and personal development programmes were conducted coupled with team work and leadership workshops.

Attrition

The Company has a diverse and talented team and the open culture has given rise to a long-standing team of employees. The attrition amongst its skilled employees is low as they feel a sense of belonging to the

company’s mission. Prime Finance takes pride in the fact that has the highest staff retention rate in the industry.

Succession Planning

Employees have a clear career growth path at Prime Finance, with a personal development plan in place to optimize their skills and inner potential. Further, Employee Mentoring and On-the-job training opportunities are provided. The training programme is directed towards achieving both short and long-term objectives. Annual performance evaluation helps to identify training requirements for each employee to improve employee knowledge, skills and attitudes which has an influence on their behaviour. On-the-job training is mostly provided under formal supervision while Off-the-job training programmes are arranged for specific training requirements. The Company mostly arranges guest lecturers to train staff. Training requirements are decided annually at the time of preparing the budget.

Incentivizing Performance

The Company values a performance based culture and in order to nurture a competitive mindset amongst employees, a special scheme was implemented which has spurred greater contribution from the top performers who have been catalysts in the organisation. By encouraging and rewarding outstanding effort from employees, the Company engenders a culture where more employees aspire to receive due recognition on a company-wide platform. Periodic reviews of the marketing team and bi-annual and annual reviews of all staff members are conducted to monitor the progression and realign their individual performance.

Rewards and Recognition

Awarding recognition, when it’s due, forms a critical component of talent retention. As a result, the Company is highly committed to drive employee engagement. One of the highlight events every year is the annual

Year end get-together 2018

In-house training program


46

HuMAN CAPITAL

awards ceremony for the Group. Despite the challenges in the macro operating conditions in the industry, during the year under review, the Company awarded generous bonuses for top performing staff members, which inspires others to strive for a company-wide recognition culture. Prime Finance’s employees have contributed immensely to turn around the business on the path of success. The Company exercises pay based rewards such as variable incentives, medical schemes and staff loans and non-cash benefits such as career growth, learning and development and mentoring. The Company maintains a performance-based culture and employees are awarded as per the evaluation of the performance along with pre-determined Key Performance Indicators (KPIs) annually.

Promotions and Increments

While the organisation takes a step-by-step approach to achieve the ultimate objective, the management recognizes and rewards employees who have done exceptionally well and have gone that extra mile. The management constantly evaluates employees based on individual skills and competencies in this process and gives performance feedback through peer reviews.

Safety and Well-being

The health and safety of staff are of utmost priority for the Company and appropriate medical and insurance benefits are provided to employees and their families. The Company provides a healthy working

environment while ensuring job security through permanent job opportunities in a highly volatile macro environment.

Handling of Grievances

At Prime Finance, grievance procedures are a means of dispute resolution to help protect employees against any arbitrary decisions of management, which impacts them in any manner. A formal grievance process also builds confidence in employees that their voice will be heard. All complaints are approached in an objective manner with the intention of resolving the grievance in the most satisfactory manner for the employee.

Great Place to Work

Parent, Prime Group, has been bestowed with the ‘Great Place to Work’ accolade for the past four years consecutively and this consistent performance has inspired Prime Finance PLC too, to create a thirst to achieve Great Place to Work certification in

the near future. Moreover, the management team is working hard to set in place the right parameters to ensure that every staff member derives an immense sense of satisfaction in working for the company. The technical and human skills development process implemented in the previous year was strengthened during the year under review.

Annual award ceremony 2018

‘Prime Star’ talent show 2018


47

Work-Life Balance

Maintaining an optimal work-life for employees is a challenging task but the Company has instituted policies and procedures that enable its employees to pursue more balanced lives. As a result, stress on employees is reduced and they are more productive and happy individuals at work. The Company arranges ample recreational events for employees to relax and connect outside without confining to the workplace. The employee welfare society and sports club is responsible for organizing sporting and social events such as a Sports Day and a Get-together, periodically.

Sinhala & Tamil New Year celebrations

‘Prime Star’ talent show 2018


48

soCial anD relationship Capital

The well-being of our stakeholders, both internal and external, has a direct impact on the Company and is at the core of our sustainable approach to the business. By investing in building long term relationships, we not only

sustain our customer base and partner network, but also finance and support their livelihoods through our range of products and services beyond business through our close engagement with all stakeholders.

Customer

Customers are the cornerstone of the Company’s business operations and thus it is committed to building enduring customer relationships through a host of customer engagement initiatives to create value for its customer base. The first pillar is delivering customer service that exceeds customer expectations to drive loyalty. In order to achieve this, the Company invests heavily in training and development programmes for its key staff members. To its advantage, the Company has, on its Board of Directors, a reputed customer relationship management and marketing expert, who supervises the evolution of the Company’s customer service training programmes for the year under review.

Driving closer customer engagement, key customers were invited to the Head Office branch on the occasion of the Sinhala/Tamil New Year.

In order to get to the core of any customer exit, a customer grievance process is in place which is transparent. Prime Finance PLC has put in place a separate customer grievance policy approved by the Board

and there is a special officer to handle this aspect. Accordingly complaints and suggestion boxes are located visibly at all of its branches.

Our customers form a significant part of the Company’s Relationship Capital. We believe that customer capital influences the Company in many different aspects throughout its journey and thus place great concern and care in meeting their expectations in our best capacity.

The Company continuously strives towards maintaining and improving customer interactions in a proactive, empathetic and meaningful manner, as we have identified that strong customer engagement is the key to improve quality of service.

Customer Service

The Company constantly encourage fruitful conversations with the customers as we believe that it is necessary in creating the level of customer service we intend in providing. Customer contact takes place over multiple platforms in the ways that is convenient and relevant to each individual; whether online, face to face or over the phone.

The branch network consisting seven branches across the main cities in the island provides more reach and acts as a real-time solution provider in handling customer queries.

In addition, the Company website delivers support to customers 24*7 and is continuously updated to provide latest information on products and services. We also engage with our customers on social media platform via our Facebook page. These personalised interaction helps us to develop real and enduring relationships with our customers.

The Company follows a holistic approach to build appropriate customer service skills within the organisation. We have integrated strong customer service training and has ensured that our customer acquisition and retention strategies remain rooted in our core values.

We have identified the importance of communication and interaction skills needed to deliver a satisfactory customer experience and have invested in the Company’s human capital to achieve continuous improvement in this area.


49

Reach

The Company’s branch network consisting of 7 branches in key strategic locations in the island, acts as a main source of providing accessibility and convenience for customers that seek our products and services. All branches are well equipped with skilled workforce and appropriate infrastructure that is essential in maintaining the quality of service the Company aspires to provide.

Our customer reach is further enhanced via our presence in online platforms such as the Company website, social media accounts and mobile assistance that has digitalised the customer serving process.

Range of Products.

We, at Prime Finance PLC, offer a diversified lending product portfolio that is beyond customer expectations. We also customize our lending portfolio to suit customer budgets and preferences. We further assist our customers in planning their re-payment of loan rentals to make it flexible and hassle-free.

Privacy

Understanding our responsibility to maintain privacy of customer information and to oblige with regulations, the Company has developed a robust information system to secure privacy of customers’ personal information.

Maintaining the professional and ethical standards in all our dealings with customers is also considered important and is adhered to strictly.

Focus

In order to provide our customers with the most appropriate financial solutions, we encourage and provide insights to our customers to understand their financial needs more accurately. We seek to win customer trust and build our image by maintaining transparency in our dealings with customers.

Product Portfolio

With the Company’s strategic focus on serving the diverse needs and aspirations of individuals in the country, a comprehensive product portfolio has been introduced by the Company. This includes Fixed Deposits, Savings Accounts, Leasing, Vehicle Loans, Home Loans, Property Financing, Business Loans and Real Estate.

Product Responsibility

The Company adopts a responsible approach to designing its products to ensure customers are protected from potential risks. The first step in this process is to ensure that all products and services comply with statutory and legal requirements. All product information is published in English, Sinhala and Tamil to ensure fairness and inclusiveness.

Marcom

In the year under review, Prime Finance PLC sustained aggressive customer outreach initiatives, leveraging on cross-selling products and services and optimizing customer interaction by offering a one-stop shop service. The Company employs a strategic blend of ATL and BTL activities to ensure brand visibility and to raise awareness of its products. In the year under review, the Company accelerated efforts to leverage on social media platforms for marketing and promotional activities. Door-to-door marketing and personalised promotions of Prime Finance’s product range was sustained during the year under review.

The Company remains focused on diversifying its reach by unveiling new products and services to further strengthen its market presence. Real estate related financial solutions is its core strength and the Company continued to extend secured lending to strengthen its balance sheet to yield sustainable growth.

Our Integrated Marketing and Branding Strategy has been designed in line with the Company’s objectives, aligned to

all statutory and regulatory compliance requirements. We do not deal in promotion of banned or disputed products and products that are subject to stakeholder questions or public debate.

The Company initiated advertising campaigns in both mass media and social media to create awareness and attract potential customers island wide. The Facebook page introduced during the year grabbed attention and became a new platform for convenient customer interactions.

In addition, the Company also conducted joint promotions with Prime Lands with the aim of improving the brand image and establishing trust.

Business Partner Details

We believe that our efficiency in operations has a lot to do with the support and strength received from our business partners. Thus, it’s a norm of the Company that we maintain strong relationships with all our partners in business.

The Company engages with multiple institutions and organisations to facilitate smooth flow of its operations and adheres to the Company policies and principals in such dealings.

Funding Intermediaries

Our core business requires the Company to be equipped with strong funding sources as a financial service provider. Thus, we consider funds obtained from banks and other financial institutions through short-term and long term loans and securitisation loans as our main sources of funding, excluding customer deposits.

The Company places significant importance in maintaining long lasting relationships with our lenders while adhering to the loan covenants and as a result has been able to negotiate funds at a minimal cost which has helped the Company in providing competitive rates to customers and maintain targeted interest spread and margins.


50

SOCIAL AND RELATIONSHIP CAPITAL

Banking Partners

� National Development Bank

� Nations Trust Bank

� Hatton National Bank

� Commercial Bank

� DFCC Bank

� Seylan Bank

� Sampath Bank

� People’s Bank

� Bank of Ceylon

Investment Companies

� First Capital Holdings PLC

� M Power Capital

� Capital Alliance Limited

Vendors & Other Intermediaries

As a financial service provider the Company seeks service from different

intermediary organisations and individual service providers. Insurance companies, valuation service providers, legal advisors and consultants are few of the intermediaries that the Company associates with for its operations. Since we identify great value in each of these services, the Company is keen at establishing and maintaining sound relationships and creating value in return for their services.

Suppliers

Property, plant, equipment and other office related tools and items are essential for the smooth functioning of the Company. Thus, in order to support our operations in terms of facilities, we have been maintaining strong relationships with no. of suppliers that provides quality products and services at reasonable prices.

In addition to the above mentioned suppliers, we maintained sound

relationships with our utility providers, media partners and advisory services in our value creation process enabling us to streamline our operational activities.

The Company outsources functions such as courier services, janitorial and tea services and office premises maintenance services etc. to reliable third parties.

Managing Investors

As a Company that strives for shareholder wealth maximisation, we place greater significance in establishing and maintaining strong relationships with our shareholders. We seek to meet shareholder expectations while being responsive to other stakeholder requirements as well.

The Company thoroughly believes that ensuring strong oversight and accountability through an experienced and competent Board and Management team is crucial and places high value in ensuring robust risk governance and management.

We accommodate investor information demands, by providing timely, accurate and balanced disclosure of all material information about the activities and progresses of the Company through transparent reporting.

Contrary to the downturn in the economy and the highly volatile nature of the industry, the Company’s strong focus towards achieving sustainable growth and commitment helped reach substantial growth in profits during the financial year.

To our shareholders’ delight, the Company recorded a growth in profits by 1,265% from the previous financial year. During the year, the Company’s outstanding performance reserved the privilege to announce earnings per share of Rs. 2.61 which has grown by 522% compared to last year.

The rights issue during the financial year strengthened the capital funds beyond regulatory requirements recording a growth of 164% from 2017/2018 financial year.

Business Partners

Banks & Investment Companies

Legal Service Providers

Insurance Companies

Telecommunication Service Providers

Technology Partners

Valuation Service Providers


51

Rs. Rs. Mn

Growth in ShareholderFunds and Earnings

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

20192018201720162015

Earnings per share Rs. Shareholder Funds Rs.Mn

%

Composition of Share Ownership

1,000,000 & Above 0.22%

100,001 - 1000,000 0.97%

10,001 - 100,000 3.77%

1,001 - 10,000 18.21%

1 - 1000 76.83%

Community

Prime Finance PLC views Corporate Social Responsibility (CSR) as a self-regulating business model that helps the Company to be socially accountable to itself, its stakeholders, and the public. The Company thrives to be conscious of the kind of impact we are having on all aspects of society including economic, social, and environmental while providing value to the community.

Rather than viewing service to community as a separate activity, the Company believes in embedding the concept of value to society approach in all our business activities. The diversified product portfolio that caters to different segments in the market and different financial

needs is one of the key methods that we create value to our existing and potential customers. The assistance we extend to communities continues to improve people’s financial status, empowers the financial independence and often becomes a foundation to small medium enterprises and entrepreneurs.

The Company is highly concerned of its carbon foot-print and has introduced energy saving and waste reduction initiatives within the Company. Our employees are continuously kept informed and educated on environmentally-friendly measures that can be practiced within the Company in order to achieve our green goals.

Acting ethically and with integrity towards our shareholders, customers, fund providers, suppliers and to the wider community has been an integral part of the Company’s operations, and is considered essential in maintaining our image as a good corporate citizen.

Further, we always make sure that we perform our business activities in accordance with the standards and guidelines set by the government and relevant regulatory authorities and incorporate industry good practices to our performance in order to create greater value to all our stakeholders.

CSR Project

A programme to provide monthly government grants to senior citizens and disabled in different postal areas through

respective Post Offices was joined by Prime Finance PLC during the year. The Company was pleased to provide snack and tea along with a ration packs containing necessary household supplies to the elderly and the disabled as they arrived early in the morning to collect their money which they spend on medicine, food and other bills etc.

Memberships

Prime Finance PLC maintains membership of several industry organisations, professional institutes and associations to expand its knowledge base while ensuring greater participation in the industry while encouraging employees to avail from emerging opportunities through these associations.


52

natural Capital

Guided by its environmental policy and the sense of commitment to conserve the environment, the Company practices strong corporate stewardship. The effects of climate change are never more apparent than they were

in the year under review. As a responsible corporate citizen, Prime Finance PLC takes the onus of minimising use of natural resources to the greatest extent.

Prime Finance has prioritised evaluation of the environmental impact of its business. The Company ensures it retains a sustained focus on challenges in the environment and how it can alleviate them, while ensuring its impact on the environment is minimised to the greatest degree. Its environmental stewardship is aimed at achieving long term value for future generations.

Environmental Policy

� Prime Finance PLC commits to meet all environmental rules and regulations in the country and to protect the environment through sound management practices and decisions.

� The Company continues to prevent pollution by striving to minimise waste generation and resource consumption.

� The Company has established and evaluates achievable environmental performance goals to ensure continual improvement.

� Developed policies to provide a safe, healthy workplace, protecting the environment, conserving energy and natural resources.

� An environmentally responsible neighbour in the community where we operate, and correct incidents or conditions that endanger health, safety, or the environment.

Ongoing Environmental Initiatives

� Conserve natural resources by adopting pollution prevention practices.

� Develop and improve operations and technologies to minimise waste, and other pollution, minimise health and safety risks, and dispose of waste safely and responsibly.

� Ensure the responsible use of energy throughout its business, including conserving energy and improving energy efficiency. Eg. LED lighting systems, AC usage by setting the temperature at 24 degrees, encouraging staff to use stairs to minimise the usage of the elevator.

� Participate in efforts to improve environmental protection and understanding.

� Sharing appropriate pollution prevention technology, knowledge and methods.

For example, spreading awareness among staff on best environmental practices.

� Moving towards a paperless environment.

Sustainability Initiatives

� Meet or exceed all applicable local and Company environmental safety and health standards.

� Provide a workplace free of recognised hazards and maintain healthy working conditions for all Company employees.

� Closely monitor all facilities for prevention of pollution.

� Convey to customers, industry associates, vendors and the general public our strong environmental, safety and health commitment.


53

� Strive to continuously improve commitment to the above-stated principles through exercise of environmentally-friendly practices, improved technology and due diligence.

� Assess the environmental impact of all historic, current and likely future operations and continually seek to improve environmental performance.

� Raise awareness, encourage participation and train employees in environmental matters.

� Communicate environmental aims and objectives to employees and external stakeholders.

� Focus on greater digitalisation

During 2018/19, operations of Prime Finance PLC did not have a negative impact on the nation’s biodiversity in any manner as it does not operate its branches in the vicinity of endangered areas. The Company is aware of the fact that vehicle leasing is one area where it indirectly has an impact on the environment and to mitigate this, Prime Finance PLC focuses on green financing for vehicle owners.


54

risk manaGement

OVERVIEW

Managing risk is an integral part of the finance business. Prime Finance PLC aims at achieving an appropriate trade-off between risk and returns. The key risks that the Company is exposed to include credit, market, liquidity, operational (including information security and legal), strategy, compliance and reputation. Prime Finance PLC has put in place an Integrated Risk Management framework that articulates its risk appetite and drills down the same into a limit framework for various risk categories. An independent risk management function ensures that the risk is managed through a risk management architecture as well as through policies and processes sanctioned by the Board of Directors.

INTEGRATED RISK MANAGEMENT FRAMEWORK

The Company’s Integrated Risk Management Framework provides a structured approach for the Company to form a consolidated view of all risks and to manage these risks in a holistic manner, alongside business and compliance requirements. Board Integrated Risk Management Committee (BIRMC) assists the Board in fulfilling its responsibilities of identifying and monitoring key financial and non-financial risks. The BIRMC functions under the responsibilities set out in the Board approved Terms of Reference, which incorporates the requirements in terms of Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka (CBSL). BIRMC assists

the Board by providing oversight to the risk management and compliance functions of the Company. This includes periodically reviewing and approving the Company’s key risk management policies, frameworks, limits and satisfying itself that management is operating within the Risk Appetite Framework.

RISK GOVERNANCE AND ORGANIZATION

Prime Finance PLC relies on a 'Three Lines of Defence' risk governance model, which provides a structure to assign risk management activities and responsibilities at various levels throughout its organisation. The First Line of Defence (typically comprised of the business lines and corporate functions) incurs and owns the risks. The Second Line of Defence (typically comprised of control functions such as Risk Management and Compliance) provides risk control and objective challenge to the First Line of

Defence. The Third Line of Defence (Internal Audit) provides Company-wide independent assurance over the design and operation of the Company’s internal control, risk management and governance processes throughout the First and Second lines of defence.


55

Business Units and Support Services

Risk Control Functions Independent Assurance

1st Line of Defence 2nd Line of Defence 3rd Line of Defence

The management of the Company is primary responsible for the results, execution, compliance and effectiveness of risk management

Risk Control functions are responsible for setting policies and advising as well as objectively controlling and reporting on the execution, management, control and reporting of risks

Internal Audit is responsible for the independent assurance on the set up and functioning of the internal control framework

Risk Ownership Risk Control Risk Assurance

Operational Management

Risk & Control Self-Assessment

Internal Controls

Risk Management

ComplianceInternal Audit

CREDIT RISK

Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Company. Credit risk arises in the Company’s direct lending operations and in its investment / treasury activities where counterparties have repayment or other obligations to the Company. The effective management of credit risk requires the establishment of an appropriate credit risk culture.

Operationally, exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and principal repayment obligations. Exposure to credit risk is also managed partly by obtaining collateral and guarantees.

Credit Process

The credit process comprises of processing and evaluating loan applications, documenting loan decisions, distributing loan funds, credit classification and managing problem credits. This process covers the entire credit cycle starting from the origination of the credit in books to the point the credit is extinguished from the books. The credit process follows the following five steps:

Cre

dit

P

roce

ssin

g/

Ap

pra

isal

Credit processing is the pre-qualification screening criteria where all required information on credit is gathered and applications are screened. The Company is equipped with well-designed credit appraisal criteria to ensure that facilities are granted only to creditworthy customers who can make repayments from reasonably determinable sources of cash flow on a timely basis.

Cre

dit

-A

pp

rova

l/

Sa

nc

tio

n

Credit risk is evaluated by specialists who have high level of expertise, experience and demonstrated judgement in assessing and managing credit risk. Board of Directors delegated approval authorities commensurate to their positions as well as the expertise. An accountability regime also established for the decision-making process, accompanied by a clear audit trail, with proper identification of individuals involved.

Cre

dit

D

ocu

men

tati

on

& D

isb

urs

emen

t

Documentation is an essential part of the credit process and it is the responsibility of Credit Administration to ensure completeness of documentation such as (loan agreements, guarantees, transfer of title of collaterals etc.). The disbursement will be effected only after completion of covenants, receipt of collateral holdings, insurance cover in the Company’s favor and the vetting of documents by an expert.


56

RISk MANAGEMENT

Del

inq

uen

cy

Mo

nit

ori

ng

&

Co

ntr

ol

This process keeps track of borrowers’ compliance with credit terms, identifying early signs of irregularity, conducting periodic valuation of collateral, monitoring timely repayments and a deterioration in the borrower’s operating environment. This credit monitoring system provides the basis for taking prompt corrective actions when warning signs point to deterioration in the financial health of the borrower

Ma

nag

ing

P

rob

lem

C

red

its/

R

eco

very

A separate recoveries unit follows all aspects of the problem credit, including rehabilitation of the borrower, restructuring of credit, monitoring the value of applicable collateral, scrutiny of legal documents, and dealing with borrower until the recovery matters are finalized. Legal steps are initiated and the collateral will be liquidated as a last resort.

%

Exposure to Top 20 Borrowers 2017/18

Others (in Rs.) 79.1%

Top 20 Borrorwers (in Rs.) 20.9%

%

Geographical Concentration - 2018/19

Wennappuwa 3.0%

Negombo 10.7%

Kurunegala 8.7%

Kandy 5.5%

Kalutara 6.9%

Gampaha 10.8%

Colombo 54.4%

%

Geographical Concentration - 2017/18

Wennappuwa 2.8%

Negombo 11.7%

Kurunegala 8.9%

Kandy 5%

Kalutara 11.1%

Gampaha 7.1%

Colombo 53.4%

Managing Delinquent Loans and Impairment Process

Credit Risk Management has its priority to the maintenance of asset quality of the Company’s loans and advances portfolio. Company’s non-performing loans and advances portfolio is monitored on a proactive basis through regular follow up. Recoveries Department monitors the watch list of accounts by initiating recoveries action plans and close monitoring to prevent such borrowers becoming non-performing.

Rs. Mn %

NPL to Gross Loans & Advances

0

1,000

2,000

3,000

4,000

5,000

3

6

9

12

15

18/1917/1816/1715/16

Non Performing PortfolioGross Loans & Advances

Gross NPL Ratio

Concentration Risk

The term ‘Concentration Risk’ in the context of finance business generally denotes the risk arising from an uneven distribution of counterparties in credit or any other business relationships or from a concentration in business sectors or geographical regions which is capable of generating large losses.

The Company assesses two types of concentration risks. i.e., single Borrower Concentration and sector-wise concentration. Single borrower concentration measures the uneven distribution of loans and advances to its borrowers. Sector-wise concentration is the uneven distribution of exposure to particular sectors, geographical regions and products.

%

Exposure to Top 20 Borrowers 2018/19

Others (in Rs.) 82.4%

Top 20 Borrorwers (in Rs.) 17.6%


57

%

Product Concentration - 2018/19

Other Loans 4.0%

Lease & HP 21.0%

Mortgage Loan 38.0%

Loans against Deposits 2.0%

Easy Payment Loans 18.0%

Short Term Loans 6.0%

Term Loans 11.0%

%

Product Concentration - 2017/18

Other Loans 10.1%

Lease & HP 18.5%

Mortgage Loan 21.2%

Loans against Deposits 3.6%

Easy Payment Loans 15.5%

Short Term Loans 7.9%

Term Loans 23.2%

%

Exposure to Large Borrowers(>5% of Core Capital) 2018/19

Remaining Borrowers 95.9%

Large Borrowers 4.1%

%

Exposure to Large Borrowers(>5% of Core Capital) 2017/18

Remaining Borrowers 90.9%

Large Borrowers 9.1%

LIQUIDITY RISK

Liquidity risk is the risk that the Company is unable to meet its financial obligations in a timely manner at reasonable prices. Financial obligations include liabilities to depositors, payments due, disbursement of loans and advances, settlement of banks, other borrowings, repurchase transactions and investment commitments.

The Company maintains adequate holdings of unencumbered liquid assets to support its operations. These assets generally can also be sold or pledged to meet the obligations. Operationally, the Finance Department plays a vital role in assessing and managing liquidity risk in day-to-day operations. The Finance Department projects cash flow needs in consultation with Deposits, Credit and Recoveries Division and determines the level of liquidity required in response to the findings.

Oversight responsibility for monitoring and managing liquidity risk is vested with Assets and Liabilities Committee (ALCO), which ensures that a sufficient liquidity buffer is maintained to meet the funding obligations. The Company’s liquidity management process includes;

(i) Monitoring future cash flows and liquidity on a daily basis;

(ii) Maintaining a portfolio of highly marketable assets that can be liquidated quickly as protection against any unforeseen interruption of cash flow;

(iii) Monitoring the liquidity ratios of the Company against internal and regulatory requirements;

(iv) Managing the funding concentration and the maturity profile of the Assets and Liabilities, as well as undrawn lending commitments; and

(v) Liquidity stress testing and contingency planning.

Rs. Mn %

Liquid Asset andStatutory Liquid Asset Ratio

0

100

200

300

400

500

600

700

800

10

15

20

25

30

Mar-19Dec-18Sep-18Jun-18Mar-18

Liquid Assets SLAR

Rs. Mn %

Net Loans to Total Assets Ratio

0

1,000

2,000

3,000

4,000

5,000

6,000

60

80

100

Mar-19Dec-18Sep-18Jun-18Mar-18

Net LoansTotal Assets

Net Loans to Total Assets Ratio


58

RISk MANAGEMENT

%

Deposit Renewal Ratio - 2018/19

40

52

64

76

88

100

Mar

-19

Feb-

19

Jan-

19

Dec

-18

Nov

-18

Oct

-18

Sep

-18

Aug

-18

Jul-1

8

Jun-

18

May

-18

Apr

-18

%

Funding Mix - 2018/19

Due to Customers 50.3%

Due to Banks & Other Financial Institutions 20.0%

Equity 29.7%

%

Funding Mix - 2017/18

Due to Customers 69.7%

Due to Banks & Other Financial Institutions 12.4%

Equity 17.9%

Cash Flow Management

Active liquidity and funding management is an integrated effort across a number of functional areas. Short-term cash flow projections are used to plan for and meet the day-to-day requirements of the business, including adherence to prudential and internal requirements.

The Company’s funding strategy is derived from the projected net asset growth which includes credit growth, loan repayments, the maturity profile of existing funding and anticipated changes in the deposit base. Funding requirements and initiatives are assessed in accordance with recommendations of BIRMC for diversification, tenure, as well as the availability and pricing of alternative liquidity sources. An active presence is maintained in money/capital markets, supported by relationship management efforts among corporate and institutional clients.

Contingency Funding Plan

During the year under review the Company has approved a formal Contingency Funding Plan to manage the liquidity in a crisis. Contingency Funding Plans are designed to, as far as possible, protect stakeholder interests and maintain market confidence to ensure a positive outcome in the event of a liquidity crisis. The plans incorporate an extensive early warning indicator methodology supported by clear crisis response strategies. Crisis response strategies are also formulated for the relevant crisis management structures and address internal and external communications, liquidity generation and operations as well as heightened and supplementary information requirements. Accordingly, the Company ensures access to the contingent funding lines as a buffer to support any deficiency in liquidity. The ALCO is having the primary responsibility of monitoring the liquidity position of the Company and contingency funding sources.

Liquidity Stress Testing and Scenario Analysis

Stress Testing and Scenario Analysis form an important part of the Company’s liquidity management process. Stresses and scenarios are based on hypothetical events as well as historical events. This analysis is fully integrated into the Company’s existing liquidity risk management framework. It provides assurance as to the Company’s ability to generate sufficient liquidity under adverse conditions and provides meaningful input in defining target liquidity risk positions.

INTEREST RATE RISK

Interest Rate Risk is a key component of the market risk exposure of the Company arising from adverse and unanticipated movements in future interest rates that could impact core business activities of the Company. Interest Rate Risk is defined as the potential loss from unexpected changes in interest rates which significantly alter Company's profitability (earnings prospective) and market value of equity (market value prospective). Due to the nature of operations of the Company, the impact of interest rate risk is mainly on the earnings of the Company rather than the market value of portfolios.

Re-Pricing Gap Analysis

Re-Pricing Gap analysis is used to assess the interest rate sensitivity of the Company’s interest rate sensitive assets and liabilities. Under gap analysis, interest rate sensitive assets, liabilities and off-balance sheet instruments are assigned to define time periods on the basis of expected re-pricing dates. ALCO oversees the interest rate environment and monitors the movement of market interest rates. The net interest income position and the asset liability repricing gap are evaluated periodically. Asset Liability Repricing Gap Analysis is prepared considering rate sensitive assets and rate sensitive liabilities which enable to assess the impact on net interest income resulting from interest


59

rate movements in the market. Sensitivity Analysis is carried out on interest rate scenarios to decide on the risk exposure and to assess the impact on net interest income.

%

Market Interest Rate Movements2018/2019

6

9

12

15

Mar

-19

Feb-

19

Jan-

19

Dec

-18

Nov

-18

Oct

-18

Sep

-18

Aug

-18

Jul-1

8

Jun-

18

May

-18

Apr

-18

Average Weighted Prime Lending Rate

364 Days Treasury Bill Rate

91 Days Treasury Bill Rate

OPERATIONAL RISK

Operational Risk is defined as the risk that losses will occur due to weaknesses or failures in internal processes and/or systems, human errors, or outside events. Examples of operational risks include information technology failures, shortcomings in the organisational structure, absence of / or inadequate internal controls, human errors, frauds and external threats.

Information Technology Risk has been identified as a major source of operational risk. Information Technology Risk is defined as the business risk associated with the use, ownership, operation, involvement, influence and adoption of information technology within the Company including outsourcing partners or suppliers. Information Technology Department manages the information technology risks and advices operational management on system control and assists in the identification and analysis of information technology risks.

Awareness and management commitment is fundamental in identifying and analyzing operational risks and implementing adequate internal control measures. In mitigating operational risk, the Company has established robust controls with well-defined segregation of duties, policies and procedures. The Internal Audit function performs a monitoring role involving operational audits.

The prime responsibility for the management of operational risk and compliance with control requirements rest with the business and functional units where the risk arises. BIRMC acts in a Second Line of Defence capacity and is responsible for defining and overseeing the implementation of the framework and monitoring operational risk profile.

REPUTATION RISK

Reputation Risk can be defined as the risk arising from negative perception on the part of customers, counterparties, shareholders, investors or regulators that can adversely affect Company’s ability to maintain existing or establish new business relationships and continued access to sources of funding.

Reputation risk is by nature pervasive and can be difficult to quantify requiring more subjective judgement than other risks. The primary responsibility for identifying and managing reputation risk and adherence to the control requirements vested with the business and support functions where the risk arises.

COMPLIANCE RISK

Compliance Risk is the risk of legal or regulatory sanctions or material financial losses as a result of failure to comply with laws, regulations, rules and codes of conduct applicable to the Company’s activities.

The Company’s compliance function provides support in managing compliance risks by embedding and improving compliance arrangements at all levels. The

objective of the compliance function is to promote compliance, assurance standards and management of external and internal legislation, regulations, best practices and code of conduct that serve to control integrity risks while ensuring the integrity of management and employees. Risk and Compliance Department forms the organisation’s second line of defence and reporting to BIRMC.

STRATEGIC RISK

Strategic Risk is the risk of loss or harm arising from strategic decisions or poor implementation of decisions affecting the long-term interests of the Company's main stakeholders or inability to adapt to changes in the environment. The Company’s business model is a key factor for strategic risk. It has to be viable, sustainable and capable of generating results in line with the Company's objectives over time. Within the strategic risk, three components are differentiated;

� Business Model Risk: the risk associated with the Company's viability business model. This risk is caused both by external factors and internal factors.

� Strategy Design Risk: the risk associated with the strategy set out in the Company’s strategic plan.

� Strategy Execution Risk: the risk associated with executing long term strategic financial plans including inability to react to changes in the business environment.

CAPITAL RISK

Capital Risk is the risk that the Company does not have sufficient capital in quantitative or qualitative terms to fulfil its internal business objectives, regulatory requirements or market expectations. The capital management function in its capacity as Second Line of Defence controls and oversees the activities of the First Line of Defence mainly by means of the following processes:


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RISk MANAGEMENT

� Supervision of capital planning and adequacy exercises through a review of all their components (Financial Position, Income Statement, Risk-Weighted Assets and Available Capital).

� Ongoing supervision of the Company's capital measurement activities.

The main purposes of Capital Management are to support the Company’s business strategy and to ensure that Company is sufficiently capitalized to withstand even in severe macro-economic downturns. The regulation on Capital Adequacy prescribes that financial institutions should maintain a minimum level of regulatory capital and Capital Adequacy Ratio measures the amount of capital expressed as a percentage of its risk weighted exposures. ALCO oversees the Capital Management process of the Company.


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Corporate GovernanCe

Chairman’s Statement on Corporate Governance

Dear Stakeholder,

It is my pleasure to present to you, on behalf of Board of Directors, the Corporate Governance Report of Prime Finance PLC for 2018/19. This report provides an insight into our governance approach during the year under review.

The Board of Directors of Prime Finance PLC view good Corporate Governance as fundamental to the creation, protection and enhancement of the value of the Company to achieve sustainable growth. We aim to set the right tone and to encourage a culture that is entrepreneurial and yet risk-focused and safeguards the long-term interests of our stakeholders, while remaining fair and accountable in our activities and practices. Our corporate culture is based on competent leadership, effective internal controls, strong risk culture and accountability to shareholders.

The Company recognises the importance of, and are committed to high standards of Corporate Governance aligned with the needs of the Company and the interests of all our stakeholders. The Board and the Board Sub-Committees regularly review the Company’s Governance structures and processes to ensure they support effective and ethical leadership, the entrenchment of a value-driven ethical culture and that they are applied in the best interests of the Company and its stakeholders.

Corporate Governance Report on pages 61 to 91 is an integral part of Annual Report as mandated by Finance Companies (Corporate Governance) Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka and contain comprehensive governance arrangements as required under the regulations and details on the extent of the adoption by the Company with the provisions set out in the regulations.

Mr. Mangala GoonatillekeChairman / Independent Non- Executive Director


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CORPORATE GOVERNANCE

Introduction

At Prime Finance PLC, we are committed to the highest standards of Corporate Governance and recognise that good governance is pivotal in facilitating the business to deliver its objectives whilst generating sustainable shareholder value and meeting its obligations towards shareholders and other stakeholders. As an essential part of this commitment, Prime Finance PLC operates within a well-defined governance structure and embedded governance principles and practices in

the business which have been established upon the four cornerstones of accountability, transparency, fairness and integrity.

Regulatory Framework and Corporate Governance Structure

Prime Finance PLC believes that good governance contributes to the long-term success of a company, creating trust and engagement between the Company and its stakeholders. Accordingly, the Company operates within an integrated Governance Framework formulated based on Finance Companies (Corporate Governance) Direction No.3 of 2008 as amended, Code of Best Practice on Corporate Governance 2013 issued jointly by the Institute of Chartered Accountants of Sri Lanka and Securities and Exchange Commission of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The framework aims to ensure that the Company is well governed and able to fulfil stakeholders’ deliverables and sustainability at all times. The following diagram illustrates the Corporate Governance Structure of the Company.

Regulator Shareholders

Board of Directors

Chief Executive Officer

External Auditor

Management TeamHead of Risk &

ComplianceHead of Internal Audit

Board Sub Committees

Board Related Party Transaction

Review Committee

Board Remuneration & Nomination Committee

Board Integrated Risk Management Committee

Board Audit Committee

Asset & Liability

Committee

Credit Committee

IT Steering Committee

Management Committee

Appointment Flow Reporting / Responsibility Flow


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Division of Responsibilities - Chairman and Chief Executive Officer (CEO)

The leadership model of the Company ensures an appropriate balance of power, accountability and independence in decision-making. The positions of the Chairman and CEO are kept separately with a clear distinction between their responsibilities. The Board Chairman, Mr. M.D.S.M. Goonetilleke, is an Independent Non-Executive Director, reports to the Board and is responsible for the leadership and overall effectiveness of the Board and setting of the Board’s agenda. His responsibilities are mentioned below:

(a) Provides leadership and governance of the Board so as to create the conditions for overall Board’s and individual Director’s effectiveness and ensures that all key and appropriate issues are discussed by the Board in a timely manner.

(b) Promotes effective relationships and open communication, creates an environment that allows constructive debates and challenges both inside and outside the boardroom between Non-Executive Directors and the Management.

(c) Ensures that the Board as a whole plays a full and constructive part in the development and determination of the Company’s strategies and policies and that Board decisions are taken in the Company’s best interests and fairly reflects Board’s consensus.

(d) Ensures that the strategies and policies agreed by the Board are effectively implemented by the Chief Executive Officer and the management.

Board Composition and Balance

The Board of Directors of Prime Finance PLC comprise individuals who have diverse skills, knowledge and experience that combines to provide different perspectives and effective board dynamics. As at 31 March 2019, the Board of Directors of Prime Finance PLC consist of three Independent Non-Executive Directors, four Non-Independent Non-Executive Directors and an Executive Director. The Non-Executive Directors are independent of the management. Their role is to constructively challenge the management and monitor the success of management in delivering the approved results within the risk appetite set by the Board.

Technical Skills and Experience No. of Directors

Financial Acumen 05

Banking & Financial Services 06

Human Resources 03

Risk Management 05

Marketing and Strategy 05

Legal 01

Compliance 03

Business and Entrepreneurship 03

General Management 08

Corporate Governance 06

An individual Director may represent more than one discipline.

Board Composition & Balance Gender Diversity Age Diversity

Chairman(Independent Non-Executive)

7/8

45–54 Years - 2

55-59 Years - 4

60-65 Years - 2

IndependentNon-Executive Directors

Non-Independent Non-Executive Directors

1/8Executive Director

A list of the individual Directors and their profiles including dates of appointment to the Board and their Committee memberships are set out in the Directors’ profile on pages 14 to 19 of the Annual Report.


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(e) In consultation with the Chief Executive Officer and Company Secretary, the Board meeting schedule and agenda is fixed to take full account of the important issues facing the Company and the concerns of all Directors. Ensures that adequate time is available for thorough discussion of critical and strategic issues.

(f) Ensures that the Board is properly briefed on issues arising at Board meetings and receives adequate information in a timely manner which is accurate, clear, complete and reliable to fulfil its duties such as reports on the Company’s performance, issues, challenges and opportunities facing the Company and matters reserved for it to make decisions.

(g) Ensures that there is an effective communication with shareholders and that each Director develops and maintains an understanding of the stakeholders’ views.

(h) Establishes good Corporate Governance practices and procedures and promotes the highest standards of integrity, probity and Corporate Governance throughout the Company and particularly at Board Level.

Mr. R. P. Kaluarachchi, the Chief Executive Officer, reports to the Chairman and to the Board directly and is responsible for all executive management matters of the Company. His responsibilities are mentioned below:

(a) Leads the management in the day-to-day of the Company in accordance with the business plans and within the budgets approved by the Board.

(b) Leads the management to ensure effective working relationships with the Chairman and the Board by meeting or communicating with the Chairman on a regular basis to review key developments, issues, opportunities and concerns.

(c) Develops and proposes the Company’s strategies and policies for the Board’s consideration.

(d) Implements with the support of the Management, the strategies and policies as approved by the Board and its Committees in pursuit of the Company’s objectives.

(e) Maintains regular dialogue with the Chairman on important and strategic issues facing the Company, and ensures bringing these issues to the Board’s attention.

(f) Ensures that the Management gives appropriate priority in providing reports to the Board which contains relevant, accurate, timely and clear information necessary for the Board to fulfil its duties.

(g) Ensures that the Board especially the Chairman is alerted to forthcoming complex, contentious or sensitive issues affecting the Company.

(h) Leads the communication programme with stakeholders including shareholders.

(i) Conducts the affairs of the Company in accordance with the practices and procedures adopted by the Board and promotes the highest standards of integrity, probity and Corporate Governance within the Company.

Board of Directors’ Access to Information

In order to ensure that the Board is able to fulfil its responsibilities, Directors have unrestricted access to information. The Directors also have independent access to the Company Secretaries, who assist them in the discharge of their duties. The Company Secretaries responsibilities include advising the Board on Corporate Governance and ensuring that Board procedures and applicable regulations are complied with.

All Directors receive a set of Board papers at least seven days prior to the Board meeting to give sufficient time for Directors to obtain further explanations where necessary. The Board papers include among others the following documents and details;

� Agenda for the Board Meeting

� Background or explanation on matters brought before the Board for decision or information

� Minutes of the preceding Board Meeting

� Minutes of the Board Sub-Committee Meetings held since the previous meeting of the Board.

Heads of the Departments are present at meetings to provide additional information or clarification as required. The Board approved policy in place to support the Board for independent professional advice by a Director at the expense of the Company if necessary, in order for the Director to effectively discharge his duties and responsibilities.

Board and Board Sub-Committees

The Board has established a number of Board Sub-Committees to assist it in carrying out more effectively its oversight of the operations and business affairs of the Company. These Board Sub-Committees currently comprise of Board Audit Committee, Board Integrated Risk Management Committee, Board Remuneration and Nomination Committee and Board Related Party Transactions Review Committee. The Board Committees have been constituted with clear Board-approved Terms of Reference. Minutes of Board Sub-Committee meetings, which provide a fair and accurate record of the discussions, key deliberations and decisions taken during the meetings are maintained and circulated to the Board on a regular basis. Details of the principle roles and responsibilities of the Board and Board Sub-Committees are illustrated below.


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Roles and Responsibilities of the Board

(a) Approving and overseeing the strategic objectives and corporate values.

(b) Ensuring the formulation and implementation of an overall business strategy including an overall risk policy for the next three years.

(c) Ensuring all stakeholder interests are considered in corporate decisions and such decisions are communicated amongst all stakeholders including depositors, creditors, shareholders and borrowers.

(d) Ensuring effective systems to secure integrity of information, internal controls and risk management.

(e) Ensuring that the Chief Executive Officer (CEO) and Key Management Personnel (KMP) possess the required skills, experience, knowledge and defining authority and key responsibilities.

(f) Ensuring the adoption of an effective CEO and KMP succession strategy.

(g) Ensuring that meetings are held regularly with KMP to establish lines of communication and monitor progress towards corporate objectives.

(h) Understanding the regulatory environment and ensuring compliance with laws, regulations and ethical standards.

(i) Ensuring due diligence in the hiring and oversight of external auditors.

(j) Ensuring that the Company’s values and standards are set with emphasis on adopting appropriate accounting policies and fostering compliance with financial regulations and fulfilling other Board functions are vital, given the scale, nature and complexity of the business concerned.

Role and Responsibilities of the Board Sub Committees

Name of the Committee

Role of the Committee

Board Audit Committee Assisting the Board of Directors in its general oversight on financial reporting, internal controls, internal and external audits.

Board Integrated Risk Management Committee

Assisting the Board of Directors in ensuring the adequacy, effectiveness of the Company’s risk management framework and capabilities to achieve the strategic objectives.

Board Remuneration and Nomination Committee

Identifying individuals qualified to become Board members and assist the Board of Directors in fulfilling its oversight responsibility on the compensation and benefits granted to the Directors, CEO and KMPs of the Company.

Board Related Party Transaction Review Committee

Assisting the Board of Directors in ensuring that the Company takes the interest of shareholders as a whole into consideration when entering into transactions with related parties.

Management Committees

The Board of Directors appointed three Management Level Committees namely Assets and Liabilities Committee, Credit Committee and Information Technology Steering Committee in line with regulatory requirements. The role and responsibilities of these committees are outlined in the terms of reference approved by the Board which are reviewed periodically. The scope of each Committee is summarized below:

Name of the Committee

Scope of the Committee

Asset and Liability Committee

Optimising the financial resources and managing liquidity risks, interest rate risks, product pricing and capital planning.

Credit Committee Reviewing and monitoring credit policy and procedures, portfolio delinquency management and the credit evaluation process.

Information Technology Steering Committee

Monitoring and reviewing the information technology infrastructure to support the optimisation of overall business strategy and mitigating technology risks.

Board and Board Sub-Committee Meetings and Directors’ Attendance

The Board met monthly during the year to review the business performance and key activities of the Company presented by the management and to deliberate significant business proposals. The Board Sub-Committees too met regularly to fulfil its scope approved by the Board of Directors. All members of the Board participated actively in Board discussions and decisions were taken objectively in the interests of the Company.


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Directors’ attendance at Board and Board Sub-Committee meetings in 2018/19 is set out in the table below.

Name of Director Board BAC* BIRMC* BRNC* BRPTRC*

M.D.S.M. Goonatillake 12/12 8/8 5/5 - 4/4

H.K.S.R. Perera 12/12 - - - -

B.Premalal 12/12 - - 4/5

D.H. Kalapuge 12/12 - - 5/5 4/4

M. Perera 12/12 - 5/5 5/5 4/4

N.A. Wickramage 10/12 - - - -

H.M.H. Bandara 12/12 8/8 5/5 - -

P.A.W.Perera 11/12 7/8 - - -

* BAC - Board Audit Committee* BIRMC - Board Integrated Risk Management Committee* BRNC - Board Remuneration and Nomination Committee* BRPTRC - Board Related Party Transaction Review Committee

Selection to the Board and Appointment

The Board Remuneration and Nomination Committee is responsible for identifying candidates, reviewing and recommending nominations of Directors to the Board. Proposals for the appointment of new Directors are reviewed by the Board taking into account the competencies and skills required to the Board based on the outcome of annual evaluation of effectiveness of the Board. Candidates are assessed on their suitability taking into consideration, amongst others, their professional qualifications, integrity, financial and commercial business expertise and field of expertise relevant to the Company, potential to contribute to the effectiveness of the Board and to complement the skills, knowledge and expertise of the Board.

Further, Board determines the proposed candidate’s independence under Corporate Governance regulations and ensures that the proposed appointment would not result in non-compliance with any of the composition requirements for the Board and Board Sub-Committees. Board also evaluates the fit and proper requirements in terms of Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 03 of 2011 and obtains prior approval of the Central Bank of Sri Lanka in terms of the same direction.

Board Remuneration and Nomination Committee recommends candidates

to the Board

The Board approves the nomination subject to the approval of the

Central Bank of Sri Lanka in terms of Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 3 of 2011

The Central Bank of Sri Lanka assesses the fitness and propriety of the candidate and approves the

appointment

The Company makes an announcement to the Colombo

Stock Exchange on the appointment of the Director

The Director retires at the AGM and is then elected by shareholders

in terms of Section 4(10) of the Finance Companies (Corporate Governance) Direction No. 3 of

2008


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Retirement and Re-appointment of Directors

All Directors of the Board are required to submit themselves for re-election at regular intervals, at least once in every three years in compliance with the Code of Best Practice on Corporate Governance 2013. In terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008, newly appointed Directors will hold office until the next AGM, and if eligible, can stand for election. Retiring Directors are eligible for re-election when nominated by the Board, taking into account the Directors’ attendance at meetings, their expertise, knowledge, commitment, their contributions to Board discussions and to the effectiveness of the Board.

Directors who are nominated for re-election submit affidavits and declarations to obtain prior approval from the Central Bank of Sri Lanka in terms of Section 3.4 of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 03 of 2011. The following Directors will retire at the Annual General Meeting and being eligible, offer themselves for re-election with the unanimous support of the Board of Directors on the recommendation of the Board Remuneration and Nomination Committee.

(a) Mr. M. Perera

(b) Mr. B. Premalal

(c) Mr. D. H. Kalapuge

Further the following Directors who were appointed with effect from 21 June 2019 also retires at the Annual General Meeting and being eligible, offers themselves for election with the unanimous support of the Board of Directors on the recommendation of the Board Remuneration and Nomination Committee.

(a) Ms. K. D. S. Fernando

(b) Mr. R. Randeniya

Determination of Independence of Non-Executive Directors

The Board evaluates annually whether each of the Non-Executive Directors are independent in terms of independent criteria set out in the Finance Companies (Corporate Governance) Direction No. 03 of 2008, Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance 2013. The Non-Executive Directors also submitted declarations on their independence in terms of rule 7.10.2(b) of the Listing Rules of the Colombo Stock Exchange to facilitate the Board to decide on their independence. At the end of the process, the Board concluded the status of Independence of Non-Executive Directors which is shown below:

Name of the Non-Executive Director

Independent / Non Independent

Finance Companies (Corporate Governance) Direction No. 03 of 2008

Listing Rules of the Colombo Stock Exchange & Code

of Best Practice on Corporate Governance

2013

Mr. M. D. S. M. Goonetilleke Independent Independent

Mr. B. Premalal Non Independent Non Independent

Mr. M. Perera Non Independent Independent

Mr. D. H. Kalapuge Independent Independent

Mr. N. A. Wickramage * Non Independent Non Independent

Mr. P. A. W. Perera Non Independent Non Independent

Mr. H. M. H. Bandara Independent Independent

* Becomes an Independent Non-Executive w.e.f. 21 June 2019 with the approval of the Central Bank of Sri Lanka in terms of Finance Companies (Structural Changes) Direction No. 03 of 2013.

Performance of the Board

The Board of Directors has adopted an annual process for evaluating the effectiveness of the Board. The evaluation was based on the schedule - B (Board Performance Evaluation Checklist) suggested in the Code of Best Practice on Corporate Governance 2013. The Board evaluation process promotes Board effectiveness by identifying areas for improvement. The Company Secretaries facilitated the evaluation process. The Board discussed the findings of the evaluation and agreed to follow-up on certain items.

Management of Conflicts of Interests

A conflict of interest arises when what is in a Director’s best interest is not in the best interest of the Company to which the Director owes loyalty. The Company has adopted a Board approved policy on the Management of Conflicts of Interests which specifies the processes and procedures to be followed to manage conflicts. Accordingly, all Directors must notify the Company in a timely manner of any change in their interests or directorates or equivalent positions in other entities, where a director has an interest in a matter being discussed, he/she is required to recuse himself/herself from the discussion and abstain from voting on the matter. Directors’ direct and deemed interests in shares of the Company are disclosed in the Annual Report of the Board of Directors on the Affairs of the Company on page 102 of the Annual Report.


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Reviewing Independence and Objectivity of External Auditor

The Company has implemented a policy on External Auditor Appointment, Re-Appointment, Resignation or Removal, Rotation of Audit Partner & Independence and Policy and Procedure on the Engagement of an External Auditor to provide Non-Audit Services in order to ensure that the External Auditors’ independence was not compromised at all times. The External Auditor M/s. Ernst & Young have provided an affirmation of their independence to the Board Audit Committee and the Committee evaluated their relationship with the Company, including the fees paid to the non-audit services provided by them. The Board Audit Committee being satisfied with their independence, objectivity and effectiveness of the audit process recommended to the Board for the re-appointment of the External Auditor for the ensuing year including their remuneration and terms of engagement. Further, the Board of Directors have approved the same and the re-appointment of the External Auditor is subject to approval of the shareholders at the Annual General Meeting.

Delegation of Authority

The Board established a framework of Delegation of Authority to discharge its stewardship and fiduciary obligations effectively to set out a clear structure for the sources of authority flowing from the Board to the Board Sub-Committees, Management Committees and the respective business functions throughout the Company. Further, all such delegations are made in a manner that it would not hinder the Board’s ability to discharge its functions. The roles and responsibilities of each Board Committee is well-defined in their respective Terms of Reference and reviewed periodically for continued relevance. The Board also periodically reviews the powers delegated to respective business functions to ensure that they remain relevant to the needs of the Company.

Status of Adoption with Corporate Governance Regulations

The status of adoption with the regulations on Corporate Governance is presented under the three sections given below.

Part One - The level of compliance with Finance Companies (Corporate Governance) Direction No. 03 of 2008 and subsequent amendments thereto issued by the Central Bank of Sri Lanka.

Part Two - The level of compliance with the Listing Rules - Section 7.10 on Corporate Governance for Listed Companies issued by the Colombo Stock Exchange.

Part Three - The level of compliance with the Code of Best Practice on Corporate Governance 2013, issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.

Part One - Finance Companies (Corporate Governance) Direction No. 03 of 2008 and subsequent amendments thereto) on Corporate Governance for Licensed Finance Companies in Sri Lanka

The Central Bank of Sri Lanka issued the Direction on Corporate Governance in order to improve and sustain the Corporate Governance processes and practices across the LFCs. This Direction is identified as the Finance Companies (Corporate Governance) Direction No. 03 of 2008 and the amendments are referred to as Finance Companies (Corporate Governance – Amendment) Direction No. 04 of 2008 and Finance Companies (Corporate Governance – Amendment) Direction No. 06 of 2013. These Directions based on the following fundamental principles set out the corporate governance requirements to be adhered to by LFCs.

1. Responsibilities of the Board

2. Meetings of the Board

3. Composition of the Board

4. Fitness and Propriety of Directors

5. Delegation of Functions

6. The Chairman and the Chief Executive Officer

7. Board Appointed Committees

8. Related Party Transactions

9. Disclosures


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The Company’s level of adoption with the Corporate Governance Directions is tabulated below.

Section Reference

Principle Status of Adoption

2. THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

2 (1) Strengthening the safety and soundness of the Company

(a) Approving and overseeing the strategic objectives and corporate values and ensuring that the same is communicated throughout the Company.

Corporate values and strategic objectives have been approved by the Board of Directors and the views relating to the above are communicated throughout the Company.

(b) Approving the overall business strategy of the Company including the overall risk policy, risk management procedures and mechanisms with measurable goals at least for the next immediate three years.

Company’s strategic business plan covering the period up to 2019/20 as approved by the Board in June 2017 provides for overall risk management policy, procedures and mechanisms with measurable goals.

The Company is in the process of reviewing the aforesaid business plan vis-a-vis the performance of the Company and extending it up to 2022/23 with measurable goals.

(c) Identifying risks and ensuring implementation of appropriate systems to manage the risks prudently.

The Board as a whole remains primarily responsible for the overall risk management framework of the Company. Board Integrated Risk Management Committee on behalf of the Board identifies risks, ensures implementation of appropriate systems to manage risks prudently and report to the Board on a regular basis.

(d) Approving a policy of communication with all stakeholders including depositors, creditors, shareholders and borrowers.

The Board approved Communication Policy is available to ensure effective internal & external communication of corporate information with all stakeholders including depositors, creditors, shareholders and borrowers of the Company.

(e) Reviewing the adequacy and the integrity of the Company’s internal control systems, adequacy and the integrity of Management Information Systems (MIS).

There is a mechanism at the Company to identify the adequacy of the internal control by the Board of Directors through the process over design and effectiveness of internal control over financial reporting. Further Internal Audit Division of the Company adds value to the process verifying the effectiveness of the above process. Board has confirmed that the Management Information provided is adequate for their decision making process. Further, the Company is in the process of reviewing the accuracy of non-financial information used by the Board / Board Sub-Committees.

(f) Identifying and designating Key Management Personnel, who are in a position to: (i) significantly influence policies; (ii) direct activities; and (iii) exercise control over business activities, operations and risk management.

The Board of Directors, Chief Executive Officer, Chief Operating Officer, Asst. General Manager - Finance, Head of Risk and Compliance, Head of Branch Operations, Head of IT, Head of Legal, Head of Deposits, Head of HR and Head of Internal Audit of the Company have been identified and designated as the Key Management Personnel of the Company.

(g) Defining the areas of authority and key responsibilities for the Board and Key Management Personnel.

Duties and responsibilities of the Board of Directors and the Chief Executive Officer are defined and approved by the Board. The key functions / responsibilities of the Key Management Personnel have been defined, approved and included in their respective job descriptions. The Board has also defined the Delegated Authority limits of the Chief Executive Officer and other Key Management Personnel.


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Section Reference


(h) Ensuring that there is appropriate oversight of the affairs of the Company by Key Management Personnel, that is consistent with the Company’s policy.

Oversights of the affairs of the Company by its Key Management Personnel take place at the regular Board meetings and Board Sub-Committee Meetings and Key Management Personnel makes regular presentation to the Board on matters under their purview.

(i) Periodically assessing the effectiveness of its governance practices including:

i) the selection, nomination and election of Directors and appointment of Key Management Personnel;

The Company’s Article 21 of the Articles of Association describes the general procedure for appointment of new directors to the Company by the Board. The process adopted by the Board is disclosed on page 66 under ‘ Selection to the Board and Appointment’

ii) the management of conflicts of interests; and

Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Management of Conflicts of Interest’

iii) the determination of weaknesses and implementation of changes where necessary.

The Board have a formal self-evaluation process annually in order to identify and rectify the weaknesses.

(j) Ensuring that the Company has an appropriate Succession Plan for Key Management Personnel.

The Company has a Board approved Succession Planning Policy and Procedure including one-to-one Succession Plan for the Key Management Personnel.

(k) Meeting regularly with the Key Management Personnel to review policies, establish lines of communication and monitor progress towards corporate objectives.

The Key Management Personnel participate in the Board meetings to review policies and monitor the Company’s progress towards its corporate objectives.

(l) Understanding the regulatory environment. The Board of Directors closely monitors regulatory compliances at monthly Board meetings through by means of a regular monthly board paper on compliance. Further, the Compliance Officer presents to the Board new directions and any other necessary information issued time to time by the regulators.

(m) Exercising due diligence in the hiring and oversight of External Auditor.

Hiring of External Auditors is carried out by the Board with the recommendation of the Board Audit Committee after the review of independence and objectivity of External Auditor and it is approved by shareholders at the Annual General Meeting (AGM).

2 (2) Appointment of the Chairman and the Chief Executive Officer and defining and approving their functions and responsibilities.

Complied with. The extent of compliance with this requirement is disclosed on pages 63 to 64 under ‘ Division of Responsibilities - Chairman and Chief Executive Officer (CEO)’.

2 (3) Availability of a procedure determined by the Board to enable Directors to seek independent professional advice at the Company’s expense.

The Directors are able to obtain independent professional advice as and when necessary at Company expense and a Board approved procedure is in place. However, no such instances have occurred during the year.

2 (4) Avoidance of conflicts of interest. Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Management of Conflicts of Interest’

2 (5) Availability of a formal schedule of matters specifically reserved to the Board for decision.

A Board approved formal schedule of matters specifically reserved for Board decisions is in place which ensures that the direction and control of the Company is firmly under its authority.


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Section Reference


2 (6) Disclosure of insolvency to the Director of the Department of Supervision of Non-Bank Financial Institutions.

The Board of Directors are aware of the need to inform the Director, Department of Supervision of Non-Bank Financial Institutions but no such situation has arisen during the year.

2 (7) Inclusion of an annual corporate governance report on compliance with the Corporate Governance Directions in the Annual Report.

This report from page 61 to page 91 serves this requirement.

2 (8) Adoption of an annual scheme of self-assessment by the Directors.

Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Performance of the Board’.

3. MEETINGS OF THE BOARD

3 (1) Convening Board meetings at least twelve times a financial year at monthly intervals.

The Board has conducted 12 meetings during the year. The consent of the Board is usually obtained at meetings with due notice given with Board papers. Obtaining the Boards’ consent via circulation was kept to a minimum of Fifteen (15) instances during the year.

3 (2) Making arrangements to enable Directors to include matters and proposals in the agenda for regular Board meetings.

A formal procedure has been implemented to enable all directors to include matters and proposals in the agenda for regular board meetings.

3 (3) Giving adequate notice of Board meetings. Complied with. The extent of compliance with this requirement is disclosed on page 64 under ‘Board of Directors’ access to information.

3 (4) Attendance of Directors at Board meetings. Complied with. The extent of compliance with this requirement is disclosed on pages 65 to 66 under ‘Board and Board Sub-Committee Meetings and Directors’ Attendance’.

3 (5) Appointment of a Company Secretary to handle the secretarial services to the Board.

The Board has appointed S S P Corporate Services (Private) Limited, 546/7, Galle Road, Colombo – 03 as Secretaries to the Company. The Company Secretaries advise the Board and ensure that matters concerning the Companies Act, Board procedures and other applicable rules and regulations are followed.

3 (6) Responsibility of preparation of agenda for a Board meeting.

The Chairman has delegated to the Company Secretaries the function of preparing the Agenda for Board Meetings and for circulation to the Board.

3 (7) Directors’ access to advice and services of the Company Secretaries.

Complied with. The extent of compliance with this requirement is disclosed on page 64 under ‘Board of Directors’ access to information’.

3 (8) Maintenance of Board Minutes. The Company Secretaries maintain and circulate the Minutes to Board members and provide certified copies of the Minutes at any time at the request of any Director of the Company. A formal procedure is in place to enable Directors to inspect the Minutes.

3 (9) Recording of Minutes of Board meetings in sufficient detail.

The Company Secretary maintains detailed Minutes of Board meetings to satisfy all requirement of this Direction.


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Section Reference


4. Composition of the board

4 (1) Number of Directors on the Board Complied with. The extent of compliance with this requirement is disclosed on page 63 under ‘ Board Composition and Balance’

4 (2) Period of service of a Director The total period of service of all Non-Executive Directors, do not exceed nine years.

4 (3) Appointment, Election or Nomination of an employee as a Director of the Company

The Board consisted of only one Executive Director and does not exceed one-half of the number of Directors of the Board.

4 (4) Independent Non-Executive Directors and the criteria for independence.

Complied with. The extent of compliance with this requirement is disclosed on page 63 under ‘ Board Composition and Balance’ and on page 67 under ‘Determination of Independence of Non-Executive Directors’

4 (5) Appointment of Alternate Directors. No alternate directors were appointed during the year.

4 (6) Skills and experience of the Non-Executive Directors to bring an objective judgement to bear on issues of strategy, performance and resources.

Complied with. The extent of compliance with this requirement is disclosed on page 63 under ‘Board Composition and Balance’.

4 (7) Presence of Non-Executive Directors to satisfy the quorum for meetings of the Board.

All Board meetings held during the financial year were duly constituted with one half of the number of Directors present and one half of the number of Directors constituting the quorum being Non-Executive Directors.

4 (8) Disclosure of Independent Non-Executive Directors, Board composition in corporate communications and in the annual corporate governance report.

Complied with. Please refer the profiles of Board of Directors on pages 14 to 19 and report of Board of Directors on page 99.

4 (9) Availability of a formal, and transparent procedure for the appointment of new Directors

The extent of compliance with this requirement is disclosed on page 66 under ‘Selection to the Board and Appointment’.

4 (10) Re-election of Directors appointed to fill a casual vacancy at the first General Meeting after their appointment.

Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Retirement and Re-appointment of Directors’.

4 (11) Communication of reasons for removal or resignation of Directors.

Appointment, removal or resignation of Directors are informed to shareholders, with immediate notification to the Colombo Stock Exchange (CSE). Prior approval is obtained from the Central Bank of Sri Lanka (CBSL) on such circumstances.

5. CRITERIA TO ASSESS THE FITNESS AND THE PROPRIETY OF DIRECTORS

5 (1) The age of a Director shall not exceed 70 years. All the Directors were below the age of 70 years during the year under review.

5 (2) Directors shall not hold office as a Director of more than 20 Companies / Societies / Corporate bodies including Associate and Subsidiary Companies.

There were no directors who held directorships in more than twenty (20) companies / entities/ institutions inclusive of subsidiaries or associates during the year under review and pages 100 to 101 under ‘Annual Report of the Board of Directors on the Affairs of the Company’ discloses other directorships of Directors.

6. DELEGATION OF FUNCTIONS

6 (1) Delegation of work to the management. Complied with. The extent of compliance with this requirement is disclosed on page 68 under ‘Delegation of Authority’.


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6 (2) Periodical review of the delegation process. Complied with. The extent of compliance with this requirement is disclosed on page 68 under ‘Delegation of Authority’.

7. THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

7 (1) Division of the roles of the Chairman and Chief Executive Officer.

Complied with. The extent of compliance with this requirement is disclosed on pages 63 to 64 under ‘Division of Responsibilities - Chairman and Chief Executive Officer (CEO)’.

7 (2) Designation of an Independent Non-Executive Director as the Senior Director if the Chairman is not an Independent Non-Executive Director.

The Chairman is an Independent Non-Executive Director.

7 (3) Disclosure of relationship between the Chairman, Chief Executive Officer and members of the Board in the Corporate Governance Report.

As declared by the members of the Board and the CEO, there are no relationships whatsoever, including financial, business and family or other material relationship between the Chairman and CEO and/or other members of the Board which will impair their respective roles. Details of the Chairman and Chief Executive Officer are disclosed in the Annual Report on pages 63 to 64.

7 (4) Chairman to;

(a) Provide leadership to the Board;

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

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

The role and responsibilities of the Chairman is disclosed on pages 63 to 64 under ‘Division of Responsibilities - Chairman and Chief Executive Officer (CEO)’. Further, the annual self-assessment process of the Board of Directors ensures that the said requirements are fulfilled.

7 (5) Role of the Chairman in the preparation of the agenda for Board meetings.

The Chairman has delegated this function to Company Secretaries, to prepare the agenda of Board Meetings with his consent.

7 (6) Duty of the Chairman to ensure that all Directors are informed adequately and timely of the issues arising at Board meetings

All Directors have actively participated & contributed in Board affairs.

7 (7) Role of the Chairman in encouraging Directors to make an active contribution to the Board’s affairs.

The Chairman ensures that all Directors make a full and active contribution to the Board’s affairs and the Board acts in the best interests of the Company.

7 (8) Role of the Chairman in ensuring constructive relationships between Executive and Non-Executive Directors.

The Chairman facilitates the contribution of Non-Executive Directors and ensures constructive relationships between Executive and Non–Executive Directors.

7 (9) Refrain from engaging in activities involving direct supervision of Key Management Personnel or any other executive duties by the Chairman.

The Chairman is a Non-Executive Director who does not get involved directly in any of the executive duties of the Company or the direct supervision of the Key Management Personnel.

7 (10) Role of the Chairman in maintaining effective communication with shareholders and communicating the views of shareholders to the Board.

The AGM of the Company is the main forum where the Board maintains effective communication with shareholders. Further, the Board approved communication policy evidences the Company’s process in this regard.

7 (11) Role of the Chief Executive Officer Complied with. The role and responsibilities of the CEO is disclosed on page 64 under ‘Division of Responsibilities - Chairman and Chief Executive Officer (CEO)’.


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8. BOARD APPOINTED COMMITTEES

8 (1) Establishing Board committees, their functions and reporting.

Complied with. The extent of compliance with this requirement is disclosed on pages 64 to 65 under ‘Board and Board Sub-Committees’ and a report on the performance, duties and functions of each Board Sub-Committee is disclosed on pages 92 to 96.

8 (2) Audit Committee

(a) The Chairman of the Board Audit Committee. The Chairman of the Audit Committee Mr. Hennayake Bandara is an Independent Non- Executive Director. Mr. Hennayake Bandara is a Fellow member (FCA) of CA Sri Lanka, Certified Management Accountants (FCMA) of Sri Lanka, AAT Sri Lanka (FMAAT) and holds Bachelor of Commerce Special Degree from the University of Sri Jayewardenepura with over 20 years’ experience in the Banking and Finance field.

(b) Composition of the Board Audit Committee All members of the Board Audit Committee are Non-Executive Directors.

(c) Functions of the Board Audit Committee include;

The Board Audit Committee has recommended,

(i) The appointment of the External Auditors. (i) Re-appointment of M/s. Ernst & Young, Chartered Accountants as External Auditors for Audit Services.

(ii) The implementation of the Central Bank Guidelines issued to Auditors.

(ii) The implementation of guidelines issued by Central Bank of Sri Lanka to Auditors from time to time.

(iii) The application of the relevant Accounting Standards.

(iii) The application of Accounting Standards in consultation with the Asst. General Manager - Finance and External Auditors.

(iv) The service period, audit fee and any resignation or dismissal of the Auditor.

(iv) The service period, audit fees, resignation or dismissal of an Auditor, re-engaging the audit partner in line with the regulatory requirements. No resignation or dismissal of the Auditor has taken place during the year under review.

(d) Responsibility of the Board Audit Committee to review and monitor the External Auditor’s Independence and objectivity and the effectiveness of the audit processes.

Complied with. The extent of compliance with this requirement is disclosed in the Board Audit Committee Report on pages 92 to 93 under ‘External Audit’

(e) Responsibility of the Board Audit Committee to develop and implement a Board approved policy on the engagement of an External Auditor to provide non-audit services.

Complied with. The extent of compliance with this requirement is disclosed on page 68 under ‘Reviewing independence and objectivity of External Auditor’.

(f) Responsibility of the Board Audit Committee to discuss and finalize with the External Auditor’s nature and scope of the audit.

The Board Audit Committee met with External Auditors, M/s. Ernst and Young and discussed the Audit Plan, nature and scope before the commencement of the Audit.


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(g) Review the financial information of the Company.

The Board Audit Committee periodically reviews the financial information of the Company in order to monitor the integrity of the financial statements of the Company and other financial disclosures.

The Committee has reviewed the Company’s Audited Financial Statements and Quarterly Financial Statements before submission thereof to the Board for approval.

(h) Meeting of External Auditors to discuss issues and problems of Interim and Final audits in the absence of Key Management Personnel (if necessary).

The Board Audit Committee has met the External Auditors twice, without Key Management Personnel during the year under review.

(i) Responsibility of the Board Audit Committee to review the External Auditor’s Management Letter and the Management’s response thereto.

The Board Audit Committee has reviewed the Management Letter issued by the External Auditors with the responses of the Management.

(j) Responsibility of the Board Audit Committee to take the following steps with regard to the internal audit function of the Company,

(i) Review the scope, function and resources. (i) The Board Audit Committee has reviewed the scope, functions and resources of the Internal Audit Dept. and the outsourced Internal Audit Services provider is sufficient to carry out its functions.

(ii) Review of Internal Audit Program. (ii) The Board Audit Committee has reviewed and approved the Internal Audit Program.

(iii) Review of Internal Audit Department. (iii) The Board Audit Committee has carried out a performance appraisal of the Head of Internal Audit and the Outsourced Internal Audit Service Provider.

(iv) Recommendations on Internal Audit Functions.

(iv) The Board Audit Committee has recommended the appointment of BDO Partners to carry out certain Internal Audit function of the Company.

(v) Appraise the resignation of senior staff of Internal Audit and any outsourced service providers.

(v) The Committee has appraised the resignation of the Asst. Manager – Internal Audit.

(vi) Independence of Internal Audit Functions. (vi) The Committee ensured the independence of the Internal Audit Function.

(k) Responsibility of the Board Audit Committee to consider the major findings of internal investigations and management’s responses thereto.

No such issues or occurrence discussed during the year 2018/19.


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(l) Participants at the Board Audit Committee meetings and the need to meet with the External Auditor without the presence of the Executive Directors.

The CEO, AGM - Finance, Head of Risk & Compliance and the Internal Auditors normally attend all meetings. Where it is deemed necessary, members of the Corporate Management may also attend meetings by invitation. The Committee met twice with the External Auditors without the presence of the CEO and Corporate Management during the year under review.

(m) Explicit authority, adequate resources, access to information and obtain external professional advice wherever necessary.

The Board approved Terms of Reference of the Board Audit Committee mandates explicit authority to investigate into any matter within its purview and take necessary action thereto.

(n) Meetings of the Board Audit Committee. There were eight (08) meetings of the Board Audit Committee held during the year 2018/19.

(o) Disclosure of activities of the Board Audit Committee and attendance of members at meetings thereof in the Annual Report

Complied with. The ‘Board Audit Committee’ report on pages 92 to 93 include the details of activities of the Board Audit Committee. Please refer page 66 for details of attendance of the Committee members.

(p) Recording and maintenance of detailed Minutes of the Audit Committee meetings

The Company Secretaries act as the Secretary to the Board Audit Committee and maintain the Minutes of the meetings.

(q) Whistle Blower Policy ‘Whistle Blower Policy’ is in place approved by the Board Audit Committee. Contents of this policy will be strengthened to cover the process of dealing with the internal control and to monitor appropriate follow- up action.

8 (3) Integrated Risk Management

(a) The composition of Board Integrated Risk Management Committee

The Board Integrated Risk Management Committee is chaired by a Non-Executive Director and comprises of two Independent Non-Executive Directors. Other Key Management Personnel who supervise the broad risk categories such as Credit, Market, Liquidity, Operational and Strategic risks are also regular attendees to the meeting by invitation.

(b) Periodical risk assessment Committee has a process to assess risks such as Credit, Market and Operational risks of the Company.

(c) Review the adequacy and effectiveness of Management level Committees to manage risk.

The Committee has reviewed the effectiveness of the Assets and Liabilities Committee and Credit Committee in addressing the specific risks and managing risks. Further, the BIRMC has reviewed specific quantitative and qualitative risk limits.

(d) Corrective action to mitigate the risk. The Committee has reviewed and approved the risk limits. Further, the Committee is in the process of reviewing the key risk indicators to consider risks, which have gone beyond the limits.

(e) Frequency of meetings The Committee has met five times during the year to assess the risks of the Company.

(f) Actions against the officers responsible for failure to identify risks and take prompt corrective actions.

At the Company specific risks and the limits are identified by the Committee and decisions are taken collectively.

(g) Risk assessment report to the Board. The Committee had kept the Board informed of their risk assessment of the Company by forwarding a risk report within seven days from the meeting.


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(h) Establishment of a compliance function. A Compliance Officer (Head of Risk & Compliance) selected from Key Management Personnel has been appointed to carry out the compliance function. Compliance Unit reviews the Company’s compliance with laws, regulations, guidelines and rules on a regular basis and reports non-compliances, if any, to the Board.

9. RELATED PARTY TRANSACTIONS

9 (2) Responsibility of the Board to take necessary steps to avoid any conflicts of interest that may arise from any transaction of the Company with related parties.

The Company is in the process of developing Related Party Transaction Policy to suit the regulatory requirements. Further, the Company does not involve in any transactions, which gives favourable treatment to such parties and the Board Related Party Transactions Review Committee monitors the same.

9 (3) Related party transactions. The Board Related Party Transactions Review Committee ensures that all the transactions with Related Parties are on arm’s length basis.

The proposed Related Party Transaction Policy will identify and report the types of transactions with related parties that is covered by this Direction identified under section 9(3) (a) to (d).

9 (4) Responsibility of the Board to ensure that the Company does not engage in transactions with a related party in a manner that would grant such party ‘more favourable treatment’ and maintaining reporting lines and information flows.

The Board Related Party Transactions Review Committee ensures that the Company does not engage any transaction with related parties in a manner that would grant such party ‘more favourable treatment’.

10. DISCLOSURES

10 (1) (a) Preparation and publication of annual audited financial statements and periodical financial statements in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable Accounting Standards.

The audited Financial Statements and periodical Financial Statements were prepared in accordance with the formats prescribed by regulatory and supervisory authorities and applicable Accounting Standards.

(b) Publication of above mentioned statements in the newspapers in an abridged form in Sinhala, Tamil and English languages.

The audited financial statements and the bi-annual financial statements have been published in an abridged form in Sinhala, Tamil and English languages.

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.

Compliance with applicable Accounting Standards and regulatory requirements have been reported under ‘Statement of Directors’ responsibility for Financial Reporting’ on page 106.


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(b) A report by the Board on the Company’s internal control mechanism confirming 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 have been done in accordance with relevant accounting principles and regulatory requirements.

Directors’ Statement on the Internal Control system over financial reporting is given on page 104.

(c) External Auditor’s Certification on the effectiveness of the internal control mechanism.

The Company has obtained an assurance report from the External Auditors on the effectiveness of the Internal Control Mechanism.

(d) Details of Directors, including names, transactions with the Company.

This is disclosed under ‘Annual Report of the Board of Directors on the Affairs of the Company’ on pages 97 to 103.

(e) Fees/remuneration paid by the Company to the Directors in aggregate .

Fees and remuneration paid is disclosed under note 47.2.1 to the Financial Statements.

(f) Total net accommodation and the net accommodation outstanding to the related parties as a percentage of the capital funds.

The details of the net accommodation of each related party and as a percentage of the Company’s capital funds are as follows,

Name of the Related Party

Outstanding as at 31.03.2019

Percentage of Capital Funds

Prime Lands Residencies (Pvt) Ltd 81,000,000 5.0%

Bhoomi Realty Holdings (Pvt) Ltd 6,300,496 0.4%

(g) Aggregate values of remuneration paid by the Company to its Key Management Personnel and the aggregate values of the transactions of the Company with its Key Management Personnel during the financial year.

The aggregate value of remuneration paid to KMPs is Rs. 28,615,162/-.

The aggregate value of transactions with the CompanyLoans and Advances – NilDeposits – Rs. 4,716,128/-

(h) A report containing details of compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non-compliance.

There are no significant lapses which require to be disclosed to the public.

(i) A statement of the regulatory and supervisory concerns on lapses in the Company’s risk management or non-compliance (if any) with the Finance Business Act and rules and directions that need to be disclosed to the public as directed by the Monetary Board.

There were no supervisory concerns on lapses in the Company’s risk management system or non- compliance with the Finance Business Act and rules and directions there under that have been required by the Monetary Board to be disclosed to the public.

(j) External Auditor Certification of the compliance with the Corporate Governance Directions.

Board has obtained the Corporate Governance Factual Finding report from External Auditors in this regard.


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Part Two - Listing Rules - Section 7.10 on Corporate Governance for Listed Companies issued by the Colombo Stock Exchange

The Listing Rules – Section 7.10 of the Colombo Stock Exchange (CSE) mandates listed companies to adopt the Corporate Governance rules specified in the Listing Rules. The said Listing Rules addresses the following areas,

1. Non-Executive Directors

2. Independent Directors

3. Disclosures relating to Directors

4. Criteria for determination of Independence of Directors

5. Remuneration Committee and

6. Audit Committee.

The Company’s level of adoption with the Listing Rules (Section 7.10) is tabulated below.

Rule Reference


7.10.1 NON EXECUTIVE DIRECTORS

7.10.1 (a) Two or one third of the Directors, whichever is higher, should be Non-Executive Directors.


7.10.2 INDEPENDENT DIRECTORS

7.10.2 (a) Two or one third of Non-Executive Directors, whichever is higher, should be independent.


7.10.2 (b) Each Non-Executive Director should submit a declaration of independence/non-independence in the prescribed format.

Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Determination of Independence of Non-Executive Directors’.

7.10.3 DISCLOSURES RELATING TO DIRECTORS

7.10.3 (a) The Board shall make determination of Independence / Non Independence annually and names of Independent Directors should be disclosed in the Annual Report.


7.10.3 (b) In the event a Director does not qualify as independent as per the Rules on Corporate Governance but if the Board is of the opinion that the Director is nevertheless independent, it shall specify the basis of the determination in the Annual Report.

No such determination was required since all Independent Directors have qualified as independent as per the said rules.

7.10.3 (c) A brief resume of each Director should be published in the Annual Report including the areas of expertise.

Please refer pages 14 to 19 for the profiles of the Board of Directors to the Annual Report.

7.10.3 (d) A brief resume of any new Director appointed to the Board should be provided to the Exchange for Dissemination to the public.

No new Directors were appointed to the Board during the year under review.

7.10.4 CRITERIA FOR DETERMINATION OF INDEPENDENCE OF DIRECTORS

7.10.4 (a-h) Requirements for meeting criteria to be independent.

All Independent Directors of the Company met the criteria for independence specified in this rule.


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7.10.5 REMUNERATION COMMITTEE

7.10.5 (a) The Remuneration Committee shall comprise a minimum of two Independent Non-Executive Directors or a majority of Independent Non-Executive Directors, whichever is higher.

The Board Remuneration and Nomination Committee comprised of three Directors and out of which two of them are Independent Non-Executive Directors in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange.

Refer the Board Remuneration and Nomination Committee Report on page 96.

7.10.5 (b) Functions of Remuneration Committee shall be to recommend the remuneration of the Chief Executive Officer and the Executive Directors.

Refer the Board Remuneration and Nomination Committee Report on page 96 for details.

7.10.5 (c) The Annual Report shall set out;

(i) The names of the Directors that comprise the Remuneration Committee;

(ii) A statement of remuneration policy;

(iii) Aggregate remuneration paid to Executive and Non-Executive Directors.

Refer the Board Remuneration and Nomination Committee Report on page 96 for details.

7.10.6 AUDIT COMMITTEE

7.10.6 (a) The Audit Committee shall comprise a minimum of two Independent Non-Executive Directors or a majority of Independent Non-Executive Directors whichever is higher.

One Non-Executive Director shall be appointed as Chairman of the Audit Committee by the Board.

The Chief Executive Officer and Chief Financial Officer shall attend Audit Committee meetings.

The Chairman or one member of the Committee should be a member of a recognised professional accounting body.

The Board Audit Committee is comprised of three Non-Executive Directors and two of them are Independent Non-Executive Directors and hence complied with the requirements.

Mr. Hennayake Bandara (Independent Non- Executive Director) functions as the Chairman of the Board Audit Committee.

Chief Executive Officer and Assistant General Manager - Finance attend the meetings regularly by invitation.

Mr. Hennayake Bandara is a Fellow member (FCA) of CA Sri Lanka, Certified Management Accountants (FCMA) of Sri Lanka, AAT Sri Lanka (FMAAT) and holds Bachelor of Commerce Special Degree from the University of Sri Jayewardenepura with over 20 years’ experience in the Banking and Finance field. Please refer page 17 for the complete profile of Mr. Hennayake Bandara.

7.10.6 (b) The functions of the Audit Committee shall be as set out in section 7.10 of the Listing Rules.

Please refer Board Audit Committee Report on pages 92 to 93 of the Annual Report for description of its functions.


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7.10.6 (c) Annual Report shall set out;

(i) The names of the Directors who comprise the Audit Committee.

(ii) The Audit Committee shall make a determination of the independence of the auditors and disclose the basis for such determination.

(iii) A report by the Audit Committee setting out the manner of compliance of the functions set out in section 7.10 of the listing rules.

Please refer Board Audit Committee Report on pages 92 to 93 for the composition of the Board Audit Committee.

Complied with. The extent of compliance with this requirement is disclosed on page 68 under ‘Reviewing independence and objectivity of external auditor’.

Please refer Board Audit Committee Report on pages 92 to 93 for the composition of the Board Audit Committee.

Part Three - Code of Best Practice on Corporate Governance 2013, issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka

The Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka provides for the prerequisites for the establishment and maintenance of a sound corporate governance environment. The Code encompasses the following seven fundamental principles that should be focused upon by companies in discharging their responsibilities.

A. Directors

B. Directors’ Remuneration

C. Relations with Shareholders

D. Accountability and Audit

E. Institutional Shareholders

F. Other Investors

G. Sustainability Reporting.

The Company’s level of adoption with the Code of Best Practice on Corporate Governance is tabulated below.

Section Reference


A. DIRECTORS

The Company is led, directed and controlled by the Board of Directors. The Directors possess the skills, experience and knowledge complemented with a high sense of integrity and independent judgement. The Board is equipped with members having sufficient financial acumen and knowledge. The Company has established a clear division of responsibilities between the Chairman & CEO to ensure balance of power and authority, in such a way that no individual has unfettered powers of decision.

A.1 The Board –

Prime Finance PLC is headed by a Board of Directors with a diverse mix of professional, academic and entrepreneurial perspectives, in the field of banking, accounting and finance, law, management, marketing and human resources. All Directors possess the skills, experience and knowledge complemented with a high sense of integrity and independent judgement. They provide leadership in setting strategic direction and a sound control framework to achieve the objectives of the Company set out in the corporate plan and the annual budget to satisfy the expectations of stakeholders.


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A.1.1 Board meetings –

The Board should meet at least once in every quarter.

The Board usually meets monthly and special meetings are convened whenever necessary. During the year, the Board met 12 times. Please refer ‘Board and Board Sub-Committee Meetings and Directors’ Attendance’ on pages 65 to 66 for the details of attendance at Board meetings held during the year.

A.1.2 Board’s responsibilities –

(i) Formulation and implementation of a sound business strategy.

(i) The Board of Directors is responsible for setting strategic objectives of the Company and for determining its operational policies and performance criteria. The Company’s strategic business plan covering the period up to 2019/20 as approved by the Board in June 2017 provides for overall risk management policy, procedures and mechanisms with measurable goals. Further, the Company is in the process of reviewing the aforesaid business plan vis-a-vis the performance of the Company and extending it up to 2022/23 with measurable goals.

(ii) CEO, Executive Directors and Senior Management team possess the skills, experience and knowledge.

(ii) The Executive Director, CEO and other Corporate/ Senior Management team possess extensive skills, knowledge, competencies and experience. The profiles of the Executive Director, CEO, Corporate Management and Senior Management are presented on pages 14 to 25.

(iii) CEO and Key Management Personnel (KMP) succession planning.

(iii) A Board approved Succession Plan for the Key Management Personnel of the Company is in place.

(iv) Implementing security and integrity of information, internal controls, business continuity and risk management.

(iv) The Board ensures that an effective system is in place to secure the integrity of information, internal controls and risk management. The Board Audit Committee on behalf of the Board monitor the integrity of financial information, the robustness of financial control and system of risk management of the Company.

(v) Ensuring compliance with laws, regulations and ethical standards.

(v) The Company has established an independent Compliance Function whose task is to monitor and assess the Company’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. The Compliance Officer reports to the Board Integrated Risk Management Committee.

(vi) Ensuring all stakeholder interests are considered in corporate decisions.

(vi) The Board considers the stakeholder interests in the decision making process.

(vii) Recognizing sustainable business development.

(vii) The Board recognizes the importance of sustainable development in corporate strategy and business development.


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(viii) Ensuring that the Company’s values and standards are set with emphasis on adopting appropriate accounting policies.

(viii) The Company’s accounting policies are reviewed annually so as to be current with new developments, changing business requirements and best practices in the industry. An affirmation that the Company’s financial statements are in line with the applicable standards is contained in the ‘Directors’ Statement on Internal Controls over Financial Reporting’ on page 104.

(ix) Fulfilling other Board functions is vital, given the scale, nature and the complexity of the organisation.

(ix) The Board has attempted to fulfill the obligations towards all stakeholders during the year under review.

A.1.3 Compliance with laws and access to independent professional advice.

The Board collectively and Directors individually, recognised their duty to comply with laws of the country. The Board of Directors ensures that procedures and processes are in place to ensure that the Company complies with all applicable laws and regulations. The Board has approved a procedure to seek independent professional advice by Directors at the expense of the Company.

A.1.4 All Directors should have access to the services and advice of the Company Secretary.

A Board approved policy is in place to enable all Directors to have access to the Company Secretaries. Directors are authorized to access the Company Secretaries to obtain advice and services as and when required on any matter relating to the Board procedures and all applicable rules and regulations.

A.1.5 Independent judgement of Directors. All Directors are responsible for bringing independent judgement on issues of strategy, performance, resources and standard of business conduct. Non-Executive Directors are responsible for providing independent judgement for the proposals made by the Management.

A.1.6 Every Director should dedicate adequate time and effort to the matters of the Board and the Company.

Every Director dedicated adequate time and effort to the meetings of the Board and Board Sub-Committee Meetings to ensure that the duties and responsibilities are satisfactorily discharged. The Company circulates Board papers and relevant information with adequate notice in order for them to review before the Board / Board Sub Committee meetings. The number of Board / Board Sub Committee meetings held and attendance is presented on page 66.

A.1.7 Every Director should receive appropriate training. Every Director was given appropriate induction when first appointed to the Board with regard to the affairs of the Company and laws and regulations applicable to the Company and subsequent training on latest trends and issues facing the Company and the industry in general.

A.2 Chairman and Chief Executive Officer –

The Company has established a clear division of responsibilities between the Chairman & CEO to ensure the balance of power and authority, in such a way that no individual has unfettered powers of decision. The Chairman is responsible for leading the Board effectively to discharge all responsibilities and CEO is responsible for management of the Company’s business operation with the assistance of corporate management.

A.2.1. If CEO and Chairman is one person justification in the Annual Report.

Since CEO’s and Chairman’s roles are segregated, a specific disclosure is not required.


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A.3 Chairman’s Role –

The Chairman is responsible for providing effective leadership to the Board in preserving sound Corporate Governance and facilitating effective discharge of Board functions.

A.3.1 Chairman’s role The extent of compliance with this requirement is disclosed on pages 63 to 64 under ‘Division of Responsibilities - Chairman and Chief Executive Officer (CEO)’

A.4 Financial Acumen –

The Board should ensure the availability of those with sufficient financial acumen and knowledge to offer guidance on matters of finance within the Board.

A.4.1 Financial Acumen The Board is comprised with sufficient number of Directors with financial acumen who provide guidance to the Board on matters relating to finance. Please refer ‘Board Composition and Balance’ on Page 63 and Pages 14 to 19 of the Annual Report for the profile of the Directors.

A.5 Board Balance –

Maintaining a balanced Board between Executive Directors and Non-Executive Directors is required as per the Code to ensure that no individual or small group of individuals can dominate the Board’s decision making. More than half of the Company Board members are Non-Executive Directors and each of them bring wide experience to the Board and ability to exercise independent judgement when taking informed decisions.

A.5.1 Board should include at least two Non- Executive Directors or one-third of total Directors, whichever is higher.


A.5.2 Two or one-third of Non- Executive Directors whichever is higher should be independent.

Complied with. The extent of compliance with this requirement is disclosed on page 63 under ‘Board Composition and Balance’

A.5.3 Evaluation of independence of Non- Executive Directors


A.5.4 Signed declaration of independence by the Non- Executive Directors

A.5.5 Determination of the independence and non-independence of each Non- Executive Directors annually.

A.5.6 Alternate Directors to meet the criteria for independence / Non-Executive status of the appointer.

No alternate Directors were appointed during the year under review.

A.5.7 Senior Independent Director (SID)A Senior Independent Director’s role was not required as the Chairman is an Independent Non-Executive Director.A.5.8 Confidential discussion with other Directors by the

Senior Independent Director.

A.5.9 Meetings held by the Chairman with Non-Executive Directors

The Chairman did not hold meetings with Non-Executive Directors.

A.5.10 Recording of concerns of Directors in Board minutes where they cannot be unanimously resolved.

There were no instances where the Directors could not unanimously resolve the matters and accordingly no such matters were recorded in the minutes.


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A.6 Supply of Information –

The Board should be provided with timely information in a comprehensive and timely manner to enable it to discharge its duties.

A.6.1 Management should provide timely information to the Board

Complied with. The extent of compliance with this requirement is disclosed on page 64 under ‘Board of Directors’ access to information’.A.6.2 Adequate time for effective Board meetings.

A.7 Appointments to the Board –

There should be a formal and transparent procedure for the appointment of new Directors to the Board.

A.7.1 Nomination Committee . During the year under review the Board Remuneration and Nomination Committee of the Company comprised the following Directors;

Mr. Dhammika H. Kalapuge

Mr. Mahinda Perera

Mr. B. Premalal

A.7.2 Assessment of Board composition by the Nomination Committee.

The Board Remuneration and Nomination Committee assesses Board composition to ascertain whether the experience and the exposure of the Board members are adequate to meet the strategic demands faced by the Company and satisfied with the current composition of the Board.

A.7.3 Disclosure requirements when appointing new Directors to the Board.

Details of new Directors are disclosed to shareholders when appointed with immediate notification to the Colombo Stock Exchange along with a brief resume of such Director.

A.8 Re Election –

All Directors should be required to submit themselves for re-election at regular intervals and at least once in every three years.

A.8.1 – A.8.2

Re-election of Directors. Complied with. The extent of compliance with this requirement is disclosed on page 67 under ‘Retirement and Re-appointment of Directors’.

A.9 Appraisal of Board Performance -

The Board should periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

A.9.1 - A.9.3 Appraisal of Board Performance.

Annual self-evaluation by the Board members and of its committees.

Disclosure of evaluation process.

The extent of compliance with this requirement is disclosed on page 67 under ‘Performance of the Board’.

A.10 Disclosure of information in respect of Directors

Shareholders should be kept advised of relevant details in respect of Directors.

A.10.1 Annual Report disclosure in respect of Directors (Name, Qualifications, etc.)

Profiles of the Board of Directors are given on pages 14 to 19.


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A.11 Appraisal of Chief Executive Officer (CEO)

The Board should require at least annually to assess the performance of the CEO.

A.11.1 Targets for CEO at the commencement of each fiscal year.

CEO’s performance targets are aligned with business strategies of the Company. Targets are set at the beginning of every financial year by the Board which is in line with the short, medium and long-term objectives of the Company.

A.11.2 Evaluation of the performance at the end of each fiscal year.

At the end of each financial year the Board evaluates the set targets and the actual performance.

B. DIRECTORS’ REMUNERATION

The Company has a well-established, formal and transparent procedure for executive remuneration and fixing the remuneration packages of individual Directors. The level of remuneration of both Executive and Non-Executive Directors is sufficient to attract and retain the Directors needed to manage the Company successfully.

B.1 Remuneration procedure

The Company has a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his / her remuneration.

B.1.1 Setting up of Remuneration Committee. The functions of the Committee include determination of compensation and benefits of the CEO and Executive Directors while ensuring no Director is involved in setting his/her own remuneration. Further, the Committee is responsible for deciding the overall remuneration structure of the Company.

B.1.2 Composition of Remuneration Committee. The Board Remuneration and Nomination Committee is comprised of Non-Executive Directors. Refer the Board Remuneration and Nomination Committee report on page 96.

B.1.3 Disclosure in the Annual Report about the Remuneration Committee members.

The Board Remuneration and Nomination Committee report is given on page 96.

B.1.4 Remuneration of Non-Executive Directors. The Board as a whole decides on the remuneration of the Non-Executive Directors. The Non-Executive Directors receive a fee for serving on the Board and its Sub-Committees.

B.1.5 Consultation of the Chairman / CEO and other Executive Directors and access to the professional advice.

The Terms of Reference of the Board Remuneration and Nomination Committee empowers it to seek appropriate professional advice inside and outside the Company as and when it is deemed necessary by the Committee.

B.2 The level and make up of remuneration

Level of remuneration of both Executive and Non-Executive Directors should be sufficient to attract and retain the Directors to run the Company successfully. A proportion of Executive Director’s remuneration should be structured to link rewards to corporate and individual performance.


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Section Reference


B.2.1 – B.2.9

Level and make up of remuneration of Executive Directors including performance element in pay structure.

(i) Remuneration packages in line with industry practices

(ii) Executive share option

(iii) Non Executive Directors’ remuneration

The Board Remuneration and Nomination Committee gives due consideration to the provisions of these sections and arrives at final recommendations as specified.

The Board Remuneration and Nomination Committee ensures that remuneration packages are in line with the industry practices.

The Company does not have an executive share option scheme.

The Non-Executive Directors receive a fee for attending meetings of the Board and additional fee whenever they serve on Board Sub-Committees.

B.3 Disclosure of Remuneration

Annual Report of the Company should contain a statement of remuneration policy and details of remuneration of the Board as a whole.

B.3.1 Disclosure in the Annual report about the

(a) Remuneration Committee members.

(b) Statement of remuneration policy.

(c) Aggregate remuneration paid.

Please refer the Board Remuneration and Nomination Committee report on page 96 and Note 47.2.1 to the financial statements.

C. RELATIONS WITH SHAREHOLDERS

The Company uses the Annual General Meeting to communicate with its shareholders and the Company focuses on open communication and fair disclosure, with emphasis on the integrity, timeliness and relevance of the information provided. Further during 2018/19, the Company had not engaged in or committed to any major and material transactions which affected the Company’s net asset base.

C.1 Constructive use of the Annual General Meeting (AGM) and Conduct of General Meetings.

Board should use the AGM to communicate with shareholders and should encourage their participation.

C.1.1 Use of proxy votes. The Company has recorded all proxy votes for each resolution prior to the general meeting.

C.1.2 Separate resolutions for separate issues. Separate resolutions are placed before shareholders for business transactions at the AGM.

C.1.3 Arrangement made by the Chairman of Board that all Chairmen of Sub-Committees make themselves available at the AGM.

All Directors including Board Sub-Committee Chairmen were available at the AGM.

C.1.4 Adequate notice for the AGM to the shareholders. Adequate notice is given to shareholders for the AGM.

C.1.5 Procedure of voting at general meeting. A summary of procedure relating to voting at General Meetings is set out in the Notice of Meeting itself sent to each shareholder.

C.2 Communication with Shareholders

The Board should implement effective communication with shareholders.

C.2.1 Channel to reach all shareholders to disseminate timely information.

The Board approved communication policy addresses this matter.


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C.2.2 Policy and methodology of communicating. The Annual General Meeting of the Company is the main forum where the Board maintains effective communication with the shareholders. Hence all shareholders are encouraged to participate at the AGM. Further, the Company’s website, corporate disclosures and other news releases to the Colombo Stock Exchange function as additional communication channels.

C.2.3 Implementation of the methodology. The Communication Policy of the Company provides for the manner of implementation thereof and points of responsibility for the same.

C.2.4 Contact person in relation to communications. Contact persons for communications with different stakeholders of the Company are specified in the Communication Policy.

C.2.5 Awareness of Directors on major issues and concerns of shareholders.

The Company Secretaries maintain records of all correspondence received from shareholders and direct the same to appropriate channels for resolution.

C.2.6 Contact person in relation to shareholders’ matters.

The Company Secretaries can be contacted for any queries of shareholders.

C.2.7 Process for responding to shareholders. The disclosure on principle C.2.5 address the same.

C.3 Major and material transactions

Directors should disclose all proposed corporate transactions which would materially alter the net asset base of the Company.

C.3.1 Disclosure of major and material transactions. The Company did not enter into any major transactions during the year.

D. ACCOUNTABILITY AND AUDIT

The Company Board has presented a balanced and understandable assessment of the Company’s financial position, performance and prospects during 2018/19. The Board has established a sound framework of risk management and internal control. The Company has developed a Policy on Code of Conduct & Ethics applicable to all employees and has addressed conflicts of interest, financial irregularities, IT system password control, entertainment, gifts and confidentiality.

D.1 Financial Reporting

The Board should present a balanced and an understandable assessment of the Company’s financial position and prospects.

D.1.1 The Board should present interim and other price sensitive information to the public and reports to regulators.

The Board is well aware of its responsibility to present balanced & understandable financial statements in compliance with statutory & regulatory requirements. In the preparation of quarterly and annual financial statements, the Company has complied with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011 and presented in conformity with Sri Lanka Financial Reporting Standards and comply with the reporting requirements prescribed by the regulatory authorities such as the Central Bank of Sri Lanka and Colombo Stock Exchange.

D.1.2 Directors’ Report in the Annual Report. Refer the ‘Annual Report of the Board of Directors on the Affairs of the Company’ on pages 97 to 103.

D.1.3 Annual Report disclosure stating Board’s and Auditors’ responsibility.

The Statement of Directors’ responsibility for the preparation and presentation of financial statements is disclosed in the ‘Statement of Directors’ Responsibilities for Financial Reporting’ on page 106 and the Auditors’ responsibility over Financial Statements is set out in the ‘Independent Auditors’ Report’ on pages 108 to 111.


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Section Reference


D.1.4 Management discussion and analysis. Capital Management section on pages 35 to 53 cover this part.

D.1.5 Directors’ assumption of the going concern of the business.

Refer the ‘Annual Report of the Board of Directors on the Affairs of the Company’ on pages 97 to 103

D.1.6 Serious loss of Capital. This situation has not arisen during the year and the likelihood of such a situation is remote.

D.1.7 Disclosure of related party transactions. Refer the Note 47 to the Audited Financial Statements and ‘Annual Report of the Board of Directors on the Affairs of the Company’ on pages 97 to 103

D.2 Internal control

The Board should maintain a sound system of internal control to safeguard shareholders’ investments and Company assets.

D.2.1 Evaluation of internal controls by the Board. The adequacy and the integrity of the Company’s internal control system are reviewed by the Board Audit Committee through internal audit reports and system reviews.

D.2.2 Internal Audit function. Part of the Company’s internal audit function is outsourced and carried out by BDO Partners, Chartered Accountants, Charter House, 65/2, Sir Chittampalam A Gardiner Mw, Colombo - 02 and the audit reports were discussed at the Audit Committee meetings. Based on the findings, appropriate recommendations / actions were made/taken.

D.2.3 Evaluation of the process and effectiveness of risk management and internal controls.

The Internal Audit Division regularly reviews and reports to the Board Audit Committee on Risk Management measures and internal control system. The Board Audit Committee on behalf of the Board monitors and takes corrective action where necessary on the said controls and risk management measures.

D.2.4 Responsibilities of Directors in maintaining a sound system of internal control and statement of internal control.

Directors’ responsibility for maintaining a sound system of internal control is given in the ‘Directors Statement on Internal Controls over Financial Reporting’ on page 104.

D.3 Audit Committee

The Board should establish formal and transparent arrangements for considering how they should select and apply accounting policies, financial reporting and internal control principles and maintain an appropriate relationship with the Company’s Auditors.

D.3.1 Composition of the Audit Committee. The Board Audit Committee is comprised of three Non-Executive Directors and two of them are Independent Non-Executive Directors and hence complied with the requirements.

D.3.2 Reviewing the scope and results of the audit and its effectiveness and independence and objectivity of the Auditors.

Complied with. The extent of compliance with this requirement is disclosed on pages 92 to 93 under ‘Board Audit Committee Report’.

D.3.3 Terms of reference of the Audit Committee. The Board Audit Committee is guided by the Terms of Reference approved by the Board which outlines its authority and responsibility.

D.3.4 Disclosure made in the Annual Report about the Audit Committee.

Refer the Board Audit Committee Report on pages 92 to 93.


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D.4 Code of Business Conduct and Ethics

The Company must adopt a Code of Business Conduct and Ethics for Directors and members of the Senior Management team. Any non-compliance with the said Code should be promptly disclosed.

D.4.1 Code of business conduct and ethics. The Company has developed a Code of Business Conduct for all staff members, which addresses conflict of interest, receiving gifts or any other benefit, accurate accounting and record keeping, corporate opportunities, confidentiality of information, fair dealing, protection and proper use of the Company’s assets and compliance with applicable laws and regulations including insider trading laws and encouraging the reporting of any illegal or unethical behavior. The code of business conduct and ethics have been adhered to in all respects by the Directors and Key Management Personnel.

D.4.2 Chairman’s confirmations for any violation of code of conduct and ethics.

The Chairman confirms that he is not aware of any material violations of the Code of Conduct.

D.5 Corporate Governance Disclosures

The Board should include this in the Annual Report setting out the manner and extent for it to be complied.

D.5.1 Disclosure of corporate governance compliance. This requirement is met through presentation of this Corporate Governance Report.

E. INSTITUTIONAL INVESTORS

The Board has encouraged the institutional shareholders to make considered use of their votes, ensure that their voting intentions are translated into practice and to give due weightage to all relevant factors drawn to their attention when evaluating the Governance arrangements of the Company.

E.1 Shareholder Voting

Institutional shareholders are required to make considered use of their votes and encouraged to ensure that their voting intentions are translated into practice.

E.1.1 Regular dialogue to be maintained with shareholders and Chairman to communicate shareholders views to the Board.

The Annual General Meeting is used for effective dialogue with the shareholders on matters which are relevant and of concern to the general membership. The Chairman communicates the views and queries of the shareholders to the Board and Senior Management in order to ensure that the views are properly communicated and acted upon.

E.2 Evaluation of Governance Disclosure

Institutional investors are encouraged to give due weight to all relevant factors in the Board structure and composition.

F. OTHER INVESTORS

The Company has encouraged individual shareholders to carry out adequate analysis or obtain independent advice in investing and divesting decisions and to participate and exercise their voting rights at the General Meeting.

F.1 Investing / Divesting Decisions

The Code requires individual shareholders to carry out adequate analysis or obtain independent advice in investing and divesting decisions.

F.1 Individual shareholders’ investment decisions. Individual shareholders are encouraged to carry out adequate analysis or seek independent advice on investing or divesting decisions.


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F.2 Shareholder Voting

Individual shareholders should be encouraged to participate and exercise their voting rights in General Meetings.

F.2 Individual shareholder voting. Individual shareholders are encouraged to participate at General Meetings and exercise their voting rights. The Company adequately communicates with all shareholders by ensuring that they are duly informed by dispatching necessary Notices.

G. SUSTAINABILITY REPORTING

The Company has created long term stakeholder value by embracing opportunities, managing risks and impact on business activities from economic, environmental and social developments through sustainability reporting.

G.1 Principles of Sustainability Reporting

Sustainability is a business approach that creates long-term stakeholder value by embracing opportunities, managing risks derived from economic, environmental and social developments and their potential implications and impacts on the business activities of the entity. Sustainability reporting is the practice of recognizing, measuring, disclosing and being accountable to all stakeholders for organisational performance towards the goals of sustainable development in the context of the overall business activities and strategy of the entity. Hence, the Code requires to maintain policies and procedures to develop a sustainable business environment and make adequate disclosures on sustainability.

G.1.1 Economic Sustainability Refer Pages 36 to 38 to the Annual Report

G.1.2 The Environment Refer Pages 52 to 53 to the Annual Report

G.1.3 Labour Practice Refer Pages 44 to 47 to the Annual Report

G.1.4 Society Refer Pages 48 to 51 to the Annual Report

G.1.5 Product Responsibility Refer Page 34 to the Annual Report

G.1.6 Stakeholder identification, engagement and effective communication

Refer Pages 27 to 29 to the Annual Report

G.1.7 Sustainable reporting and disclosure should be formalized.

Refer Pages 35 to 53 to the Annual Report


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BoarD auDit Committee report

COMPOSITION OF THE COMMITTEE

The Committee appointed by the Board of Directors of the Prime Finance PLC exclusively comprises three Non-Executive Directors. The following members served in the Committee during the twelve-month period ended 31 March 2019;

� Mr. H.M. Hennayake Bandara - Chairman (Independent Non-Executive Director)

� Mr. M.D.S. Mangala Goonatilleke - Member (Independent Non-Executive Director)

� Mr. P.A.W. Perera - Member (Non-Independent Non-Executive Director)

The Company Secretaries function as the Secretary to the Committee. The Chairman of the Committee is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and of the Certified Management Accountants of Sri Lanka and counts over 20 years of experience in the financial service sector.

Brief profiles of the members are given on pages 14 to 19 of the Annual Report.

AUTHORITY

The Terms of Reference of the Committee clearly defines the mandate and role of the Committee. The Committee has explicit authority to investigate into any matter including full access to information and authority to obtain external professional advices at the Company’s cost. The Committee is responsible to the Board of Directors and reports on its activities regularly. The Committee assists the Board of Directors in discharging its general oversight responsibilities for financial reporting, internal controls, internal and external audits.

COMMITTEE MEETINGS

The Committee meets regularly. Eight meetings were held during the year under review to discuss the matters coming under their preview. Attendance of the

Committee members are given on page 66 on the Annual Report. The proceedings of the meetings are adequately recorded and the approved Minutes of the Committee meetings are regularly tabled at Board meetings.

The Chief Executive Officer, Chief Operating Officer, AGM Finance and Head of Risk and Compliance and any other Key Management Personnel attend meetings by invitation. The Committee held two confidential meetings with the External Auditor during the year without the presence of Executive Management to discuss the progress and conclusion of the audit.

SUMMARY OF ACTIVITIES IN 2018/2019

Financial Reporting

The Committee as a part of its responsibility to oversee the Company’s financial reporting process on behalf of the Board of Directors, has reviewed and discussed the Interim Financial Statements with the Management and the Annual Financial Statements with the Management and the External Auditors prior to their release. The review included;

a) The underlying assumptions for estimates and judgements

b) Any changes in accounting policies and practices

c) Significant adjustments arising from the audit

d) Disclosures made under financial reporting

e) The going concern assumption, and

f) Compliance with Sri Lanka Accounting Standards (SLFRSs / LKASs) and other regulatory provisions.

Progress of Implementation of SLFRS 9

The Committee continuously monitored the progress of implementation of SLFRS 9 as per the requirements of Sri Lanka Accounting Standards on ‘Financial Instruments’ (SLFRS 9) that became

effective in the preparation of Financial Statements from January 1, 2018.

Internal Controls and Risk Management

The Committee regularly reviews the effectiveness of the Company’s internal controls through review and follow-up of the internal and external audit reports including Management Letter of External Auditors and Onsite Inspection Reports of Central Bank of Sri Lanka. The review includes the effectiveness of the internal controls such as financial, operations, compliance and information technology controls and as well as accounting policies and systems. The Committee also regularly reviews the Internal Control Procedures in place to ensure that necessary control and mitigating measures are available in respect of identified new risks.

Internal Audit

The Committee ensures 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 reviews the adequacy of the scope, functions, resources and effectiveness of the internal audit function in the context of overall risk management. The internal audit plan for 2018/19 was approved by the Committee covering all significant operational areas and the Committee periodically reviewed the progress of the Internal Audit plan.

The Committee with the concurrence of the Board of Directors, engaged the services of BDO Partners, Chartered Accountants to supplement the Company’s Internal Audit function for the period ended 31 March 2019. The Committee reviewed the Internal Audit Reports including the evaluations of the Company’s Internal Control Systems consideration of findings, recommendations and corrective action taken by the Management to mitigate recurrence of issues identified with a view of managing significant risks and improving controls.


93

External Audit

The Committee reviewed and monitored the External Auditors’ independence and objectivity and the effectiveness of the audit process, by considering the relevant professional and regulatory requirements. Board approved policy for the recommendation of the Committee on External Auditors Independence is in place.

The Committee discussed with the Auditors their audit plan, scope and the methodology they propose to adopt in conducting the annual audit prior to its commencement. The Committee had confidential meetings with the Auditors in order to provide the opportunity to discuss the issues, problems or any other matters arising from audits that may need to be discussed in the absence of Executive Management. The Committee also reviewed the Management Letter issued by the External Auditor and the management responses thereto.

The Committee has recommended to the Board of Directors that Messrs. Ernst & Young (Chartered Accountants) be reappointed as External Auditors of the Company for the financial year ending 31 March 2020 subject to the approval of the shareholders at the next Annual General Meeting.

On behalf of the Audit Committee,

H.M. Hennayake BandaraChairman / Board Audit Committee

25 June 2019


94

BoarD inteGrateD risk manaGement Committee report

The Board Integrated Risk Management Committee (‘the Committee’) is a Sub-Committee of the Board of Directors in conformity with Section 8 (3) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008. The Committee assists the Board of Directors in fulfilling its oversight responsibilities for all aspects of Risk Management by reviewing risks such as Credit, Market, Liquidity, Operational and Strategic risks through appropriate risk indicators and management information.

The Composition and Meetings

Members

The Committee comprises of seven members including three Non-Executive Directors as follows,

� Mr. Mahinda Perera – Chairman of the Committee (Non-Executive Director)

� Mr. H M Hennayake Bandara – Member (Independent Non-Executive Director)

� Mr. M. D. S. Mangala Goonatilleke – Member (Independent Non-Executive Director)

� Mr. Rasika Kaluarachchi – Chief Executive Officer

� Mr. Samantha Fernando – Chief Operating Officer

� Mr. Manjula Tennakoon – Assistant General Manager (Finance)

� Mr. Mahadevan Suthakar – Head of Risk & Compliance / Compliance Officer.

Ms. Madusha Siriwardana, Senior Executive – Risk & Compliance functioned as the Secretary to the Committee.

Brief profiles of the members are given on pages 14 to 22 of the Annual Report.

Meetings

During the year under review, the Committee held four (04) meetings on a quarterly basis and one additional meeting specifically to discuss and recommend the Asset and Liability Management Policy Framework and Contingency Funding Plan. The proceedings of the Committee meetings are reported to the Board of Directors.

Activities in 2018/19

The Committee focused on the following activities during the year under review,

(a) Assessed all broad risk categories such as Credit, Market, Liquidity, Operational, Strategic and Regulatory risks of the Company through appropriate risk indicators.

(b) Reviewed the Risk Appetite limits and periodic monitoring of risk reports.

(c) Assessed whether the processes are in place to maintain risks within the parameters.

(d) Reviewed the Credit Quality including Delinquency Monitoring and Credit Concentration.

(e) Reviewed the Capital Adequacy and the Balance Sheet Structure of the Company.

(f) Reviewed the progress on Operational risk throughout the Company.

(g) Reviewed quarterly the outcome on the Stress Tests results on Liquidity and Interest Rates.

(h) Reviewed and recommended to the Board on Asset and Liability Management Policy Framework and Contingency Funding Plan.

(i) Reviewed the Company’s compliance with laws, directions / regulations and rules issued by the Central Bank of Sri Lanka.

(j) Reviewed the Anti-Money Laundering (AML) and Combatting Terrorist Financing (CTF) compliance status based on the reports submitted by the Compliance Officer

(k) Reviewed and improved the Terms of Reference of the Asset and Liability Committee (ALCO) and Credit Committee.

On behalf of the Board Integrated Risk Management Committee,

Mahinda PereraChairman

25 June 2019


95

BoarD relateD party transaCtions review Committee report

The Board Related Party Transactions Review Committee (‘the Committee’) comprises three Non-Executive Directors appointed by the Board of Directors in conformity with Section – 9 of the Listing Rules of the Colombo Stock Exchange. The Committee is responsible to the Board of Directors in ensuring that the interest of shareholders as a whole are taken into consideration by the Company when entering into transactions with Related Parties.

The following Directors whose profiles are given on pages 14 to 19 of the Annual Report, served on the Committee throughout the year under review,

� Mr. M.D.S. Mangala Goonatilleke – Chairman of the Committee (Independent Non-Executive Director)

� Mr. Dhammika H. Kalapuge – Member (Independent Non-Executive Director)

� Mr. Mahinda Perera – Member (Non-Executive Director)

The Confidential Secretary of the CEO functions as the Secretary to the Committee. The Chief Executive Officer, Chief Operating Officer, AGM Finance and Head of Risk and Compliance attend meetings by invitation.

Meetings

The Committee met four times during the year under review. Attendance of the members at each of these meetings is given in the table on page 66 of this Annual Report. The Minutes of the Committee meetings are tabled at Board meetings enabling all members of the Board to have access to same.

Scope of the Committee

The Committee adopted as its scope and tasks specified in Rule – 9 of the Listing Rules of the Colombo Stock Exchange which includes,

(a) Reviewing in advance all proposed Related Party Transactions of the Company except those explicitly exempted by Rule 9.5 of the Listing Rules of the Colombo Stock Exchange.

(b) Advising the Board to convene a shareholder’s meeting and to obtain shareholder approval by way of a special resolution as and when mandatorily required in terms of Rule 9.1 of the Listing Rules of the Colombo Stock Exchange.

(c) Oversees the implementation of the system for identifying, monitoring, and reporting Related Party Transactions, including a periodic review of the Related Party Transactions Policy.

(d) Ensuring that every Related Party Transaction is conducted in a manner that will protect the Company from Conflict of Interest which may arise between the Company and its Related Parties.

(e) Ensuring that immediate market disclosures and disclosures in the Annual report as required by the Listing Rules of the Colombo Stock Exchange are made in a timely manner.

(f) Performs other activities which the Committee deems appropriate as necessary for the performance of its duties and other responsibilities which the Board may assign to the Committee from time to time.

Key Focus Areas in 2018/19

The Committee reviewed the Related Party Transactions entered into and between Related Parties of the Company during the year under review. Details of Related Party Transactions are disclosed under Note 47 on pages 168 to 170 of the Financial Statements.

Declaration

The Declaration by the Board of Directors on the compliance with the Listing Rules of the Colombo on Related Party Transaction is contained in the Annual Report of the Board of Directors on the Affairs of the Company on page 102 of the Annual Report.

On behalf of the Related Party Transactions Review Committee,

M.D.S. Mangala GoonatillekeChairman / Related Party Transactions Review Committee

25 June 2019


96

BoarD remuneration anD nomination Committee report

The Board Remuneration Committee was reconstituted as the Board Remuneration and Nomination Committee (‘the Committee’) by the Board of Directors with effect from 1 April, 2018 and the terms of reference of the Committee was reviewed and approved. The roles and responsibilities of the Committee are in line with the Listing Rules of the Colombo Stock Exchange and the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. The Committee assists the Board of Directors in fulfilling its oversight responsibility on,

(a) the compensation and benefits granted to the Directors, Chief Executive Officer and Key Management Personnel of the Company;

(b) conducting a rigorous and transparent process when making or renewing appointments of Directors to the Board; and

(c) reviewing the structure, size, composition and competencies of the Board and make recommendations to the Board with regard to any changes required.

The Composition

The Committee comprises of three Non-Executive Directors as follows,

� Mr. Dhammika H. Kalapuge – Chairman of the Committee (Independent Non-Executive Director)

� Mr. Mahinda Perera – Member (Non-Executive Director)

� Mr. B. Premalal – Member (Non-Executive Director)

Brief profiles of the members are given on pages 14 to 19 of the Annual Report. The Confidential Secretary of the CEO functions as the Secretary to the Committee.

The Executive Director and Chief Executive Officer attended meetings by invitation and participated in its deliberations except when their own evaluation and remuneration was under discussion. The proceedings of the Committee were duly reported to the Board.

Meetings

During the financial year ended 31 March, 2019, five meetings were held. The attendance of the members is given on pages 66 of the Annual Report.

Remuneration Policy and Reward Strategy

A primary objective of the Remuneration Policy of the Company is to attract and retain staff with required qualification and experience and reward their performance commensurate with each employee’s skills, experience and level of responsibility, taking into consideration business performance and long term shareholder return.

Directors Remuneration

The total of Directors’ emoluments paid during the year under review is set out in Note 47 to the Financial Statements.

Role and Responsibilities

The Role and Responsibilities of the Committee includes,

(a) Make recommendation to the Board for the appointment and re-appointment of Directors to the Board;

(b) Regularly review the structure, size and composition of the Board to ensure it has an appropriate balance of skills, diversity, experience, knowledge and independence, and make recommendations to the Board with regard to any changes required.

(c) Recommend / propose the remuneration policies relating to Directors, Chief Executive Officer and Key Management Personnel of the Company.

(d) Evaluate the performance of the CEO and other Key Management Personnel against set targets and goals and propose the basis for revising remuneration, benefits and other performance based incentives.

(e) Recruitment of staff at Senior Management Level is also considered and recommended based on proposals submitted by the CEO following a formal process of evaluation.

(f) Recommendation of annual increments and performance incentives for CEO and Key Management Personnel.

(g) Consider the succession plan for the Chairman of the Board and Board Sub-Committees, Chief Executive Officer and ensure that there’s a succession plan for all Key Management Personnel.

On Behalf of the Remuneration and Nomination Committee,

Dhammika H. KalapugeChairman/ Remuneration and Nomination Committee

25 June 2019


97

annual report of the BoarD of DireCtors on the affairs of the Company

01. GENERAL

The Board of Directors of Prime Finance PLC has pleasure in presenting its Annual Report on the State of Affairs of the Company to the members of Prime Finance PLC for the Financial Year ended 31 March, 2019 together with the Audited Financial Statements of the Company and the Auditors’ Report on those Financial Statements, conforming to all statutory requirements. The Audited Financial Statements reviewed and recommended by the Board Audit Committee were approved by the Board of Directors on 25 June, 2019. The Annual Report of the Board of Directors on the Affairs of the Company was also approved by the Board of Directors.

This Report includes the information as required by the Companies Act No. 07 of 2007, Finance Business Act 42 of 2011 and the Directions issued thereunder, the Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance.

02. LEGAL FORM

Prime Finance PLC (the Company) is a Public Limited Liability Company incorporated in Sri Lanka on 10 September, 2004 under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of 2007 bearing Registration No. PB 351 PQ and a licensed Finance Company under the Finance Business Act 42 of 2011. The Ordinary Shares of the Company are listed on the Diri Savi board of the Colombo Stock Exchange since 12th September, 2012.

03. LOCATION

The Company’s Registered Office which is also its Head Office, is located at No. 61, D.S. Senanayake Mawatha, Colombo – 08.

04. PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS

The Company’s principal business activities, which remained unchanged during the year are accepting of deposits, granting of lease facilities, mortgage loans, other credit facilities, real estate development and other related services.

05. REVIEW OF PERFORMANCE AND FUTURE DEVELOPMENT PLAN

The Chairman’s Review (pages 10 to 11), Group Chairman’s Message (pages 8 to 9), Chief Executive Officer’s Review (pages 12 to 13) and the Operations Review (pages 30 to 34) provide a comprehensive analysis of the Company’s affairs together with the important events that took place during the year under review and future development plans. The Financial Capital on pages 36 to 38 elaborates the financial results of the Company. These reports form an integral part of the Annual Report of the Board of Directors.

06. FINANCIAL STATEMENTS

The Financial Statements of the Company has been prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs and LKASs) laid down by the Institute of Chartered Accountants of Sri Lanka, and comply with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011 and regulatory requirements inclusive of specific disclosures.

These Financial Statements of the Company for the year ended 31 March, 2019 duly certified by the Assistant General Manager – Finance and Chief Executive Officer have been approved by the Board of Directors and signed on behalf of the Board by two Directors in accordance with the Companies Act No. 7 of 2007. The Financial Statements of the Company are given on pages 108 to 183 and form an integral part of the Annual Report of the Board of Directors.

07. DIRECTORS RESPONSIBILITY OVER FINANCIAL REPORTING

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of its state of affairs. The Directors are of the view that these Financial Statements appearing on pages 112 to 183 have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock Exchange. The Statement of Directors’ responsibility over Financial Reporting is given on page 106 and forms an integral part of the Annual Report of the Board of Directors.

08. DIRECTORS STATEMENT OF INTERNAL CONTROL

The Board of Directors has issued a report on the internal control mechanism of the Company in terms of Section 10 (2) (b) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008. The Board has confirmed that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of the financial reporting,


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ANNuAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY

and the preparation of the Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. The above report which forms an integral part of the Report of the Board of Directors is given on page 104 of the Annual Report.

09. INDEPENDENT AUDITOR’S REPORT

The Auditors of the Company are Messrs. Ernst & Young, Chartered Accountants. Messrs. Ernst & Young carried out the audit on the Financial Statements of the Company for the year ended 31 March, 2019 and their report on those Financial Statements, as required by Section 168(1)(c) of the Companies Act is given on pages 108 to 111.

10. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of the Financial Statements are given on the pages 118 to 134 of the Annual Report.

11. FINANCIAL PERFORMANCE

11.1 Income

Gross income of the Company for the year ended 31 March, 2019 was Rs. 1,100,822,139/- whilst for the year ended 31 March, 2018, it was Rs. 532,771,161/-.

11.2 Profit and Appropriations

The Company’s Profit before Taxation amounted to Rs. 272,037,349/- (after deducting VAT, NBT and Debt Repayment Levy on Financial Services of Rs. 56,214,302/-) in comparison to Rs. 27,123,586/ - in 2017/2018. After deducting Rs. 93,391,867/-

(Rs. 14,032,874/- in 2017/2018) for Taxation, the Profit after Tax for the year amounted to Rs. 178,645,483/- (Rs. 13,090,713/- in 2017/2018). This represents Profit after tax growth by 1265% compared to the previous financial year. Details are given in the Statement of Comprehensive Income on page 114 of the Financial Statements. A detailed breakup of the profits and appropriations of the Company is given below,

Description 2018/2019 2017/2018

Rs. Rs.

Profit before Taxation from Operations 272,037,347 27,123,587

Provision for Income Tax (93,391,864) (14,032,874)

Profit for the Year 178,645,483 13,090,713

Transfer to Statutory Reserve Fund (8,932,274) (654,536)

Retained Profit Brought Forward From the Previous Year 95,883,622 83,402,419

Other Comprehensive Income Net of Tax 351,493 45,025

Retained Earnings Carried Forward 230,655,884 95,883,622

11.3 Total Operating Income

The Total Operating Income of the Company for 2018/2019 was Rs. 692,877,905/- compared to Rs. 323,321,022 /- in 2017/2018. An analysis of the income is given in Notes 8 to 11 of the Financial Statements.

12. EQUITY AND RESERVES

The Equity and Reserves of the Company as at 31 March, 2019 and as at 31 March 2018 are as follows,

31 March 31 March

Description 2019 2018

Rs. Rs.

Stated Capital * 1,372,500,000 508,500,000

Retained Earnings 230,655,884 95,883,622

Statutory Reserves 17,623,480 8,691,205

Total Shareholders’ Funds 1,620,779,363 613,074,827

* The increase in Stated Capital is due to issue and allotment of 43,200,000 new ordinary shares (for cash consideration) by way of a Rights Issue (offered to the existing holders in the proportion of Six (06) ordinary share for every Five (05) existing ordinary shares held in the Capital of the Company) at a consideration of Rupees Twenty (Rs.20/-) per share amounting to a total consideration of Rupees Eight Hundred and Sixty-Four Million (Rs. 864,000,000/-) with the approval of Shareholders at an Extraordinary General Meeting held on 18 June, 2018.

Continuous disclosure regarding status of utilization of funds raised via Rights Issue (Rights Issue Proceeds utilization) as at 31.03.2019 (Listed on 26 July, 2018) is disclosed in page 189 to the Annual Report.


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13. DIVIDENDS

No dividends were paid during the year ended 31 March 2019 and no dividends are proposed for distribution from and out of the Profits for the year ended 31 March 2019.

14. SHARE INFORMATION

Information relating to earnings, dividends and net asset value per share is given in the Financial Highlights on page 6. Information of the trading of the shares and movement in the number of shares of the Company is given in the Investor Information section on pages 185 to 191.

15. SHAREHOLDING

There were 928 registered ordinary shareholders as at 31 March, 2019 (31 March 2018: 891). The Company’s parent Company, Prime Lands (Private) Limited, is the major shareholder, with a total of 74,926,029 ordinary shares amounting to 94.6% of the issued share capital of the Company at the Statement of Financial Position date. Information on the distribution of shareholding and the respective percentages are given on pages 185 and 186 of the Annual Report. Details of top twenty shareholders, percentages of their holding, public shareholding and number of public shareholders are given in the Investor Information section on pages 187 to 188. The Company has at all times ensured that all shareholders are treated equitably.

16. CAPITAL EXPENDITURE

The total capital expenditure on acquisition of property, plant and equipment and intangible assets of the Company amounted to Rs. 13,262,158/- (2017/18

Rs. 20,690,895/-). Details are given in Notes 29 and 30 to the Audited Financial Statements.

17. THE BOARD OF DIRECTORS

The Board of Directors of the Company comprises of eight Directors with proven experience in the fields of financial, law, marketing, human resources, sector specific and general business skills and with many years of experience in leading businesses. Their brief profiles are given on pages 14 to 19 of the Annual Report. The names of the Directors of the Company during the period 1 March, 2018 to 31 March, 2019 (held office as at the end of the financial year) including dates of appointment to the Board, are tabulated below in terms of Section 168 (1) (h) of the Companies Act No. 07 of 2007. Further, the categorization of Executive and Non-Executive, Independent and Non-Independent as at 31 March, 2019 is given against their names as per Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka.

Name of the Director Date of Appointment to the Board

Executive / Non-Executive

Independent / Non Independent

Mr. M. D. S. M. Goonetilleke 6 Feb, 2017 Non-Executive Independent

Ms. H. K. S. R. Perera 6 Feb, 2017 Executive Non Independent

Mr. B. Premalal 7 Feb, 2017 Non-Executive Non Independent

Mr. M. Perera 7 Feb, 2017 Non-Executive Non Independent *

Mr. D. H. Kalapuge 7 Feb, 2017 Non-Executive Independent

Mr. N. A. Wickramage 7 Feb, 2017 Non-Executive Non Independent **

Mr. P. A. W. Perera 3 Mar, 2017 Non-Executive Non Independent

Mr. H. M. H. Bandara 3 Mar, 2017 Non-Executive Independent

* Mr. Mahinda Perera is an Independent Director in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange and Section A.5.5 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka but is classified as Non-Independent in terms of Finance Companies (Corporate Governance) Direction No.03 of 2008.

** Mr. Nandana Wickramage became an Independent Director in terms of Section 4 (4) of the Finance Companies (Corporate Governance) Direction No.03 of 2008, Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange and Section A.5.5 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka with his cessation from the Boards of Prime Lands (Pvt.) Limited and Prime Lands Residences (Pvt.) Limited w.e.f 20 January 2018. Further, the approval from the Central Bank of Sri Lanka is obtained for the change of designation in terms of Finance Companies (Structural Changes) Direction No. 03 of 2013 and Mr. Nandana Wickramage became an Independent Director w.e.f. 21 June 2019.

No alternate directors were appointed during the year 2018/19.


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18. RETIREMENT / CESSATION AND NEW APPOINTMENT OF DIRECTORS

Ms. Konganeege Dinusha Suraji Fernando and Mr. Ruminda Randeniya were appointed to the Board in the capacity of Executive Directors of the Company w.e.f. 21 June, 2019. The approval of the Central Bank of Sri Lanka has been obtained for both appointments in terms of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 03 of 2011. No Directors of the Company has retired / ceased during the year under review.

19. RE – ELECTION OF DIRECTORS

In terms of Section A.8 of the Code of Best Practice on Corporate Governance 2013, the following Directors will retire at the Annual General Meeting and being eligible, offer themselves for re-election with the unanimous support of the Board of Directors on the recommendation of the Remuneration and Nomination Committee.

(a) Mr. M. Perera

(b) Mr. B. Premalal

(c) Mr. D. H. Kalapuge

Further, in conformity with Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008, the following Directors who were appointed with effect from 21 June 2019 also retires at the Annual General Meeting and being eligible, offers themselves for election with the unanimous support of the Board of Directors on the recommendation of the Board Remuneration and Nomination Committee.

(a) Ms. K. D. S. Fernando

(b) Mr. R. Randeniya

The Board of Directors endorsed the recommendation of the Board Remuneration and Nomination Committee on the above re-election and election of Directors. All Directors nominated for re-election and election have submitted declarations and affidavits in terms of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive functions) Direction No.3 of 2011 issued by the Central Bank of Sri Lanka.

20. OTHER DIIRECTORSHIPS OF DIRECTORS

Information on other directorship of the present directors of the Company as at 31 March 2019 are tabulated below,

Name of the Director Name of the Entity

Mr. M. D. S. M. Goonetilleke - Colombo Land & Development Company PLC

- Douglas & Sons (Pvt.) Ltd.

- DSL Lanka (Pvt.) Ltd.

- G.C.Roche & Co (Pvt.) Ltd.

- Inter Ocean Automibles (Pvt.) Ltd.

Ms. H. K. S. R. Perera - Prime Lands (Pvt.) Ltd.

- Prime Lands Residencies (Pvt.) Ltd.

- Bhoomi Realty Holdings ( Pvt.) Ltd.

Mr. B. Premalal - Prime Lands (Pvt.) Ltd.

- Prime Lands Residencies (Pvt.) Ltd.

- HNB Finance Ltd.

- Condominium Management Authority of Sri Lanka

- Bhoomi Realty Holdings (Pvt.) Ltd

Mr. M. Perera - Centre for Humanitarian Assistance (Gte) Company Ltd. (Cha.)

- Pele Consulting (Pvt.) Ltd.

- HNB Finance Limited

- Pet Packaging (Pvt.) Ltd.

- R S M Property (Pvt.) Ltd.

- Fairfield International Holdings (Pvt.) Ltd.

- Eastgate Properties (Pvt.) Ltd.

- My Beverages Marketing (Pvt.) Ltd.

- Inout Enterprise (Pvt.) Ltd.

Mr. D. H. Kalapuge - SIPCOM-1 (Pvt.) Ltd


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Name of the Director Name of the Entity

Mr. N. A. Wickramage Nil

Mr. P. A. W. Perera Nil

Mr. H. M. H. Bandara - National Wealth Corporation Ltd

- Natwealth Securities Ltd

- K Seeds Investments (Pvt.) Ltd

- Institute of Certified Management Accountants of Sri Lanka

- Association of Professional Bankers of Sri Lanka

- Organization of Professional Associations of Sri Lanka

- Institute of Chartered Professional Managers

21. BOARD SUB COMMTTEES

The Board in compliance with Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange formed four mandatory Board Sub-Committees namely, Board Audit Committee, Board Integrated Risk Management Committee, Board Remuneration and Nomination Committee and Board Related Party Transactions Review Committee. The Composition of these four Sub-Committees as at 31 March, 2019 are as follows,

Name of the Director Board Audit Committee

Board Integrated Risk Management

Committee

Board Remuneration

and Nomination Committee

Board Related Party Transactions Review Committee

Mr. M. D. S. M. Goonetilleke Member Member Chairman

Ms. H. K. S. R. Perera

Mr. B. Premalal Member

Mr. M. Perera Chairman Member Member

Mr. D. H. Kalapuge Chairman Member

Mr. N. A. Wickramage

Mr. P. A. W. Perera Member

Mr. H. M. H. Bandara Chairman Member

The Scope, the Role and Responsibilities / Activities during the year of all the above Board Sub-Committees are given in reports of these Board Sub-Committee on pages 92 to 96.

22. DIRECTORS’ MEETINGS

The details of Directors meetings which comprises Board Meetings and the Board Sub-Committee meetings and the attendance of Directors at these meetings are given in the Corporate Governance Report on Page 66 of the Annual Report.


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The details of the Related Party Transactions are set out in Note 47 to the Audited Financial Statements on pages 168 to 170. As required in terms of Rule 9.3.2 (d) of the Listing Rules of the Colombo Stock Exchange, the Board of Directors confirms that the Company has complied with the rules pertaining to the Related Party Transactions.

In terms of Rule 9.3.2 (b) of the Listing Rules of the Colombo Stock Exchange, recurrent Related Party Transaction which exceeds 10% of the gross revenue are tabulated below,

Name of the Related Party

Relationship Nature of Transaction Aggregate value of Related Party Transactions entered into during the financial year (Rs.)

Aggregate value of Related Party Transactions as a % of Net Revenue / Income

Terms and Conditions of the Related Party Transactions

Prime Lands (Pvt) Ltd

Parent withdrawal from Savings Account

450,000,000/- 65% This deposit was withdrawn and utilized for Right issue on 17 July 2018.

Prime Lands (Pvt) Ltd

Parent Easy Payment loan granted on the guarantee given by Prime Lands (Pvt) Ltd through a Tri-Partite Agreement.

Rs.653,091,844/-(Outstanding as at 31/03/2019 Rs.761,721,166/-)

94% As a part of normal lending process.

24. DISCLOSURE OF DIRECTORS AND CHIEF EXECUTIVE OFFICER’S INTERESTS IN SHARES

The Shareholding of Directors and Chief Executive Officer as at 31 March, 2019 and as at 31 March, 2018 are as follows,

No. of Shares No. of Shares

as at 31 as at 31

Name of the Director / Chief Executive Officer March, 2019 March, 2018

Mr. M. D. S. M. Goonetilleke 22,000 10,000

Ms. H. K. S. R. Perera 110,000 50,000

Mr. B. Premalal 110,000 50,000

Mr. M. Perera 1,000 Nil

Mr. D. H. Kalapuge Nil Nil

Mr. N. A. Wickramage 20,000 20,000

Mr. P. A. W. Perera 50,000 10,000

Mr. H. M. H. Bandara Nil Nil

Mr. R.P. Kaluarachchi Nil Nil

25. DIRECTOR’S REMUNERATION

As requested under the Section 168(1)(f), details of Directors’ emoluments and other benefits paid during the financial year under review are given in Note 47.2.1 to the Audited Financial Statements.

26. ENVIRONMENTAL PROTECTION

To the best of the Board of Directors’ knowledge, the Company has not engaged in any activity that is harmful or hazardous to the environment. The Directors also confirm that to the best of their knowledge and belief, the Company has complied with the relevant environment laws and regulations.


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27. STATUTORY PAYMENTS

The Directors, to the best of their knowledge and belief, are satisfied that all statutory payments in relation to the Government, Other Regulatory Bodies and related to Employees have been paid on a timely basis.

28. OUTSTANDING LITIGATION

The Directors are of the opinion that pending litigation against the Company will not have any material impact on the financial position of the Company.

29. EVENTS AFTER THE REPORTING PERIOD

No circumstances have arisen since the Statement of Financial Position date which would require adjustments to, or disclosure in, the accounts, except those disclosed in Note 46 to the Audited Financial Statements.

30. GOING CONCERN

The Board of Directors had reviewed the Company’s business plans for the ensuing year and is satisfied that the Company has adequate resources to continue its operation in the foreseeable future. Accordingly, the Financial Statements of the Company prepared based on the going concern concept.

31. DONATIONS

No Donations were paid during the year ended 31 March, 2019 (2018 Nil).

32. SYSTEM OF INTERNAL CONTROL

The Board of Directors ensures that an effective and robust internal control procedure is in place to safeguard the Company’s Assets.

The Board Audit Committee reviews the adequacy and the integrity of the internal control systems relating to compliance and risk management.

Further, the Board has issued a Statement on the Internal Controls for Financial Reporting and an Assurance Report from External Auditors in terms of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 has also been obtained.

33. CORPORATE GOVERNANCE

The Board of Directors of the Company are committed towards maintaining effective Corporate Governance Framework to ensure that the Company is compliant with the provisions of the Finance Companies (Corporate Governance) Direction No.3 of 2008 as amended, Code of Best Practice on Corporate Governance 2013 issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The development of an effective Corporate Governance framework is a priority on the agenda of the Board. The report on Corporate Governance given on pages 61 to 91 of the Annual Report covers the extent of compliance with Corporate Governance regulations.

34. AUDITORS

The Company’s Auditors during the year under review were Messrs. Ernst & Young, Chartered Accountants. The Audit and Non-Audit fees paid to Messrs. Ernst & Young during the year under review is disclosed in the Note 14 to the Audited Financial Statements in page 139 of the Annual Report. The retiring

Auditors Messrs. Ernst & Young have expressed their willingness to continue in office and a resolution to re-appoint them as Auditors and authorizing the Directors to fix their remuneration will be proposed at the Annual General Meeting. The Audit Committee evaluated the independence and objectivity of the External Auditors, Messrs. Ernst & Young, Chartered Accountants and recommended the re-appointment of the Auditors.

35. ANNUAL GENERAL MEETING

The fifteenth Annual General Meeting will be held at the Prime Lands (Private) Limited, 8th Floor, No. 75, D.S. Senanayake Mawatha, Colombo 08 on 31 July 2019 at 10.30 a.m. Notice of the meeting relating to the fifteenth Annual General Meeting is enclosed at the end of the Annual Report.

For and on behalf of the Board of Directors of Prime Finance PLC,

M.D.S.M. GoonethillekeChairman / Independent Non-Executive Director

H.M. Hennayake BandaraIndependent Non-Executive Director

S S P Corporate Services (Private) LimitedSecretaries

25 June 2019


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DireCtors’ statement on internal Control over finanCial reportinG

Responsibility

In line with the section 10(2)(b) of the Finance Companies Direction No. 03 of 2008 as amended by the Direction No. 06 of 2013, the Board of Directors presents 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 over financial reporting in place at Prime 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 is continuously in the process of enhancing the documentation of the system of Internal Control over Financial Reporting. In assessing the Internal Control System over Financial Reporting, identified officers of the Company are continuously improving the processes and procedures in line with the industry best practices and regulatory reporting requirements. These in turn are being observed and checked by the Internal Auditors of the Company for suitability of design and effectiveness on an on-going basis.

Since the adoption of Sri Lanka Accounting Standards comprising LKASs and SLFRSs in 2012/13, continuous monitoring is in progress and steps are being taken for improvements where required. The Board took necessary steps to implement the requirements of the Sri Lanka Accounting Standard – SLFRS 9 (Financial Instruments) and SLFRS 15 (Revenue form Contract with Customers). The required models have been implemented and processes and controls have been designed. Also adequate training and awareness sessions have been conducted to all stakeholders including the Board and Senior Management. The Board will continuously strengthen the processes and controls around management information systems and reports required for validation and compliance in line with SLFRS 9 and financial statement disclosures related to risk management. The Company is in the process of further upgrading relevant processes embedding all requirements to existing processes to comply with requirements of recognition, measurement, classification and disclosures required under the new Sri Lanka Accounting Standards.

Confirmation

Based 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.

Review of the Statement by External Auditors

The External Auditor, Messrs. Ernst & Young, has reviewed the above Directors’ Statement on Internal Control for the year ended 31 March 2019 and reported to the Board that nothing has come to their attention that causes them to believe that the statement is inconsistent with their understanding of the process adopted by the Board in the review of the design and effectiveness of the internal control system of the Company.

H.M. Hennayake BandaraChairman - Board Audit Committee

M.D.S. GoonethillekeChairman

21 June 2019


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Chief exeCutive offiCer’s anD assistant General manaGer - finanCe’s responsiBility statement

The Financial Statements of Prime Finance PLC (the Company) as at 31 March 2019 are prepared and presented in conformity with the following requirements:

i. Sri Lanka Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka)

ii. Companies Act No. 07 of 2007

iii. Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995

iv. Directions, circulars and guidelines issued to Licensed Finance Companies by the Central Bank of Sri Lanka (CBSL) under the Finance Business Act No. 42 of 2011

v. Listing Rules of the Colombo Stock Exchange

vi. Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

The formats used in the preparation of the Financial Statements and disclosures made comply with the formats prescribed by the Central Bank of Sri Lanka. The Company on a quarterly basis presents Financial Statements to its shareholders in compliance with the Listing Rules of the Colombo Stock Exchange.

The Accounting Policies used in the preparation of the Financial Statements are appropriate and are consistently applied by the Company. There are no departures from the prescribed Accounting Standards in their adoption. Comparative information has been reclassified wherever necessary to comply with the current presentation and material departures, if any, have been disclosed and explained. Significant accounting policies and estimates that involved a high degree of judgement and complexity were discussed with the External Auditor and the Board Audit Committee.

The Board of Directors and the Management of the Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgements relating to the Financial Statements were made on a prudent and reasonable basis in order to ensure that the Financial Statements are presented in a true and fair manner and the form and substance of transactions and the Company’s state of affairs are reasonably presented. We also confirm that the Company has adequate resources to continue in operation and has applied the going concern basis in preparing these Financial Statements.

To ensure this, the Company has taken proper and sufficient care in establishing a system of internal control and accounting records, for safeguarding assets and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis.

The Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognised in weighing the assurances provided by any system of internal controls and accounting.

The Board Audit Committee reviewed all of the internal and external audit reports and inspection programmes, the efficiency of the internal control systems and procedures, the quality of accounting policies and their adherence to statutory and regulatory requirements, the external audit plan and the management letters and also followed up on any issues raised during the statutory audit, the details of which are given in the ‘Board Audit Committee Report’ on pages 92 to 93 of this Annual Report.

The Financial Statements of the Company were audited by Messrs. Ernst & Young, Chartered Accountants and their Report is given on page 108 of this Annual Report.

We confirm that:

� The Company has complied with all applicable laws and regulations and prudential requirements,

� There are no material non- compliances, there are no material litigations that are pending against the Company

� All taxes, duties, levies and other statutory payments by the Company and all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company as at 31 March 2019 have been paid or where relevant, provided for.


T.M. Manjula TennakoonAssistant General Manager - Finance

25 June 2019


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statement of DireCtors’ responsiBilities for finanCial reportinG

This Statement of Directors’ Responsibilities is made to distinguish the respective responsibilities of the Directors and of the Auditors in relation to the Financial Statements of the Company for the year ended 31 March, 2019.

The Directors are required by the Companies Act, No. 7 of 2007 to prepare financial statements for each financial year, which give a true and fair view of the statement of affairs of the Company as at the end of the financial year and the income and expenditure of the Company for the financial year. The Directors are also responsible to ensure that the financial statements are prepared and presented in compliance with the required standards and any other requirements, which apply, to the Company’s financial statements under any other law.

The Directors confirm that the Financial Statements of the Company for the year ended 31 March, 2019 have been prepared and presented in conformity with the requirements of the Sri Lanka Accounting Standards, the regulations and directions of the Central Bank of Sri Lanka, the Listing Rules of the Colombo Stock Exchange and the Companies Act No.7 of 2007. In preparing the Financial Statements, the Directors have selected the appropriate accounting policies and have applied them consistently. Reasonable and prudent judgements and estimates have been made and applicable accounting standards have been followed and the Financial Statements have been prepared on a going concern basis.

The Directors are of the view that adequate funds and other resources are available within the Company for the Company to continue in operation for the foreseeable future.

The Directors have taken all reasonable steps expected from them to safeguard the assets of the Company and to establish appropriate systems of internal controls in order to prevent, deter and detect any fraud, misappropriation or other irregularities. The Directors have also taken all reasonable steps to ensure that the Company maintains adequate and accurate accounting books of records, which reflect the transparency of transactions and provide an accurate disclosure of the Company’s financial position.

The Directors are required to provide the Auditors with every opportunity to take whatever steps and undertake whatever inspection they consider appropriate for the purpose of enabling them to give their Audit Report. The Directors are of the view that they have discharged their responsibilities in this regard.

Compliance Report

The Directors confirm that, to the best of their knowledge, all taxes and levies payable by the Company and all contributions, levies and taxes payable on behalf of the employees of the Company, and all other known statutory obligations as at the balance sheet date have been paid or provided for in the Financial Statements.

On Behalf of the Board,

M.D.S. Mangala GoonatillekeChairman

25 June 2019

Financial Information

As we gain momentum, we move ahead leveraging on the opportunities that lie ahead which could be harnessed to our full potential to maximise returns to all stakeholders.


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inDepenDent auDitor’s report

AL/FSI/MHM

INDEPENDENT AUDITOR’S REPORT

TO THE SHAREHOLDERS OF PRIME FINANCE PLC

Report on the audit of the Financial Statements

Opinion

We have audited the financial statements of Prime Finance PLC (the ‘Company’), which comprise the statement of financial position as at 31 March 2019, and the statement of comprehensive income, statement of changes in equity and, statement of cashflows for the year then ended, and notes to the financial statements including a summary of significant accounting policies.

In our opinion, the accompanying financial statements of the Company give a true and fair view of the financial position of the Company as at 31 March 2019, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (‘SLAuSs’). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by CA Sri Lanka (‘Code of Ethics’) and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.


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Key Audit Matter How our audit addressed the key audit matter

Allowance for impairment of loans and lease receivables including Company’s transition to SLFRS 9:

Our audit considered allowances for impairment of loans and lease receivables (loans and advances, lease rental receivables and stock out on hire) as a key audit matter due to the materiality of the reported amounts, the subjectivity associated with management’s estimation on significant judgements and assumptions, the use of a model that involves complex manual calculation and transition to Sri Lanka Financial Reporting Standard 9: Financial Instruments (SLFRS 09).

As at 31 March 2019, loans and lease receivables (net of impairment) amounted to Rs. 3,418 Million (Note 21) and Rs.886 Million (Note 22) respectively. These collectively contributed 75% to the Company’s total assets.

Note number 5.3, 12, 21.1 and 22.1 to the financial statements provides a fuller description of the allowance for impairment of loans and lease receivables, basis of its calculation including key judgments and assumptions used in its estimation.

The impact on transition to SLFRS 9 on the Company’s Financial Statements has been quantified and presented in the Note number 7 to the Financial Statements.

To assess the reasonableness of the allowance for impairment, we carried out audit procedures (among others) to obtain sufficient and appropriate audit evidence, that included the following:

� We evaluated the design effectiveness of internal controls over the estimation of allowances for impairment of loans and lease receivables, which included assessing the level of oversight, review and approval of impairment policies by the Board Audit Committee and management.

� We checked the accuracy of the underlying calculations and appropriateness of data used in such calculations on a sample basis;

� In addition to the above, focused procedures were performed as follows:

� For those individually assessed for impairment:

� where impairment indicators existed, we evaluated the reasonableness of management’s estimated future recoveries including the expected future cash flows, discount rates and the valuation of collateral held.

� For those collectively assessed for impairment:

� we tested the accuracy and completeness of the underlying information used in the impairment calculations by agreeing details to the source documents and information in the IT system and re-performing the calculations.

� we also considered reasonableness of macro-economic and other factors used by management in their judgmental overlays, by comparing them with relevant publicly available data and information sources.

� We assessed the adequacy of the related financial statement disclosures as set out in note(s) 12, 21.1, 22.1 and 49.2.1

� We also assessed the adequacy of the Company’s disclosure on the impact of the initial adoption of SLFRS 9 as set out in note 7. This included testing of the quantitative impact of the transition.


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INDEPENDENT AuDITOR’S REPORT

Other information included in the Company’s 2019 Annual Report

Other information consists of the information included in the Company’s 2019 Annual Report, other than the financial statements and our auditor’s report thereon. Management is responsible for the other information. The Company’s 2019 annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

� Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

� Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

� Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

� Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt


111

on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

� Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, 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.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 1420.

25 June 2019Colombo


112

As at 31 March 2019 2018

Notes Rs. Rs.

Assets

Cash & Cash Equivalents 19 469,366,656 417,958,339

Investment in Fixed Deposits 20 - 152,081,166

Financial Assets at Amortised Cost - Loans and Advances 21 3,418,267,118 2,184,713,733

Financial Assets at Amortised Cost - Lease Rentals Receivable & Stock Out on Hire 22 886,748,708 496,020,155

Financial Investments at Amortised Cost - Debt & Other Instruments 23 387,329,553 -

Financial Investments at Fair Value Through Other Comprehensive Income 24 56,300 -

Financial Investments - Available for Sale 24 - 56,300

Financial Investments - Held to Maturity 23 - 122,468,456

Other Financial Assets 25 8,936,585 1,294,521

Inventories - Real Estate Stock 26 386,746,646 129,266,607

Other Non Financial Assets 27 11,938,288 11,415,435

Investment Property 28 105,439,534 105,439,534

Property, Plant & Equipment 29 27,809,300 28,525,141

Intangible Assets 30 3,240,589 2,222,312

Deferred Tax Asset 31 - 19,913,154

Total Assets 5,705,879,277 3,671,374,853

Liabilities

Due to Banks and Other Financial Institutions 32 1,094,217,290 427,680,261

Due to Customers 33 2,746,322,013 2,399,149,502

Other Financial Liabilities 34 6,575,856 5,092,825

Other Non-Financial Liabilities 35 180,847,764 223,210,024

Retirement Benefit Liability 36 4,318,233 3,167,412

Deferred Tax Liability 31 6,472,052 -

Income Tax Payable 37 46,346,706 -

Total Liabilities 4,085,099,914 3,058,300,025

statement of finanCial position


113

As at 31 March 2019 2018

Notes Rs. Rs.

Shareholders' Funds

Stated Capital 38 1,372,500,000 508,500,000

Retained Earnings 39 230,655,884 95,883,622

Other Reserves 40 17,623,479 8,691,206

Total Shareholders' Funds 1,620,779,363 613,074,828

Total Liabilities and Shareholders' Funds 5,705,879,277 3,671,374,853

Commitments and Contingencies 44 208,924,756 13,403,458

Net Assets Per Share (Rs.) 20.46 17.03

I certify that these Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

T. M. M. Tennakoon Rasika KaluarachchiAGM - Finance Chief Executive Officer

The Board of Directors is responsible for these Financial Statements. Signed for and on behalf of the Board by;

M. D. Saddha Mangala Goonetilleke H. M. Hennayake BandaraDirector Director

The accounting policies and notes on pages 118 to 183 form an integral part of these financial statements.

25 June 2019Colombo


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Year ended 31 March 2019 2018

Notes Rs. Rs.

Interest Income 8.1 947,181,264 445,450,360

Interest Expenses 8.2 (407,944,234) (209,450,069)

Net Interest Income 539,237,030 236,000,292

Fee and Commission Income 9 21,704,289 12,419,392

Fee and Commission Income 21,704,289 12,419,392

Net Gain/(Loss) from Trading 10 - (70)

Other Operating Income (net) 11 131,936,585 74,901,409

Total Operating Income 692,877,904 323,321,022

Less: Impairment charges and other losses 12 (86,324,280) (107,632,627)

Net Operating Income 606,553,624 215,688,395

Operating Expenses

Personnel Costs 13 (113,663,826) (74,277,599)

Depreciation of Property Plant & Equipment 29 (12,257,044) (10,630,066)

Amortisation of Intangible Assets 30 (650,160) (1,105,957)

Other Operating Expenses 14 (151,730,945) (93,526,927)

Profit/ (Loss) before VAT on Financial Services, NBT & Debt Repayment Levy 328,251,649 36,147,846

VAT on Financial Services, NBT & Debt Repayment Levy 15 (56,214,302) (9,024,259)

Profit/( Loss) from Operations before Taxation 272,037,347 27,123,587

(Provision)/Reversal for Income Taxation 16 (93,391,864) (14,032,874)

Profit/(Loss) for the Year 178,645,483 13,090,713

Other Comprehensive Income / (Expenses)

Other Comprehensive Income not to be Reclassified to Profit or Loss

Actuarial Gain / ( Loss ) on Retirement Benefit Obligations 36 488,185 45,025

Deferred Tax on above (136,692) -

Other Comprehensive Income/(Expense) for the Year, Net of Taxes 351,493 45,025

Total Comprehensive Income/(Expense) for the Year 178,996,976 13,135,738

Earnings Per Share (Rs) 17 2.61 0.42


statement of Comprehensive inCome


115

statement of ChanGes in eQuity

Retained Statutory

Stated Capital Earnings Reserve Total

Rs. Rs. Rs. Rs.

Balance as at 01 April 2017 225,000,000 83,402,419 8,036,670 316,439,089

Net Profit for the Year - 13,090,713 - 13,090,713

Other Comprehensive Income - 45,025 - 45,025

Transfer to Statutory Reserve - (654,536) 654,535 -

Rights Issue 283,500,000 - - 283,500,000

Balances as at 31 March 2018 508,500,000 95,883,622 8,691,205 613,074,827

Balances as at 31 March 2018 508,500,000 95,883,622 8,691,205 613,074,827

Impact of adopting SLFRS 9 (Note 7) - (35,292,440) - (35,292,440)

Restated Balances under SLFRS 9 as at 1 April 2018 508,500,000 60,591,182 8,691,205 577,782,387

Net Profit for the Year - 178,645,483 - 178,645,483

Other Comprehensive Income - 488,185 - 488,185

Deferred Tax on above (136,692) - (136,692)

Transfer to Statutory Reserve - (8,932,274) 8,932,274 -

Rights Issue 864,000,000 - - 864,000,000

Balances as at 31 March 2019 1,372,500,000 230,655,884 17,623,479 1,620,779,363



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Notes Rs. Rs.

Cash Flows From / (Used in) Operating Activities

Profit/( Loss) before Income Tax Expense 272,037,347 27,123,587

Adjustments for

Depreciation 29.2 12,257,044 10,630,066

Amortisation of Intangible Assets 30 650,160 1,105,957

Impairment Provision 12 86,324,280 107,632,627

Interest Cost on Finance Lease 17,494 152,078

Diminution/(Appreciation) in value of investments 10 - 70

Loss/(Profit) on Disposal of Property & Equipment 11 (3,160,526) -

Provision/(Reversal) for Defined Benefit Plans 36.2 2,097,706 1,220,257

Dividend Received 11 (206,400) (180,000)

Notional Tax Credit on Interest on Treasury Bills - (951,991)

Fair Value - Investment Property 11 - (28,925,534)

Operating Profit before Working Capital Changes 370,017,104 117,807,118

(Increase)/Decrease in Real Estate Stock (257,480,040) (90,734,559)

(Increase)/Decrease in Loans and Advances (1,345,185,264) (1,219,668,334)

(Increase)/Decrease in Lease Rentals Receivable & Stock out on hire (412,785,080) (402,597,275)

(Increase)/Decrease in Other Financial Assets (7,642,064) (768,303)

(Increase)/Decrease in Other Non Financial Assets (1,955,128) 4,385,889

Increase/(Decrease) in Amounts Due to Customers 347,154,963 1,088,093,524

Increase/(Decrease) in Other Financial Liabilities (112,618) (511,514)

Increase/(Decrease) in Other Non Financial Liabilities (42,362,260) 196,978,076

Cash Generated from/( Used in) Operations (1,350,350,386) (307,015,378)

Economic Service Charges Paid (5,639,535) -

Retirement Benefit Liabilities Paid 36 (458,700) (192,000)

Income Tax Paid - (5,919,348)

Net Cash From/(Used in) Operating Activities (1,356,448,622) (313,126,726)

statement of Cash flows


117


Notes Rs. Rs.

Cash Flows from / (Used in) Investing Activities

Acquisition of Property, Plant & Equipment 29.1 (11,593,721) (19,690,895)

Acquisition of Intangible Assets 30 (1,668,437) (1,000,000)

Acquisition of Investment Property 28 - (76,514,000)

Proceeds from Sales of Shares - 450

Proceeds from Sales of Property, Plant & Equipment 3,213,044 -

Net investments in Banks & Other Fnancial Institutions 77,096,062 135,927,643

Net investment in government bonds & government securities (71,610,605) (32,986,234)

Dividend Received 11 206,400 180,000

Net Cash Flows from/(Used in) Investing Activities (4,357,257) 5,916,964

Cash Flows from / (Used in) Financing Activities

Rights Issue 864,000,000 283,500,000

Payment under Finance Lease Liabilities (275,162) (1,100,664)

Net movement in the bank borrowings 471,494,292 385,146,038

Net Cash Flows from/(Used in) Financing Activities 1,335,219,130 667,545,374

Net Increase in Cash and Cash Equivalents (25,586,748) 360,335,612

Net Cash and Cash Equivalents at the beginning of the Year 450,533,984 90,198,372

Cash and Cash Equivalents at the end of the year (Note 19.2) 424,947,236 450,533,984



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notes to the finanCial statements

1. CORPORATE INFORMATION

1.1 Domicile and Legal Form

Prime Finance PLC, (‘the Company’) is a Public Limited Liability Company incorporated in Sri Lanka under Companies Act No.07 of 2007. The registered office is located at No 61, D.S. Senanayake Mawatha, Colombo 08. The Company is registered as a Finance Company under the Finance Business Act No. 42 of 2011.

1.2 Principal Activities and Nature of Operations

The principal activities of the Company are acceptance of deposits, granting lease facilities, hire Purchase, mortgage loans and other credit facilities, real estate and related services.

1.3 Parent Entity and Ultimate Parent Entity

The Company’s parent undertaking is Prime Lands (Pvt) Ltd.

1.4 Date of Authorization for Issue

The Financial Statements of Prime Finance PLC for the year ended 31 March 2019 was authorized for issue by the board of directors on 25 June 2019.

2. BASIS OF PREPARATION

2.1 Statement of Compliance

The Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows, together with Accounting Policies and Notes, (‘Financial Statements’), as at 31 March 2019 and for the year then ended, have been prepared in accordance with Sri Lanka Accounting Standards, laid down by the Institute of Chartered Accountants of Sri Lanka and in compliance with the requirements of the Companies Act No. 07 of 2007, the Regulation Finance Business Act No 42 of 2011 and amendments there to.

2.2 Responsibilities for the Financial Statement

The Board of Directors acknowledges the responsibility in relation to the Financial Statements, as set out in the ‘Statement of Directors’ Responsibilities’, ‘Annual Report of the Board of Directors’ and in the statement appearing in the Statement of Financial Position of the Annual Report.

2.3 Basis of Measurement

The financial statements have been prepared on the historical cost basis, except for the following items in the Statement of financial position.

� Financial Assets at fair value through other comprehensive income (effective from 1 April 2018) at fair value.

� Available for Sale Financial Instruments (applicable before 1 April 2018) at fair value.

� Liabilities for defined benefit obligations are recognised at the present value of the defined benefit obligation less the fair value of the plan assets

� Investment Property at fair value

2.4 Functional and Presentation Currency

The Financial Statements of the Company are presented in Sri Lanka Rupees, which is the Currency of the primary economic environment in which the Company operates. The amounts in the Financial Statements have been rounded off to the nearest Rupees, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard - LKAS 01 on ‘Presentation of Financial Statements’. There was no change in the Company’s presentation and functional currency during the year under review.

2.5 Presentation of Financial Statements

The Company presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non–current) is presented in note 43.

2.6 Comparative Information

The comparative information is re-classified whenever necessary to conform to the current year’s presentation. the details of which are given in note 41 to the Financial Statements.

The comparative information has not been restated due to adoption of SLFRS 9. Therefore, the comparative information as of and for the year then ended 31 March 2018 is reported under LKAS 39 and is not comparable to the information presented as of and for the year then ended 31 March 2019. The differences arising from the adoption of SLFRS 9 have been disclosed in note 7.


119

2.7 Materiality and Aggregation

In compliance with Sri Lanka Accounting Standard -LKAS 01(Presentation of Financial Statements), each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or functions too are presented separately, unless they are immaterial.

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 liability simultaneously. Income and expenses are not offset in the income statement unless required or permitted by an Accounting Standard.

2.8 Statement of Cash Flow

The cash flow statement has been prepared by using the indirect method in accordance with the Sri Lanka Accounting Standard - LKAS 7 (Statement of Cash Flows), whereby operating, investing and financial activities have been separately recognised. Cash and cash equivalents comprise of 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 include cash in hand, balances with banks, placements with banks (less than 3 months), net of unfavourable bank balances and securities purchased under repurchase agreement (less than three months).

2.9 Events After the Reporting Date

Events after the reporting period are those events, favourable and Unfavourable, that occur between the reporting date and the date when the Financial Statements are authorised for issue.

No circumstances have arisen since the reporting date, which would require adjustments to, or disclosure in the financial statements, other than those disclosed in note 46 to the Financial Statements.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of Financial Statements of the Company in conformity with Sri Lanka Accounting Standards requires the management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of income, expenses,

assets and liabilities and the accompanying disclosures as well as the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. In the process of applying the Company’s accounting policies, management has made the following judgements and assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities with in next financial year. Existing circumstances and assumptions about future developments may change due to circumstances beyond Company’s control and are reflected in the assumptions if and when they occur.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The most significant areas of estimation, uncertainty and critical judgements in applying accounting policies that have most significant effect on the amounts recognised in the Financial Statements of the Company are as follows.

i. Going concern

The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, Board is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations of the Company. Therefore, the financial statements continue to be prepared on the going concern basis.

ii. Impairment losses on credit products (Loans and advances and Lease rental receivables and stock out on hire)

The determination of expected credit loss allowances is highly subjective and judgmental. With the introduction of SLFRS 9 in 2018, a number of additional judgements and assumptions are introduced and reflected in the financial statements, including the identification of significant increases in credit risk and the application of forward looking economic scenarios. The measurement of impairment losses under SLFRS 9 and LKAS 39 across all categories of financial assets requires judgment, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining


120

NOTES TO THE FINANCIAL STATEMENTS

impairment losses. These estimates driven by a number of factors, changes in which can result in different levels of allowances.

Effective from 1 April 2018

The Company’s expected credit loss (ECL) calculations are outputs of complex models with a number of underlying assumptions regarding the choice of variable inputs and their independencies. The elements of the ECL models that are considered accounting judgments and estimates include.

� The Company’s criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets should be measured on a lifetime expected credit loss (LTECL) basis and the qualitative assessment basis.

� The segmentation of financial assets when their ECL is assessed on a collective basis.

� Development of ECLs, models, including various formulas and the choice of inputs, determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels and collateral values, and the effect on probability of default (PDs), Exposure at default (EADs) and loss given default (LGDs).

� Selection of forward –looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models.

Applicable before 1 April 2018

The Company reviews their individually significant loans and advances at each statement-of-financial-position date to assess whether an impairment loss should be recorded in the income statement. In particular, management’s judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment allowance.

Loans and advances that have been assessed individually and found to be not impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes in to account data from the loan

portfolio (such as levels of arrears, credit utilization, loan-to-collateral ratios, etc.), and judgments on the effect of concentrations of risks and economic data (including levels of unemployment, inflation and interest rates,). Impairment of loans and receivables is discussed in detail under Note 21 to 22 to the Financial Statements.

It is the Company‘s policy to regularly review its models in the context of actual loss experience and adjust whenever necessary.

iii. Defined benefit obligation

The cost of defined benefit obligation is determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates etc. Due to the complexity of the valuation, the underlying assumptions and their long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, management considers the interest rates of Sri Lanka Government bonds with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future salary increases are based on expected future inflation rates and expected future salary increase rate of the Company.

Refer Note 36 for the assumptions used.

iv. Fair value of Investment Property

Fair value of the investment property is ascertained by independent valuations carried out by Chartered valuation surveyors, who have recent experience in valuing properties of similar location and category. Investment property is appraised in accordance with LKAS 40 and SLFRS 13.

Investment property of the Company is reflected at fair value using the income approach. When arriving for the income approach it took consideration of the discounted cash flow projections based on the monthly rental amount of the property and the discount rates that reflect uncertainty in the amount and timing of cash flows.


121

4. New standards, interpretations and amendments adopted by the Company

The Company has adopted SLFRS 9 –Financial Instruments, SLFRS 7 (Revised) - Financial Instruments Disclosures, SLFRS 15-Revenue from Contracts with Customers, effective for annual periods beginning on or after 01 January 2018, for the first time. The Company has not adopted early any other standard, interpretation or amendment that has been issued but is not yet effective.

4.1 SLFRS 9: Financial Instruments

SLFRS 9 Financial instruments replaces LKAS 39 Financial instruments: Recognition and Measurement for annual periods on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting. The Company adopted SLFRS 9- retrospectively, with the initial application date of 1 April 2018. The Company has taken an exception not to restate comparative information for prior periods.

SLFRS 9 requires an entity to restate prior periods if and only if the restatement is possible without the use of hindsight. The Company has not restated comparative information as of and for the year ended 31 March 2018 for financial instruments within the scope of SLFRS 9. Therefore, the comparative information is reported under LKAS 39 and is not comparable to the information presented as of and for the year ended 31 March 2019. Difference arising from the adoption of SLFRS 9 have been recognised directly in retained earnings as of 1 April 2018 and are disclosed in note 7.

4.1.1 Changes to Classification and Measurement

To determine their classification and measurement category, SLFRS 9 requires all financial assets, except equity instruments and derivatives, to be assessed based on a combination of the entity’s business model for managing the assets and the instruments’ contractual cash flow characteristics.

The LKAS 39 measurement categories of financial assets (fair value through profit and loss (FVPL), available for sale (AFS), held-to-maturity and loans and receivables (L&R) ] have been replaced by:

� Debt and other instruments at amortised cost

� Debt instruments at fair value through other comprehensive income (FVOCI), with gains or losses recycled to profit or loss on derecognotion

� Equity instruments at (FVOCI), with no recycling of gains or losses to profit or loss on derecognition

� Financial assets at FVPL

The accounting for financial liabilities remains largely the same as it was under LKAS 39, except for the treatment of gains or losses arising from an entity’s own credit risk relating to liabilities designated at FVPL. Such movements are presented in OCI with no subsequent reclassification to the Income Statement.

Under SLFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on the business model and their contractual terms. The accounting for derivatives embedded in financial liabilities and in non-financial host contracts has not been changed.

The Company’s classification of its financial assets and liabilities is explained in note 5.1.4.

4.1.2 Changes to the impairment Calculation

The adoption of SLFRS 9 has fundamentally changed the Company’s accounting for loan loss impairment by replacing LKAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. SLFRS 9 requires the Company to record an impairment for ECLs for all loans and debt & other financial instruments not held at FVPL, together with loan commitments and financial guarantee contracts. The impairment is based on the ECLs associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination in which case the impairment will be based on the ECLs associated with the probability of default over the entire lifetime of the loan.

Details of the Company’s impairment method are disclosed in note 5.3. The quantitative impact of applying expected credit loss approach in SLFRS 9 as at 1 April 2018 is disclosed in note 7.

4.2 SLFRS 7R: Financial Instruments – Disclosure

To reflect the differences between SLFRS 9 and LKAS 39, SLFRS 7 Financial Instruments: Disclosures was updated and the Company has adopted it, together with SLFRS 9, for the year beginning 1 April 2018. Changes including transition disclosures, detailed qualitative and quantitative information about the ECL calculations such as the assumptions and inputs used are set out in note 7, note 5.3 and note 49.2 respectively.


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4.3 SLFRS 15 – Revenue from Contracts with Customers

SLFRS 15 became effective for financial periods beginning on or after 1 January 2018. The core principle of SLFRS 15 is that an entity have to recognise revenue to depict the transfer of promised goods or services to customers. This core principle is delivered in a five-step model framework as discussed.

� Identify the contract(s) with a customer

� Identify the performance obligations in the contract

� Determine the transaction price

� Allocate the transaction price to the performance obligations in the contract

� Recognise revenue when (or as) the entity satisfies a performance obligation.

The Company adopted SLFRS 15 - prospectively with the initial application date of 1 April 2018. The adoption of SLFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers, real estate income and the related assets and liabilities recognised by the Company. Accordingly, the impact of comparative information is limited to new disclosure requirements.

Except for the changes mentioned above, the Company has consistently applied the accounting policies for all periods presented in these Financial Statements.

5. GENERAL ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these Financial Statements except for the changes mentioned in Note 4 to the Financial Statements.

5.1 Financial Instruments - Initial Recognition and Measurement

5.1.1 Date of recognition

All financial assets and liabilities are initially recognised on the trade date.i.e.the date that the Company becomes a party to the contractual provisions of the instrument. This includes ‘regular way trades’. Regular way trade means purchases or sales of financial assets with in the time frame generally established by regulation or convention in the market place.

5.1.2 Initial Measurement of Financial Instruments

The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments. Financial instruments are initially measured at their fair value, except in the case of financial assets and financial liabilities recorded at FVPL, transaction costs are added to, or subtracted from, this amount. Trade receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition differs from the transaction price, the Company accounts for the Day 1 profit or loss, as described below.

5.1.3 Day 1 profit or loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the Company recognises the difference between the transaction price and fair value (a ‘Day 1‘ profit or loss) in the Income Statement over the tenor of the financial instrument using effective interest rate method. In cases where fair value is determined using data which is not observable, the difference between the transaction price and model value is only recognised in the Income Statement when the inputs become observable, or when the instrument is derecognised.

5.1.4 Measurement categories of financial assets and liabilities

Effective From 1 April 2018, the Company classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either:

� Amortised cost, as explained in note 5.1.4.1

� Fair value through other comprehensive income (FVOCI), as explained in notes 5.1.4.3 and 5.1.4.4

� Fair value through profit or loss (FVPL)

The Company classifies and measures its derivative and trading portfolio at FVPL. The Company may designate financial instruments at FVPL, if so doing eliminates or significantly reduces measurement or recognition inconsistencies.

Before 1 April 2018, the Company classified its financial assets as loans and receivables (amortised cost), FVPL, available-for-sale or held-to-maturity (amortised cost).


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Financial liabilities, other than loan commitments and financial guarantees, are measured at amortised cost or at FVPL when they are held for trading and derivative instruments or the fair value designation is applied.

5.1.4.1 Loans and advances, Lease rental receivables and stock out on hire - Financial assets at amortised cost

Before 1 April 2018, Loans and advances and lease rental receivables and stock out on hire, included non–derivative financial assets with fixed or determinable payments that were not quoted in an active market, other than those:

� That the Company intended to sell immediately or in the near term

� That the Company, upon initial recognition, designated as at FVPL or as available-for-sale

� For which the Company may not recover substantially all of its initial investment, other than because of credit deterioration, which were designated as available-for-sale.

Effective from 1 April 2018, the Company only measures Loans and advances and lease rental receivables and stock out on hire at amortised cost if both of the following conditions are met:

� The financial asset is held within a business model with the objective to hold financial assets to collect contractual cash flows

� The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.

The details of these conditions are outlined below.

(a) Business model assessment

The Company determines its business model at the level that best reflect how it manages groups of financial assets to achieve its business objective.

The Company’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as:

� How the performance of the business model and the financial assets held within that business model are evaluated and reported to the entity’s key management personnel

� The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed

� How managers of the business are compensated (for example, whether the compensation is based on the fair values of the assets managed or on the contractual cash flows collected)

� The expected frequency, value and timing of sales are also important aspects of the Company’s assessment

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Company’s original expectations, the Company does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward.

(b) The solely payments of principal and interest (SPPI) test

As a second step of its classification process, the Company assesses the contractual terms of financial to identify whether they meet the SPPI test.

‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).

The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money and credit risk. To make the SPPI assessment, the Company applies judgment and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.

In contrast, contractual terms of that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be measured at FVPL.


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5.1.4.2 Financial assets or financial liabilities held for trading

The Company classifies financial assets or financial liabilities as held for trading when they have been purchased or issued primarily for short-term profit making through trading activities or form part of a portfolio of financial instruments that are managed together, for which there is evidence of a recent pattern of short-term profit taking. Held-for-trading assets and liabilities are recorded and measured in the Statement of Financial Position at fair value.

Changes in fair value are recognised in net trading income. Interest and dividend income or expense is recorded in net trading income according to the terms of the contract, or when the right to payment has been established. Included in this classification are debt securities, equities, short positions and customer loans that have been acquired principally for the purpose of selling or repurchasing in the near term.

5.1.4.3 Debt instruments at FVOCI (Policy applicable effective from 1 April 2018)

The Company applies the new category under SLFRS 9 of debt instruments measured at FVOCI when both of the following conditions are met:

� The instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows and selling financial assets

� The contractual terms of the financial asset meet the SPPI test

These instruments largely comprise assets that had previously been classified as financial investments available-for-sale under LKAS 39.

FVOCI debt instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value recognised in OCI. Interest income and foreign exchange gains and losses are recognised in the Income Statement in the same manner as for financial assets measured at amortised cost. Where the Company holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. On derecognition, cumulative gains or losses previously recognised in OCI are reclassified from OCI to the Income Statement.

5.1.4.4 Equity instruments at FVOCI (Policy applicable effective from 1 April 2018)

Upon initial recognition, the Company occasionally elects to classify irrevocably some of its equity investments

as equity instruments at FVOCI when they meet the definition of definition of Equity under LKAS 32 Financial Instruments: Presentation and are not held for trading. Such classification is determined on an instrument-by-instrument basis.

Gains and losses on these equity instruments are never recycled to profit. Dividends are recognised in the Income Statement as net trading gain/(loss) when the right of the payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment.

5.1.4.5 Debt issued and other borrowed funds

After initial measurement, debt issued and other borrowed funds are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue funds, and costs that are an integral part of the EIR. A compound financial instrument which contains both a liability and an equity component is separated at the issue date.

5.1.4.6 Financial assets and financial liabilities at fair value through profit or loss

Financial assets and financial liabilities at FVPL are recorded in the statement of financial position at fair value. Changes in fair value are recorded in profit and loss with the exception of movements in fair value of liabilities designated at FVPL due to changes in the Company’s own credit risk. Such changes in fair value are recorded in the Own credit reserve through OCI and do not get recycled to the Income Statement. Interest earned or incurred on instruments designated at FVPL is accrued in interest income or interest expense, respectively, using the EIR, taking into account any discount/ premium and qualifying transaction costs being an integral part of instrument. Interest earnt on assets mandatorily required to be measured at FVPL is recorded using contractual interest rate. Dividend income from equity instruments measured at FVPL is recorded in the Income Statement as net trading gain/(loss) when the right to the payment has been established.

5.1.4.7 Undrawn loan commitments

Undrawn loan commitments are commitments under which, over the duration of the commitment, the Company is required to provide a loan with pre-specified terms to the customer. Under LKAS 39, a provision was made if they


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were an onerous contract but, effective from 1 April 2018, these contracts are in the scope of the ECL requirements.

The nominal contractual value of undrawn loan commitments, where the loan agreed to be provided is on market terms, are not recorded on in the statement of financial position. The nominal values of these instruments together with the corresponding ECLs are disclosed in note 34.

5.1.4.8 Held to maturity financial assets (Policy applicable before 1 April 2018)

Held to maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Company has the intention and ability to hold to maturity. After the initial recognition, held to maturity financial assets are subsequently measured at amortised cost using the effective interest rate, less impairment. The amortization is included in ‘interest income’ in the Income Statement. The losses arising from impairment of such assets are recognised in the Income Statement.

5.1.4.9 Available for sale financial assets (Policy applicable before 1 April 2018)

Available for sale financial assets include equity and debt securities. Equity investments classified as ‘Available for sale’ are those which are neither classified as ‘Held for trading’ nor ‘designated at fair value through profit or loss’ under the classification principles set out in LKAS 39. Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available for sale financial assets are subsequently measured at fair value. Unrealized gains and losses are recognised directly in equity through ‘Other comprehensive income/expense’ in the ‘Available for sale reserve’. When the asset is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the Income Statement under ‘Net gain on financial assets. Where the Company holds more than one investment in the same security, they are deemed to be disposed of on a first-in first out basis. Interest earned whilst holding ‘Available for sale financial assets’ is reported as ‘interest income’ using the effective interest rate. Dividend earned whilst holding ‘Available for sale financial investments’ are recognised in the Income Statement as ‘Net gain on financial assets’ when the right to receive the payment has been established. The losses arising from impairment of

such investments are recognised in the Income Statement under ‘Impairment charge for loans and other losses’ and removed from the ‘Available for sale reserve’.

Details of ‘Financial assets- available for sale’ are given in note 24 to the Financial statements.

5.1.5 Reclassification of financial assets and financial liabilities

Effective from 1 April 2018, the Company does not reclassify its financial assets subsequent to their initial recognition, apart from the exceptional circumstances in which the Company acquires, disposes of, or terminates a business line. Financial liabilities are never reclassified. The Company did not reclassify any of its financial assets or liabilities in 2017/ 2018.

5.1.6 Derecognition of financial assets and Liabilities

a) De-recognition of Financial asset

A financial asset (or, where applicable, 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 financial asset have expired. The Company also derecognises the financial asset if it has both transferred the financial asset and the transfer qualifies for recognition.

The Company has transferred the financial asset, if and only if, either:

� The Company has transferred its contractual rights to receive cash flows from the financial asset

Or

� It retains the rights to cash flows, but has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement.

Pass-through arrangements are transactions whereby the Company retains the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), when all of the following three conditions are met:

� The Company has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates.


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� The Company cannot sell or pledge the original asset other than as security to the eventual recipients

� The Company has to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the Company is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients.

A transfer only qualifies for recognition if either:

� The Company has transferred substantially all the risks and rewards of the asset

Or

� The Company has neither transferred nor retained substantially all the risks and rewards of the asset,but has transferred control of the asset

The Company considers control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of the consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

When the Company has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of the Company’s continuing involvement, in which case, the Company also recognises as associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company 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 the Company could be required to pay.

If continuing involvement takes the form of a written or purchased option (or both) on the transferred asset, the continuing involvement is measured at the value the

Company would be required to pay upon repurchase. In the case of a written put option on an asset that is measured at fair value, the extent of the entity’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

b) De-recognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

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 recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.

5.2 Determination of fair value of Financial Instruments

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exists, pricing models and other relevant valuation models.

5.3 Impairment of Financial Assets

Policy applicable effective from 1 April 2018

a. Overview of the expected credit loss (ECL) principles

The Company recognizes expected credit losses for all loans and other debt financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts. Equity instruments are not subject to impairment under SLFRS 9.

The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime Expected credit loss or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit loss (12mECL). The Company’s policies for determining if there has been a significant increase in credit risk are set out in 5.3.b below. The 12mECL is the portion of LTECLs that


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represent the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

Both LTECLs and 12mECLs are calculated on either an individual basis or collective basis, depending on the nature of the underlying portfolio of financial instruments.

The Company established a policy to perform as assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

Based on the above process, the Company groups its loans into Stage 1, Stage 2, Stage 3 and POCI, as described below.

Stage 1 : When loans are first recognised, the Company recognizes an allowance based on 12mECLs.Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2.

Stage 2 : When a loan has shown a significant increase in credit risk since origination, the Company records an allowance for the LTECLs. Stage 2 loans also include facilities, where the credit risk has improved and the loan has been reclassified from Stage 3.

Stage 3 : Loans considered credit-impaired. The Company records an allowance for the LTECLs.

POCI : Purchased or originated credit impaired (POCI) assets are financial assets that are credit impaired on initial recognition. POCI assets are recorded at fair value at original recognition and interest income is subsequently recognised based on a credit-adjusted EIR. ECLs are only recognised or released to the extent that there is a subsequent change in the expected credit losses.

For financial assets for which the Company has no reasonable expectations of recovering either the entire outstanding amount, or a proportion thereof, the gross carrying amount of the financial asset is reduced. This is considered a (partial) derecognition of the financial asset.

b. The Calculation of Expected Credit Loss (ECL)

The Company calculates ECLs based on four probability-weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR.A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract and the cash flows that the entity expects to receive.

The mechanics of the ECL calculations are outlined below and the key elements are, as follows.

PD : The probability of Default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

EAD : The Exposure at Default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expecteddraw downs on committed facilities, and accrued interest from missed payments.

LGD : The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral. It is usually expressed as a percentage of the EAD.

The mechanism of the ECL method are summarized below.

Stage 1 : The 12mECL is calculated as the portion of LTECLs that represent the ECLs that represent the ECLs that result from default events on a financial instrument that are possible with in the 12 months after the reporting date. The Company calculates the 12mECL allowance based on the expectation of a default occurring in the 12 months following the reporting date. These expected 12-month default probabilities are applied to a forecast EAD and multiplied by the expected LGD and discounted by an approximation of the original EIR.


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Stage 2 : When a loan has shown a significant increase in credit risk since origination, the Company records an allowance for the LTECLs. The mechanics are similar to those explained above, including the use of multiple scenarios, but PDs and LGDs are estimated over the lifetime of the instrument. The expected cash shortfalls are discounted by an approximation to the original EIR.

Stage 3 : For loans considered credit-impaired, the Company recognizes the lifetime expected credit losses for these loans. The method is similar to that for Stage 2 assets, with the PD set at 100%.

Loan Commitments : When estimating LTECLs for undrawn loan commitments, the Company estimates the expected portion of the loan commitment that will be drawn down over its expected life. The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability weighting of the four scenarios. The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan. For revolving loans that include both a loan and an undrawn commitment. ECLs are calculated and presented with the loan.

c. Debt instruments measured at fair value through OCI

The ECLs for debt instruments measured at FVOCI do not reduce the carrying amount of these financial assets in the Statement of Financial Position, which remains at fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI as an accumulated impairment amount, with a corresponding charge to Income Statement. The accumulated loss recognised in OCI is recycled to the profit or loss upon derecognition of the assets.

d. Revolving Loans

The Company’s product offering includes revolving loan facilities, in which the Company has the right to cancel and/or reduce the facilities within a short notice. The Company does not limit its exposure to credit losses to the contractual notice period, but, instead calculates ECL over a period that reflects the Company’s expectations of the customer behavior, its likelihood of default and the Company’s future risk mitigation procedures, which could include reducing or cancelling the facilities. Based on past experience and the Company’s expectations, the period over which the Company calculates ECLs for these products, is limited to 12 months.

The ongoing assessment of whether a significant increase in credit risk has occurred for revolving loan facilities is similar to other lending products. This is based on shifts in the customer’s internal credit grade, but greater emphasis is also given to qualitative factors such as changes in utilization.

e. Forward looking information

In its ECL models, the Company relies on a broad range of forward looking information as economic inputs, such as:

� GDP growth

� Unemployment rate

� Central Bank base rates

� Inflation

The inputs and models used for calculating ECLs may not always capture all characteristics of the market at the date of the Financial Statements. To reflect this, qualitative adjustments or overlays are occasionally made as temporary adjustments when such differences are significantly material.

5.4 Reversals of impairment

If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event occurring after the impairment was recognised, the excess is written back by reducing, the loan impairment allowance account accordingly. The write-back is recognised in the income statement.

5.5 Write-off of Financial Assets at Amortized Cost

The Company’s accounting policy under SLFRS 9 remains the same as it was under LKAS 39. Financial Assets (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where financial assets are secured, this is generally after receipt of any proceeds from the realization of security.

5.6 Offsetting Financial Assets and Liabilities

Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally, the case with master netting agreements, therefore, the related assets and liabilities are presented gross in the Statement of Financial Position.


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Income and expenses are presented on a net basis only when permitted under LKAS/ SLFRS, or for gains and losses arising from a group of similar transactions such as in the group’s trading activity.

5.7 Cash and Cash Equivalents

Cash and Cash Equivalents are defined as cash in hand, balances with banks and Investments with short maturities i.e. three months or less from the date of acquisition.

For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and balance with banks and Investments with short maturities i.e. three months or less from the date of acquisition net of outstanding bank overdrafts.

5.8 Finance and operating leases

The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

5.8.1 Finance lease

Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but not necessarily legal title, are classified as finance leases. When the Company is a lessor under finance leases the amounts due under the leases, after deduction of unearned charges, are included in ‘Loans and advances to Company’ or ‘Loans and advances to customers’, as appropriate. The finance income receivable is recognised in ‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net investment in the leases.

When the Company is a lessee under finance leases, the leased assets are capitalized and included in ‘Property, plant and equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities’. A finance lease and its corresponding liability are recognised initially at the fair value of the asset or, if lower, the present value of the minimum lease payments. Finance charges payable are recognised in ‘Net interest income’ over the period of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.

5.8.2 Operating lease

All other leases are classified as operating leases. 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.

When the Company is the lessee, leased assets are not recognised on the balance sheet. Rentals payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘Other operating expenses’ and ‘Other operating income’, respectively.

5.9 Non-Financial Assets

5.9.1 Real Estate Inventories

Real estate inventories are stated at cost and net realizable value whichever is lower. These costs include cost of purchases of the land and expenses on development that are capitalized.

5.9.2 Property and equipment

Property & Equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with LKAS 16 on Property, Plant & Equipment. Initially property and equipment are measured at cost.

Recognition and measurement

Cost Model

Property and equipment is stated at cost, excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when that cost is incurred, if the recognition criteria are met.

Subsequent Cost

These are costs that are recognised in the carrying amount of an item, if it is probable that the future economic benefits embodied within that part will flow to the Company and it can be reliably measured.


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Depreciation

Depreciation is provided on a straight-line basis over the period appropriate to the estimated useful lives of different types of assets, at varying rates specified as follows;

Category Rate (per annum)

Motor Vehicles 25%

Furniture & Fittings 12.5% (Up to 2012/13) 25%

Office Equipment 33.33%

Equipment 33.33%

Machinery 10%

Depreciation of an asset begins when it is available for use whereas depreciation of an asset ceases at the earlier of the date that the assets is classified as held for sale and the date that the asset is derecognised.

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.

De-recognition

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in ‘Other operating income’ in the statement of comprehensive income in the year the asset is derecognised.

5.9.3 Intangible Assets

All computer software costs incurred for use by the Company which are not integrally related to associated hardware, and can be, clearly identifiable, reliably measured and it’s probable they will lead to future economic benefits, are included in the Balance Sheet under the category Intangible Assets and carried at cost less cumulative amortization and accumulated impairment losses.

Expenditure incurred on Intangible Assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

Intangible assets are amortized on a straight line basis to the Income Statement from the date when the asset is available for use, over the best estimate of its useful economic life.

Computer Software 20%

(Up to 2012/13) 50%

5.9.4 Investment Property

Investment property is 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.

Investment property is initially recognised at cost. Subsequent to initial recognition the investment property is stated at fair values, which reflect market conditions at the Statement of Financial Position date. Gains or losses arising from changes in fair value are included in the Statement of Comprehensive Income in the year in which they arise.

Derecognition

Investment property is derecognised 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 Comprehensive Income in the year of retirement or disposal.

Fair Value of Investment Property

Investment property of the Company is reflected at fair value using the income approach. When arriving for the income approach it took consideration of the discounted cash flow projections based on the monthly rental amount of the property and the discount rates that reflect uncertainty in the amount and timing of cash flows.

5.9.5 Impairment of non–financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.


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In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

For assets an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the Income Statement.

5.10 Non-Financial Liabilities

5.10.1 Retirement Benefit Obligations

(i) Gratuity

All the employees of the Company are eligible for gratuity under the Payment of Gratuity Act No. 12 of 1983.

Employees who have resigned or whose services are terminated other than by retirement are eligible to receive the terminal gratuity under the Payment of Gratuity Act No. 12 of 1983 at the rate of half of the Gross Salary applicable to the last month of the financial year in which the employment is terminated or resigned, for each year of completed service, for those who have served in excess of 5 years.

An actuarial valuation is carried out at every year to ascertain the full liability under the Fund. The valuation was carried out as at 31 March 2019 by Actuarial & Management Consultants (Pvt) Ltd, a firm of professional actuaries.

Interest Cost

Interest cost is the expected increase due to interest during the period in the present value of the plan liabilities because the benefits are one year closer to settlement.

Actuarial Gain / (Loss)

The Company recognize the total actuarial gain/(losses) that arise in calculating the Company’s obligation in respect of the plan in other comprehensive income during the period in which it occurs.

Funding Arrangements

The Gratuity liability is not externally funded.

(ii) Defined contribution plan

The Company also operates a defined contribution plan. The contribution payable to a defined contribution plan is in proportion to the services rendered to the Company by the employees and is recorded as an expense under ‘Personnel expenses’. Unpaid contributions are recorded as a liability.

The Company contributes to the following Schemes:

Employees’ Provident Fund

The Company and employees contribute 12% and 8% respectively of the employee’s monthly gross salary (excluding overtime) to the Provident Fund. The Company’s Provident Fund is an approved fund under the Employees’ Provident Fund Act.

Employees’ Trust Fund

The Company contributes 3% of the employee’s monthly gross salary excluding overtime to the Employees’ Trust Fund maintained by the Employees Trust Fund Board.

5.10.2 Taxation

Income Tax expense comprises of current and deferred tax. Income tax expense is recognised in the statement of comprehensive Income.


132


a) Current tax

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the Commissioner General of Inland Revenue in respect of the current year and any adjustment to tax payable in respect of prior years. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the financial reporting date.

b) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the financial reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose. Deferred tax liabilities are recognised for all taxable temporary differences, except:

� Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of transaction, affects neither the accounting profit nor taxable profit or loss.

� In respect of taxable temporary differences associated with investments in Subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible differences. Carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of a deferred tax asset is reviewed at each Balance Sheet date and reduced to the extent it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognised deferred tax asset are reassessed at each financial reporting date and are recognised to the extent that is probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the assets are realized or the liabilities are settled, based on tax rates and tax laws that have been enacted or subsequently enacted at the financial reporting date.

c) VAT on Financial Services

VAT on financial services is calculated in accordance with the Value Added Tax (VAT) Act No.14 of 2002 and subsequent amendments thereto. The base for the computation of value added tax on financial services is the accounting profit before VAT and income tax, adjusted for the economic depreciation and emoluments payable to employees including cash, non-cash benefits and provisions relating to terminal benefits.

d) Nation Building Tax (NBT) on Financial Services

NBT on financial services is calculated in accordance with Nation Building Tax (NBT) Act No 9 of 2009 and subsequent amendments thereto with effect from 01 January 2014. NBT on financial services is calculated as 2% of the value addition used for the purpose of VAT on financial services.

5.11 Revenue and Expense Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

5.11.1 Interest Income and Interest expense

Under both SLFRS 9 and LKAS 39, interest income and interest expense is recorded using the effective interest rate (EIR) method for all financial instruments measured at amortised cost. Interest income on interest bearing financial assets measured at FVOCI under SLFRS 9, similarly to interest bearing financial assets classified as available-for-sale or held to maturity under LKAS 39 is also recorded by using the EIR method. The EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability.

The EIR (and therefore, the amortised cost of the asset/liability) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR. The Company recognises interest income/expense using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loan. Hence, it recognises the effect of potentially different interest rates charged at various stages, and other characteristics of the product life cycle (including prepayments, penalty interest and charges).


133

If expectations regarding the cash flows on the financial asset/liability are revised for reasons other than credit risk, the adjustment is booked as a positive or negative adjustment to the carrying amount of the asset in the Statement of Financial Position with an increase or reduction in interest income/interest expense. The adjustment is subsequently amortised through Interest income/Interest expense in the income statement.

When a financial asset becomes credit-impaired (as set out in Note 5.3. (a)) and is, therefore, regarded as ‘Stage 3’, the Company calculates interest income by applying the effective interest rate to the net amortised cost of the financial asset. If the financial assets cures and is no longer credit-impaired, the Company reverts to calculating interest income on a gross basis.

Interest income on all trading assets and financial assets mandatorily required to be measured at FVPL is recognised using the contractual interest rate under net interest income.

5.11.2 Dividend income

Dividend income is recognised when the right to receive the payment is established.

5.11.3 Net trading income

Net trading income includes all gains and losses from changes in fair value and related dividends for financial assets and financial liabilities ‘held for trading’ other than interest income.

5.11.4 Fee and commission income

The Company earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee income earned from services that are provided over a certain period of time.

Fees earned for the provision of services over a period of time are accrued over that period.

Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

5.11.5 Income from Real Estate

The Company recognizes revenue from real estate based on a five step model as set out in SLFRS 15:

Step 1. Identify the contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for every contract that must be met.

Step 2. Identify the performance obligations in the contract: A performance obligation is a promise in a contract with a customer to transfer a good or service to the customer.

Step 3. Determine the transaction price: The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Step 4. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, the Company will allocate the transaction price to each performance obligation in an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation.

Step 5. Recognise revenue when (or as) the entity satisfies a performance obligation.

The Company has identified income from real estate (freehold Land) as in scope of SLFRS 15. The Company enters into contracts with customers to sell freehold land.

The sale of freehold land is generally expected to be the only performance obligation and the Company has determined that it will be satisfied at the point in time when control transfers. For unconditional exchange of contracts, this is generally expected to be when legal title transfers to the customer. For conditional exchanges, this is expected to be when all significant conditions are satisfied therefore income from the real estate sale is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer.


134


5.11.6 Regulatory provisions

a Statutory Reserve Fund

The statutory reserve fund is maintained as required by Finance Companies (Capital Funds) Direction No.1 of 2003 issued by Central Bank of Sri Lanka. As per the said Direction, every Registered Finance Company shall maintain a reserve fund, out of the net profit for each year after provisions for taxation and bad and doubtful debts. Accordingly, 20% of the net profit for the year transferred to Reserve Fund as required by Section 3(b) ii of the said Direction.

b Deposit Insurance and Liquidity Support Scheme

In terms of the Finance Company’s Act Direction No 2 of 2010 ‘Insurance of Deposit Liabilities’ issued on 27 September 2010 and subsequent amendments there to 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 32E of the Monetary Law Act with effect from 1 October 2010. The said scheme was renamed as the ‘Sri Lanka Deposit Insurance and Liquidity Support Scheme’ as per the Sri Lanka Deposit Insurance and Liquidity Support Scheme Regulation No 1 of 2013.

Deposits to be insured include demand, time and savings deposit liabilities and exclude the following;

a) Deposit liabilities to member institutions

b) Deposit liabilities to Government of Sri Lanka

c) Deposit liabilities to Directors, key management personnel and other related parties as defined in Banking Act Direction No 11 of 2007 on Corporate Governance of Licensed Commercial Banks

d) Deposit liabilities held as collateral against any accommodation granted

e) Deposit liabilities falling within the meaning of abandoned property in terms of the Banking Act and 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 total amount of eligible deposits as at end of the month with in a period of 15 days from the end of the respective month

C Crop Insurance Levy (CIL)

In terms Section 15 of the Finance Act No 12 of 2013 all institutions under the purview of Banking Act No 30 of 1988, Finance Companies Act No 78 of 1988 and Regulation of Insurance Industry Act No 43 of 2000 are required to pay 1% of the profit after tax as Crop Insurance Levy to the National Insurance Trust Fund Board effective from 01 April 2013.

d Debt Repayment Levy

As per the provisions of the Finance Act No.35 of 2018, Debt repayment levy has been imposed for a limited period from 01 October 2018 to 31 December 2021.

A levy of 7% is charged monthly on the value addition attributable to the supply of financial services as specified in section 36 of Finance Act No. 35 of 2018 along with section 25C of the Value Added Tax (VAT) Act No. 14 of 2002.

6. STANDARD ISSUED BUT NOT YET EFFECTIVE

SLFRS 16 – Leases

SLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). SLFRS 16 will replace Sri Lanka Accounting Standard - LKAS 17 - Leases and related interpretations. SLFRS 16 introduces a single accounting model for the lessee, eliminating the present classification of leases in LKAS 17 as either operating leases or finance leases.

The new Standard requires a lessee to:

� recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value

� present depreciation of lease assets separately, from interest on lease liabilities in the statement of comprehensive income

SLFRS 16 substantially carries forwards the lessor accounting requirement in LKAS 17. Accordingly, a lessor continues to classify its leases as operating lease or finance lease, and to account for those two types of leases differently.

SLFRS 16 will become effective on 1 January 2019. The impact on the implementation of the above Standard has not been quantified yet.


1357.

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136


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137

E The impact on retained earnings by transition to SLFRS 09 is as follows,

Closing balance under LKAS 39 as at 31 March 2018 95,883,622

Re-measurement adjustments on adoption of SLFRS 9

Recognition of SLFRS 9 ECLs for loans, investments and guarantee contracts (49,017,278)

Deferred tax impact on above 13,724,838

Total charge in equity due to adoption of SLFRS 9 (35,292,440)

Opening balance under SLFRS 9 as 31 March 2018 60,591,182

The following table reconciles the aggregate opening credit loss provision under LKAS 39 to the impairment on ECL under SLFRS 9.

Loan loss

provision under ECLs under

LKAS 39/ Re- SLFRS 9 as at

In Rs. LKAS 37 measurement 01 April 2018

Impairment provision for

Cash & Cash Equivalents - 40,780 40,780

Loans and Advances 125,258,826 44,587,503 169,846,329

Lease Rentals Receivable & Stock Out on Hire 4,042,290 2,770,477 6,812,767

Other Financial Assets - 22,868 22,868

Other Financial Liabilities - 1,595,649 1,595,649

129,301,117 49,017,278 178,318,395

2019 2018

Rs. Rs.

8. INTEREST INCOME AND EXPENSES

8.1 Interest Income

Financial assets at amortised cost - Loans and Advances 710,015,590 344,778,683

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 164,980,299 31,508,527

Financial investments at amortised Cost - Debt and other Instruments / Held to Maturity 34,912,407 35,169,748

Interest Income on Overdue Interest 29,690,638 23,606,096

Interest Income on Other Investment 7,582,330 10,387,307

Total Interest Income 947,181,264 445,450,360

8.2 Interest Expenses

Due to Banks 31,893,911 5,861,714

Due to Other Financial Institutions 40,925,560 10,782,870

Due to Customers 335,124,763 192,805,486

Total Interest Expenses 407,944,234 209,450,069

Net Interest Income 539,237,030 236,000,292


138


2019 2018

Rs. Rs.

9. FEE AND COMMISSION INCOME

Credit Related Fees and Commissions 1,455,345 232,731

Service Charges 20,248,945 12,186,660

Total Fee and Commission Income 21,704,289 12,419,392

10. NET GAIN/(LOSS) FROM TRADING

Other Trading Income / (Expense) - (70)

- (70)

11. OTHER OPERATING INCOME (NET)

Net Real Estate Income (11.1) 72,993,802 34,004,803

Profit on disposal of Property, Plant & Equipment 3,160,526 -

Bad Debt Recoveries 14,309,277 2,178,133

Dividend Income 206,400 180,000

Sundry Income 21,701,362 5,226,399

Rent Income 19,565,218 4,386,540

Fair Value - Investment Property - 28,925,534

Total Other Operating Income 131,936,585 74,901,409

2019 2018

Rs. Rs.

11.1 Net Real Estate Income

Real Estate Turnover 363,961,422 139,350,819

Real Estate Cost of Sale (290,967,620) (105,346,016)

72,993,802 34,004,803

12. IMPAIRMENT CHARGES AND OTHER LOSSES

2019* 2018

Rs. Rs.

Cash & Cash Equivalents (825) -

Financial Assets at amortised cost

Lease Rentals Receivable & Stock Out on Hire 22,056,527 (1,867,460)

Loans and Advances 63,764,481 109,500,087

Debt & other instruments (5,320) -

Credit related commitments & contingencies 135,996 -

Total impairment charges 85,950,859 107,632,627

Direct Write-offs 373,421 -

Total 86,324,280 107,632,627


139

*The amounts for the year ended 31 March 2019 have been prepared in accordance with Sri Lanka Accounting Standard - SLFRS 9 (Financial Instruments), whereas prior period amounts have not been restated.

12.1. The table below shows the impairment charges for financial instruments for the year recorded in stagewise Income Statement

2019 2019 2019 2019

Rs. Rs. Rs. Rs.

Stage 1 Stage 2 Stage 3 Total

Cash & Cash Equivalents (825) - - (825)

Financial Assets at amortised cost - Lease receivables Lease Rentals Receivable & Stock Out on Hire 3,220,685 6,991,982 11,843,860 22,056,527

Financial Assets at amortised cost - Loans and Advances (9,466,351) 14,845,223 58,385,608 63,764,481

Financial Assets at amortised cost - Debt & other instruments (5,320) - - (5,320)

Credit related commitments & contingencies - 135,996 - 135,996

(6,251,811) 21,973,201 70,229,468 85,950,858

2019 2018

Rs. Rs.

13. PERSONNEL COSTS

Salaries and Bonus 87,474,617 58,603,927

Directors' Emoluments 2,694,444 1,743,651

Employer’s Contribution to EPF 9,455,126 6,544,815

Employer’s Contribution to ETF 2,363,781 1,636,206

Gratuity Charge/ (Reversals) for the Year 2,097,706 1,220,257

Other Staff related Expenses 9,578,152 4,528,743

113,663,826 74,277,599

14. OTHER OPERATING EXPENSES

Audit Fees 400,000 358,000

Non-audit related fees and expenses 1,985,283 468,814

Professional & Legal Expenses 8,116,244 3,792,725

Office Administration & Establishment Expenses 103,244,342 70,373,679

Advertising & Business Promotion Expenses 14,966,123 5,563,851

Others 23,018,953 12,969,858

151,730,945 93,526,927


140


2019 2018

Rs. Rs.

15. VAT ON FINANCIAL SERVICES, NBT & DEBT REPAYMENT LEVY

Nation Building Tax 5,335,344 1,061,678

Debt Repayment Levy 10,863,877 -

Financial VAT 40,015,081 7,962,581

56,214,302 9,024,259

16. TAXATION

16.1 The major components of income tax expense for the years ended 31 March are as follows.

2019 2018

Rs. Rs.

Current Income Tax

Current tax expense 53,418,511 11,457,372

Deferred Tax

Deferred Taxation (Reversal)/Charge (Note 31) 39,973,353 2,575,502

93,391,864 14,032,874

16.2 Reconciliation of Accounting Profit and Taxable Income

A reconciliation between the tax expense and the accounting profit multiplied by Government of Sri Lanka’s tax rate for the Years ended 31 March 2019 and 2018 is as follows.

2019 2018

Rs. Rs.

Accounting Profit Before Income Taxation 272,037,347 27,123,587

Income Tax Expense at the statutory income tax rate of 28% 76,170,457 7,594,604

Tax effect of non deductible expenses 69,444,350 63,562,670

Tax effect of other allowable credits (92,196,296) (59,699,902)

Charge/(Reversal) for Deferred Tax 39,973,353 2,575,502

93,391,864 14,032,874

Effective Tax Rate 34% 52%


141

17. EARNINGS PER ORDINARY SHARE

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by weighted average number of ordinary shares outstanding during the year, as per LKAS 33- Earnings Per Share.

Weighted Average Number of Ordinary Shares for Basic / Diluted EPS

Outstanding No. of Shares Weighted Average No. of Shares

2019 2018 2019 2018

Rs. Rs. Rs. Rs.

Number of shares in issue as at 1 April 36,000,000 22,500,000 36,000,000 22,500,000

Add : Number of shares issued under rights issue September 2017 - 13,500,000 -

Add : Number of shares issued under rights issue July 2018 43,200,000

Add : Bonus element on number of shares issued under rights issue 2017 - - 613,636

Number of shares in issue / weighted average number of shares as at 31 March - - 32,400,000 7,875,000

79,200,000 36,000,000 68,400,000 30,988,636

Profit after tax for the year attributable to equity holders 178,645,483 13,090,713

Weighted average number of ordinary shares 68,400,000 30,988,636

Basic / diluted earnings per ordinary share (Rs) 2.61 0.42

18. ANALYSIS OF FINANCIAL INSTRUMENTS BY MEASUREMENT BASIS

Financial Instruments are measured on an ongoing basis either at fair value or at amortised cost. The summary of Significant Accounting Policies describes how each category of financial instruments is measured and how income and expenses, including fair value gains and losses, are recognised.The following table provides a reconciliation between line items in the Statement of Financial Position and categories of financial instruments.


142


Fair value

through other

Amortised comprehensive

Cost income Total

Rs. Rs. Rs.

18.1 As at 31 March 2019

Assets

Cash & Cash Equivalents 469,366,656 - 469,366,656

Financial assets at amortised cost - Loans and Advances 3,418,267,118 - 3,418,267,118

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 886,748,708 - 886,748,708

Financial investments at amortised cost - Debt & other instruments 387,329,553 - 387,329,553

Financial investments at fair value through other comprehensive income - 56,300 -

Total Financial Assets 5,161,712,035 56,300 5,161,712,035

Amortised

Cost Total

Rs. Rs.

Liabilities

Due to Banks and Other Financial Institutions 1,094,217,290 1,094,217,290

Due to Customers 2,746,322,013 2,746,322,013

Other Financial Liabilities 6,575,856 6,575,856

Total Financial Liabilities 3,847,115,159 3,847,115,159

HFT at Fair HTM at L&R at AFS at Fair

Value Amortised Cost Amortised Cost AFS at Cost Value Total

Rs. Rs. Rs. Rs. Rs.

18.2 As at 31 March 2018

Assets

Cash & Cash Equivalents - - 417,958,339 - - 417,958,339

Financial assets at amortised cost - Loans and Advances - - 2,184,713,733 - - 2,184,713,733

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire - - 496,020,155 - - 496,020,155

Financial Investments - Available for sale - - - 56,300 - 56,300

Financial Investments - Held to Maturity - 122,468,456 - - - 122,468,456

Other Financial Assets - - 153,375,687 - - 153,375,687

Total Financial Assets - 122,468,456 3,252,067,913 56,300 - 3,374,592,670


143

Other FL at

FL - FVTPL Amortised Cost Total

Rs. Rs. Rs.

Liabilities

Due to Banks - 192,350,891 192,350,891

Due to Customers - 2,399,149,502 2,399,149,502

Other Financial Liabilities - 240,422,196 240,422,196

Total Financial Liabilities - 2,831,922,589 2,831,922,589

19. CASH & CASH EQUIVALENTS

2019* 2018

Rs. Rs.

Cash in Hand 160,421,167 12,013,936

Balances with Banks 308,985,444 405,944,403

Less: Provision for impairment (19.1) (39,955) -

469,366,656 417,958,339


19.1 Movement in provision for impairment are as follows.

2019 2019

Rs. Rs.

Stage 1 Total

Balance as at 01.04.2018 40,780 40,780

Charge/(Reversal) for the year (825) (825)

Balance as at 31.03.2019 39,955 39,955

19.2 Net Cash and Cash Equivalents for the purpose of the Cash Flow Statement

Favourable Cash & Cash Equivalents 469,406,611 417,958,339

Deposits with less than three months 193,117,585 74,852,197

Bank Overdrafts (Note 32) (237,576,960) (42,276,552)

Net Cash & Cash Equivalents 424,947,236 450,533,984

20. INVESTMENT IN FIXED DEPOSITS

Deposits with Banks and Other Financial Institutions - 152,081,166

-

- 152,081,166


144


21. FINANCIAL ASSETS AT AMORTISED COST - LOANS AND ADVANCES

2019* 2018

Rs. Rs.

Term Loans 634,105,108 740,312,642

Short Term Loans 256,311,446 214,400,790

Consent Motion Loan 109,966,022 48,954,624

PD Loan 25,572,630 88,517,079

Staff Loans 1,874,765 6,263,325

Vehicle Loans 38,184,873 72,736,795

Easy Payment Loans 761,721,166 414,295,908

Loans against Deposits 102,352,990 95,378,717

Personal Loans 26,122,706 44,334,797

Trade Loans 6,922,715 13,832,520

Mortgage Loan 1,687,147,859 569,349,713

3,650,282,279 2,308,376,910

Less : Provision for impairment (Note 21.1) (232,015,161) (123,663,178)

Net Loans and Advances 3,418,267,118 2,184,713,733


21.1 Analysis of loan receivables on maximum exposure to credit risk As at 31 March 2019


Rs. Rs. Rs. Rs.

Individually impaired loan receivables - - 138,244,590 138,244,590

loan receivables subject to collective impairment 2,267,117,978 629,369,348 615,550,362 3,512,037,689

Less: Provision for impairment (21.2) (22,231,107) (24,024,221) (185,759,833) (232,015,161)

2,244,886,871 605,345,127 568,035,119 3,418,267,118

21.2Movement in provision for impairment are as follows.

Balance as at 01 April 2018 (with SLFRS 09 impact) 31,697,457 9,178,998 127,374,225 168,250,680

Charge/ (Reversal) to statement of comprehensive income (9,466,351) 14,845,223 58,385,608 63,764,481

Balance as at 31 March 2019 22,231,107 24,024,221 185,759,833 232,015,161

21.3 Provision for impairment are as follows.

Individually impaired loans - - 86,958,964 86,958,964

Collective impaired loans (ECL) 22,231,107 24,024,221 98,800,869 145,056,197



145

2019 2018

Rs. Rs.

21.3.1 Provision for impairment

Individually impaired loans

Balance as at 01 April 76,638,534 6,939,650

Charge/ (Reversal) to statement of comprehensive income 10,320,429 69,698,884

Balance as at 31 March 86,958,964 76,638,534

21.3.2 Provision for impairment

Collective impaired loans


Impact of adoption of SLFRS 09 as at 01 April 2018 44,587,503 -

91,612,147 87,534,695

Charge/ (Reversal) to statement of comprehensive income 53,444,051 (40,510,052)


22. FINANCIAL ASSETS AT AMORTISED COST - LEASE RENTALS RECEIVABLE & STOCK OUT ON HIRE

2019* 2018

Rs. Rs.

Gross Rentals Receivables

- Lease Rentals 1,308,800,499 731,375,140

- Amounts Receivable from Hirers 2,383,363 5,964,925

1,311,183,863 737,340,065

Less: Unearned Income (395,565,861) (237,277,620)

Net Rentals Receivables 915,618,002 500,062,445

Less : Provision for impairment (28,869,294) (4,042,290)

Total Net Rentals Receivable 886,748,708 496,020,155


22.1 Analysis of hire purchase and lease receivables on maximum exposure to credit risk


Rs. Rs. Rs. Rs.

Individually impaired HP & Lease - - 2,443,483 2,443,483

Hire purchase and lease receivables subject to collective impairment 596,870,263 229,858,500 86,445,755 913,174,518

Less: Provision for impairment (Note 22.2) (6,034,125) (7,626,998) (15,208,171) (28,869,294)

590,836,138 222,231,502 73,681,067 886,748,707


146




Rs. Rs. Rs. Rs.

Balance as at 01 April 2018 (with SLFRS 09 impact) 2,813,440 635,016 3,364,311 6,812,767

Charge/ (Reversal) to statement of comprehensive income 3,220,685 6,991,982 11,843,860 22,056,527


22.3 Provision for impairment are as follows.

Individually impaired loans - - 2,443,483 2,443,483

Collective impaired loans (ECL) 6,034,125 7,626,998 12,764,688 26,425,811


2019 2018

Rs. Rs.

22.3.1 Provision for impairment are as follows.

Individually impaired loans




22.3.2 Provision for impairment are as follows.

Collective impaired loans


Impact of adoption of SLFRS 09 as at 01 April 2018 2,770,477 -

5,544,863 13,625,545




147

Within one year 1 - 5 years Over 5 years Total

Rs. Rs. Rs. Rs.

22.4 As at 31 March 2019


- Lease Rentals 99,398,581 1,160,037,757 49,364,161 1,308,800,498

- Amounts Receivable from Hirers 2,383,363 - - 2,383,363

101,781,944 1,160,037,757 49,364,161 1,311,183,862

Less: Unearned Income

Finance Lease (27,733,792) (346,433,299) (21,385,880) (395,552,971)

Hire Purchase (12,890) - - (12,890)

Net Rentals Receivables 74,035,262 813,604,458 49,364,161 915,618,002

Less : Provision for impairment

Finance Lease (26,767,551)

Hire Purchase (2,101,743)

Total Net Rentals Receivable 886,748,708

Within one year 1 - 5 years Over 5 years Total

Rs. Rs. Rs. Rs.

22.5 As at 31 March 2018


- Lease Rentals 197,682,131 363,786,548 169,906,462 731,375,140

- Amounts Receivable from Hirers 3,346,058 2,618,867 - 5,964,925

201,028,188 366,405,415 169,906,462 737,340,065

Less: Unearned Income

Finance Lease (94,436,558) (113,613,945) (28,838,739) (236,889,243)

Hire Purchase (373,594) (14,783) - (388,377)

Net Rentals Receivables 106,218,036 252,776,687 169,906,462 500,062,446

Less : Provision for Impairment

Finance Lease (2,763,662)

Hire Purchase (1,278,629)

Total Net Rentals Receivable 496,020,155


148


23. FINANCIAL INVESTMENTS AT AMORTISED COST - DEBT AND OTHER INSTRUMENTS / HELD TO MATURITY

2019* 2018

Rs. Rs.

Financial Investments - Held to Maturity - 122,468,456

Financial Investments at Amortised Cost 387,329,553 -

387,329,553 122,468,456


The Company has classified its investments in government debt securities-Treasury bills & bonds previously classified as financial investments held to maturity as debt instruments at amortised cost.

2019 2018

Rs. Rs.

23.1 Government of Sri Lanka Treasury Bills 192,988,421 121,398,136

Government of Sri Lanka Treasury Bonds 1,090,640 1,070,320

Deposits with Banks and Other Financial Institutions (23.2) 193,268,040 -

Less: Provision for impairment (23.3) (17,548) -

387,329,553 122,468,456

23.2 Deposits with Banks and Other Financial Institutions (Net of impairment)

Less than 03 months 193,117,585 74,852,197

More than 03 months 132,907 77,228,969

193,250,492 152,081,166


2019 2019

Rs. Rs.

Stage 1 Total

Balance as at 01.04.2018 22,868 22,868

Charge/(Reversal) for the year (5,320) (5,320)

Balance as at 31.03.2019 17,548 17,548


149

24. FINANCIAL INVESTMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME / AVAILABLE FOR SALE

2019 2018

Rs. Rs.

Unquoted equities (Note 24.1)

Financial Investments - available for sale - 56,300

Financial Investments at fair value through other comprehensive income (FVOCI) 56,300 -

56,300 56,300


Unquoted available for sale investments/equity instruments at FVOCI are recorded at cost, since there is no market value for these investments and the Company intends to hold them for the long run.

24.1 Unquoted equities

31.03.2019 31.03.2018

Number of Cost of Number of Cost of

shares Investment Fair Value shares Investment Fair Value

Rs. Rs. Rs. Rs.

Credit Information Bureau of Sri Lanka 100 56,300 56,300 100 56,300 56,300

Total 56,300 56,300 56,300 56,300

2019 2018

Rs. Rs.

25. OTHER FINANCIAL ASSETS

Receivable - Rent Income 6,919,521 1,294,521

Others 2,017,064 -

8,936,585 1,294,521

26. INVENTORIES

Real Estate Stock (Note 26.1) 386,746,646 129,266,607

386,746,646 129,266,607

26.1 Real Estate Stock

Balance at the beginning of the year 133,249,497 38,550,560

Additions during the year 552,487,715 200,683,913

Disposals during the Year (287,882,494) (105,984,976)

397,854,718 133,249,497

Less: Project Provision (11,108,071) (3,982,891)

Balance at the end of the year 386,746,646 129,266,607


150


2019 2018

Rs. Rs.

27. OTHER NON FINANCIAL ASSETS

Taxes Receivable - 8,581

Prepayments 9,604,882 7,778,196

Others 2,333,405 3,628,658

11,938,288 11,415,435

28. INVESTMENT PROPERTY

As at 31 March 2019 2018

Rs. Rs.

Balance as at 1 April 105,439,534 -

Additions during the year - 76,514,000

Change in fair value during the year - 28,925,534


Rental income earned 19,565,218 4,386,540

Direct operating expenses incurred - -

Land and building located at No. 66, Attidiya Road, Ratmalana (with an extend of 93.3 perches) is being rent out to a third party by the Company and the property is held to earn rental income. Accordingly, these land and building have been classified as investment property in the Statement of Financial Position of the Company in accordance with Sri Lanka Accounting Standard - LKAS 40 - ‘Investment Property’.

Description of valuation techniques used and key inputs to valuation of investment properties:

PropertyName of the Chartered Valuation Surveyor

Method of valuation

Significant unobservable inputs

Estimated price per perch (Rs.)

Estimated discount rate

Correlation to fair value

Land and building, No. 66,Attidiya Road,Ratmalana

R.S. Wijesuriya Income approach

1,875,000 14.90% Negatively correlated sensitivity


151

29. PROPERTY, PLANT AND EQUIPMENT

29.1 Gross Carrying Amounts

Balance Additions/ Disposals Balance

As at Acquisitions As at

01.04.2018 31.03.2019

Rs. Rs. Rs. Rs.

Cost

Freehold Assets

Equipment 6,869,061 233,752 - 7,102,813

Furniture & Fittings 21,243,319 1,756,946 23,000,264

Motor Vehicles - Company 7,688,952 5,225,000 (388,875) 12,525,077

Office Equipment 36,390,870 4,051,023 - 40,441,894

Machinery 1,047,018 - - 1,047,018

Assets on Finance Lease

Motor Vehicle 3,886,596 327,000 (4,213,596) -

Total Value of Depreciable Assets 77,125,815 11,593,721 (4,602,471) 84,117,066

29.2 Depreciation

Balance Charge Disposals Balance

As at for the As at

01.04.2018 Year 31.03.2019

Rs. Rs. Rs. Rs.

Depreciation

Freehold Assets

Equipment 2,898,452 1,611,930 - 4,510,382

Furniture & Fittings 9,714,709 2,484,968 - 12,199,677

Motor Vehicles - Company 7,535,479 196,466 (337,892) 7,394,053


Machinery 666,545 104,701 - 771,246


Motor Vehicle 3,886,596 325,465 (4,212,061) -

48,600,675 12,257,044 (4,549,953) 56,307,765


152


29.3 Gross Carrying Amounts

Balance Additions/ Disposals Balance

As at Acquisitions As at

01.04.2017 31.03.2018

Rs. Rs. Rs. Rs.

Cost Rs. Rs. Rs. Rs.

Freehold Assets

Equipment 2,252,037 4,617,024 - 6,869,061


Motor Vehicles - Company 7,688,952 - - 7,688,952


Machinery 1,047,018 - - 1,047,018


Motor Vehicle 3,886,596 - - 3,886,596

Total Value of Depreciable Assets 57,434,921 19,690,895 - 77,125,815

29.4 Depreciation

Balance Charge Disposals Balance

As at for the As at

01.04.2017 Year 31.03.2018

Rs. Rs. Rs. Rs.

Depreciation

Freehold Assets

Equipment 2,252,037 646,415 - 2,898,452


Motor Vehicles - Company 6,317,890 1,217,589 - 7,535,479


Machinery 561,834 104,711 - 666,545


Motor Vehicle 3,439,386 447,210 - 3,886,596

37,970,608 10,630,066 - 48,600,675


153

29.5 Net Book Values

2019 2018

Rs. Rs.

Equipment 2,592,431 3,970,609

Furniture & Fittings 10,800,587 11,528,610

Motor Vehicles - Company 5,131,024 153,473

Office Equipment 9,009,486 12,491,977

Machinery 275,772 380,473

Total Carrying Amount of Property, Plant & Equipment 27,809,300 28,525,141

29.6 Property, Plant and Equipment acquired during the Financial Year

During the financial year, the Company acquired Property, Plant and Equipment to the aggregate value of Rs. 11,593,721/- (2018 - Rs. 19,690,895/-). Cash payment amounting to Rs. 11,593,721/- (2018 - Rs. 19,690,895/-) was made during the year for purchases of Property, Plant and Equipment.

29.7 Fully Depreciated Property, Plant and Equipment

The initial cost of fully depreciated Property, Plant and Equipment, which are still in use as at the reporting date is Rs. 32,091,662/- (2018 - Rs. 30,217,812.46/-).

30. INTANGIBLE ASSETS

2019 2018

Rs. Rs.

Cost

Cost as at 01 April 8,818,137 7,818,137

Additions and Improvements 1,668,437 1,000,000

Cost as at 31 March 10,486,574 8,818,137

Amortisation

Amortisation as at 01 April 6,595,825 5,489,869

Charge for the year 650,160 1,105,957

Accumulated amortisation as at 31 March 7,245,985 6,595,825

Net Book Value as at 31 March 3,240,589 2,222,312

30.1 Intangible Assets include computer software of the Company.

During the financial year, the Company acquired intrangible assets value of Rs. 1,668,437/- (2018 - Rs. 1,000,000/-). Cash payments amounting to Rs. 1,668,437/-(2018- Rs.1,000,000/-) was made during the year for purchases of intangible assets.

The initial cost of fully amortized Intangible assets ,which are still in use as at the reporting date is Rs. 6,326,997/-. (2018 - Rs. 4,126,996/-).


154


31. DEFERRED TAXATION

Deferred Tax (Assets), Liabilities and Income Tax relate to the following

Accelerated depreciation for tax purposes

Property, Defined

plant & Leased Provision for Investment Benefit

equipment assets loan losses Property Obligation Total

Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 1 April 2017 108,556 2,748,243 (24,733,884) - (611,570) (22,488,656)

Income statement(Note 16.1) 2,371,131 21,842,577 (29,462,001) 8,099,099 (275,305) 2,575,502

Other comprehensive income - - - - - -

Balance as at 31 March 2018 2,479,687 24,590,820 (54,195,884) 8,099,099 (886,875) (19,913,154)

Balance as at 31 March 2018 2,479,687 24,590,820 (54,195,884) 8,099,099 (886,875) (19,913,154)

Impact of adoption of SLFRS 9 (Note 7) - - (13,724,838) - - (13,724,838)

Adjusted balance as at 1 April 2018 2,479,687 24,590,820 (67,920,722) 8,099,099 (886,875) (33,637,992)

Income statement(Note 16.1) (1,672,860) (1,313,248) 48,624,946 (5,206,564) (458,921) 39,973,353

Other comprehensive income - - - - 136,692 136,692

Balance as at 31 March 2019 806,827 23,277,571 (19,295,776) 2,892,535 (1,209,105) 6,472,052

32. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS

2019 2018

Rs. Rs.

Bank Overdrafts 237,576,960 42,276,552

Finance Lease (32.2) - 257,672

Bank Loan (32.3) 319,048,816 149,816,667

Loans - Other Financial Institutions (32.4) 537,591,514 235,329,371

Total 1,094,217,290 427,680,261


155

32.1 Maturity Analysis

Note 2019 2019 2019 2018 2018 2018

Repayable Repayable Total Repayable Repayable Total

within 1 year after 1 year within 1 year after 1 year


Bank Overdraft 237,576,960 - 237,576,960 42,276,552 - 42,276,552

Finance Lease 32.2 - - 257,672 - 257,672

Bank Loan 32.3 185,767,850 133,280,966 319,048,816 35,767,851 114,048,816 149,816,667

Loans - Other Financial Institutions 32.4 5,174,249 532,417,265 537,591,514 235,329,371 - 235,329,371

428,519,058 665,698,232 1,094,217,290 313,631,445 114,048,816 427,680,261

The borrowings include long term and short term loans which carry interest rates which are variable and are reset on a monthly / quarterly / semi-annually / annual basis.

32.2 Finance Lease

As at New Leases Repayments As at

01.04.2018 Obtained 31.03.2019

Rs. Rs. Rs. Rs.

Finance Leases 257,672 - (257,672) -

257,672 - (257,672) -

Gross Liability 458,610 -

Finance Charges allocated for Future Periods (17,494) -

Down Payment (183,444) -

Net Finance Lease Liability 257,672 -

As at New Leases Repayments As at

01.04.2017 Obtained 31.03.2018

Rs. Rs. Rs. Rs.

Finance Leases 1,206,258 - (948,586) 257,672

1,206,258 - (948,586) 257,672

Gross Liability 1,559,274 458,610

Finance Charges allocated for Future Periods (169,572) (17,494)

Down Payment (183,444) (183,444)

Net Finance Lease Liability 1,206,258 257,672


156


32.2.1 Finance Lease Maturity

2019 2018

Rs. Rs.

Gross Liability - 458,610

Finance Charges allocated for Future Periods - (17,494)

Down Payment - (183,444)

Net Liability - 257,672

Repayable within One Year





Repayable after One Year before Five Years

Gross Liability - -

Finance Charges allocated for Future Periods - -

Down Payment - -

Net Liability - -

As at 31.03.2018 Loans Interest Capital Interest As at 31.03.2019

Capital Int. Payable Total Obtained Expenses Repayment Paid Capital Int. Payable Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

32.3 Bank Loans

NDB Bank PLC

Term Loan 149,816,667 - 149,816,667 - 22,977,541 (35,767,851) (22,977,541) 114,048,816 - 114,048,816

Short Term Loan - - - 155,000,000 1,361,644 (150,000,000) (1,361,644) 5,000,000 - 5,000,000

DFCC Bank PLC - - - - - - - - - -

Term Loan - - - 200,000,000 - - - 200,000,000 - 200,000,000

149,816,667 - 149,816,667 355,000,000 24,339,184 (185,767,851) (24,339,184) 319,048,816 - 319,048,816

32.4Loans - Other Financial Institutions

Capital Alliance Ltd - - - 100,000,000 6,501,963 (5,174,249) - 94,825,751 6,501,963 101,327,714

M Power Capital (Pvt) Ltd - - - 300,000,000 9,712,977 - - 300,000,000 9,712,977 309,712,977

First Capital Ltd - - - 124,978,371 1,572,452 - - 124,978,371 1,572,452 126,550,823

Agora Securities Ltd 224,546,501 10,782,870 235,329,371 - 23,138,168 (224,546,501) (33,921,037) - - -

224,546,501 10,782,870 235,329,371 524,978,371 40,925,560 (229,720,750) (33,921,037) 519,804,122 17,787,392 537,591,514


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32.5 Loan Terms and Security details

Name of the Financial Institution Repayment Terms Security

NDB Bank PLC 48 equal monthly installments Corporate Guarantee from Prime Lands (Pvt) Ltd

NDB Bank PLC Revolving Basis, withing 6 months it should be settled Corporate Guarantee from Prime Lands (Pvt) Ltd

DFCC Bank PLC 48 equal monthly installments Corporate Guarantee from Prime Lands (Pvt) Ltd

Capital Alliance Ltd 36 equal monthly installments Lease Portfolio (Rs. 175 Mn)

M Power Capital (Pvt) Ltd 20 equal monthly installments Lease Portfolio (Rs. 468 Mn)

First Capital Ltd 38 equal monthly installments Mortgage Loan Portfolio (Rs.502Mn)

Agora Securities Ltd 24 equal monthly installments Future Receivables of EP Portfolio (Rs. 338Mn)

33. DUE TO CUSTOMERS

2019 2018

Rs. Rs.

Fixed Deposits 2,648,495,345 1,884,024,267

Savings Deposits 97,826,668 515,125,235

2,746,322,013 2,399,149,502

32.2.1 Finance Lease Maturity

2019 2018

Rs. Rs.





Repayable within One Year





Repayable after One Year before Five Years

Gross Liability - -

Finance Charges allocated for Future Periods - -

Down Payment - -

Net Liability - -

As at 31.03.2018 Loans Interest Capital Interest As at 31.03.2019

Capital Int. Payable Total Obtained Expenses Repayment Paid Capital Int. Payable Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

32.3 Bank Loans

NDB Bank PLC

Term Loan 149,816,667 - 149,816,667 - 22,977,541 (35,767,851) (22,977,541) 114,048,816 - 114,048,816

Short Term Loan - - - 155,000,000 1,361,644 (150,000,000) (1,361,644) 5,000,000 - 5,000,000

DFCC Bank PLC - - - - - - - - - -

Term Loan - - - 200,000,000 - - - 200,000,000 - 200,000,000

149,816,667 - 149,816,667 355,000,000 24,339,184 (185,767,851) (24,339,184) 319,048,816 - 319,048,816

32.4Loans - Other Financial Institutions

Capital Alliance Ltd - - - 100,000,000 6,501,963 (5,174,249) - 94,825,751 6,501,963 101,327,714

M Power Capital (Pvt) Ltd - - - 300,000,000 9,712,977 - - 300,000,000 9,712,977 309,712,977

First Capital Ltd - - - 124,978,371 1,572,452 - - 124,978,371 1,572,452 126,550,823

Agora Securities Ltd 224,546,501 10,782,870 235,329,371 - 23,138,168 (224,546,501) (33,921,037) - - -

224,546,501 10,782,870 235,329,371 524,978,371 40,925,560 (229,720,750) (33,921,037) 519,804,122 17,787,392 537,591,514


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33.1 Sri Lanka Deposit Insurance and Liquidity Support Scheme

Under the Direction No.02 of 2010 [Finance Companies (Insurance of Deposit Liabilities)] issued by the Central Bank of Sri Lanka, all the eligible deposit liabilities have been insured with the Sri Lanka Deposit Insurance and Liquidity Support Scheme implemented by the Monetary Board for compensation up to a maximum of Rs.600,000/- per depositor. The Company has paid Rs.3,268,116/- as the premium of the said insurance scheme during the current financial year. (2017/18 - Rs.1,834,058/-).

2019 2018

Rs. Rs.

34. OTHER FINANCIAL LIABILITIES

Other Creditors 4,844,211 2,516,317

Reimbursable expenses & Other Payables - 2,576,508

Impairment provision in respect of off-balance sheet credit exposures 1,731,645

6,575,856 5,092,825

35. OTHER NON-FINANCIAL LIABILITIES

WHT Payable 926,530 216,479

VAT Payable 1,770,517 1,166,479

Stamp Duty Payable 1,031,371 3,433,605

Provision for Financial VAT 602,327 4,605,026

Debt Repayment Levy Payable 1,298,763 -

Advance on Real Estate 105,382,240 20,378,220

Accrual & Other Payable 69,836,016 193,410,215

180,847,764 223,210,024

36. RETIREMENT BENEFIT OBLIGATIONS

Balance at the Beginning of the year 3,167,412 2,184,180

Amount Charged for the Year (Note 36.2) 2,097,706 1,220,257

Payments made during the year (458,700) (192,000)

Actuarial Losses / (Gains) on Obligation (488,185) (45,025)

Balance at the End of the Year 4,318,233 3,167,412


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36.1 Assumptions

2019 2018

Discount Rate 10.0% 10.0%

Salary Increment 7.5% 7.5%

Staff Turnover

20 to 30 years 3.0% 3.0%

35 years 3.0% 3.0%

40 years 3.0% 3.0%

45 years 3.0% 3.0%

50 years 0.0% 0.0%

Average Future Working Life Time as per the assumptions made is Mortality 14.93 Years 14.93 Years

A 1967/70 Mortality Table A 1967/70 Mortality Table

Disability Varing percentage with age of A49-52 Mortality rates.

Varing percentage with age of A49-52 Mortality rates.

Retirement age Normal Retirement Age (55 years), The employees who are aged over the specified retirement age have been assumed to retire on their respective next birthdays.

Normal Retirement Age (55 years), The employees who are aged over the specified retirement age have been assumed to retire on their respective next birthdays.

An actuarial valuation of the retirement benefit obligation at 31 March 2019 was carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd, a firm of professional actuaries. The valuation method used by the actuaries to value the Fund is the ‘Projected Unit Credit Method’, recommended by LKAS 19 (Employee Benefits).

36.2 Net benefit expense categorised under personal expenses.

2019 2018

Rs. Rs.

Current Service Cost 1,780,965 936,314

Interest Cost 316,741 283,943

2,097,706 1,220,257


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36.3 Sensitivity of Assumptions Employed in Actuarial Valuation

The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.

The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate on the profit or loss and employment benefit obligation for the year.

2019

Increase/ (Decrease) in the discount rate

Increase/ (Decrease) in salary increment

Sensitivity Effect on Comprehensive Income Increase/ (Reduction) in Results for the Year

(Rs. Mn.)

Sensitivity Effect on Employment Benefit Obligation Increase/

(Decrease) in the Liability (Rs. Mn.)

1% 0.44 (0.44)

-1% (0.51) 0.51

1% (0.54) 0.54

-1% 0.46 (0.46)

37. INCOME TAX PAYABLE

2019

Rs.

Balance as at 1 April 2018 (8,581)

Less : Adjustment (ESC/WHT ) (7,063,224)

Provision for the year 53,418,511

Balances as at 31 March 2019 46,346,706

38. STATED CAPITAL

2019 2018

No of Shares Rs. No of Shares Rs.

38.1 Issued and Fully Paid-Ordinary shares

At the beginning of the Year 36,000,000 508,500,000 22,500,000 225,000,000

Issued during the Year 43,200,000 864,000,000 13,500,000 283,500,000

At the end of the Year 79,200,000 1,372,500,000 36,000,000 508,500,000

Total Stated Capital 79,200,000 1,372,500,000 36,000,000 508,500,000


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38.2 Rights of Shareholders

The holders of ordinary shares confer their right to receive dividends as declared from time to time and are entitled to one vote per share at the meeting.

All shares rank equally with regard to the Company’s residual assets.

39. RETAINED EARNINGS

2019 2018

Rs. Rs.

As at 01 April 95,883,623 83,402,420

Profit/(Loss) for the Year 178,645,483 13,090,713

Other Comprehensive Income/(Expense), net of tax 351,493 45,025

Impact of adopting SLFRS 9 (Note 7) (35,292,440) -

Transfers (to)/from Statutory Reserve Fund (Note 40) (8,932,274) (654,536)

As at 31 March 230,655,885 95,883,622

Retained Earnings represent the undistributed earnings held by the Company to be used in the Company’s operations. This could be used to absorb future possible losses or dividends payable.

40. OTHER RESERVES

Statutory

Reserve

Rs.

As at 01 April 2018 8,036,670

Transfers to/(from) during the year 654,535

As at 31 March 2018 8,691,205

Transfers to/(from) during the year 8,932,274

As at 31 March 2019 17,623,479

40.1 Reserve Fund is a capital reserve which contains profits transferred as required by Section 3 (b) (i) of Central Bank Direction No. 1 of 2003.


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41. COMPARATIVE INFORMATION

The Comparative information is reclassified wherever necessary to conform the current year’s presentation and details are given below.

Statement of Financial Position

As disclosed in

Note 31.03.2018 Adjustment Reclassified

Investment in Fixed Deposits A - 152,081,166 152,081,166

Other Financial Assets A 153,375,687 (152,081,166) 1,294,521

Due to Banks B 192,350,891 (192,350,891) -

Due to Banks and Other Financial Institutions B - 427,680,262 427,680,262

Other Financial Liabilities B 240,422,196 (235,329,371) 5,092,825

A Fixed Deposits which were previously reported under Other Financial Assets have been transferred to Investment in Fixed Deposits.

B Other Financial Institution’s loans which were previously reported under Other Financial Liabilities have been transferred to Due to Banks and Other Financial Institutions.

42. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments recorded at Fair Value

The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the Company’s estimate of assumptions that a market participant would make when valuing the instruments.

Financial Investments - Fair Value Through Other Comprehensive Income

The estimated fair values of unquoted equity are valued using models that use observable market data.

42.1 Determination of Fair Value and Fair Value Hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by Valuation techniques.

Level 1 : quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2 : other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3 : techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data


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The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy.

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

As at 31 March 2019

Investment Property - - 105,439,534 105,439,534

Financial investments at fair value through other comprehensive income

Unquoted Equities - - 56,300 56,300

Total Financial Assets - - 105,495,834 105,495,834

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

As at 31 March 2018

Investment Property - - 105,439,534 105,439,534

Financial Investments - Available for Sale

Unquoted Equities - - 56,300 56,300

Total Financial Assets - - 105,495,834 105,495,834

There were no financial liabilities recorded at fair value as at 31 March 2018 & 31 March 2019.

There were no transfers between Level 1 and Level 2 during 2017/2018 & 2018/2019.

Unquoted equities – cost is assumed to be the best approximation of the fair valve due to absence of most recent exist prices.

Investment property

Date of valuation - 31.03.2019

Valuvation technique - Income base

Significant unobservable inputs - Estimated rental value per month Rs. 1,875,000/-


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Set out below is the comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments that are not carried at fair value in the financial statements. This table does not include the fair values of non- financial assets and non- financial liabilities.

2019 2018

Fair Value Measurement using Fair Value Measurement using

Quoted Significant Significant Carrying Value Quoted Significant Significant Carrying Value

prices in observable unobservable at amortised prices in observable unobservable at amortised

active markets inputs inputs Total Fair Value Cost active markets inputs inputs Total Fair Value Cost

Level 1 Level 2 Level 3 Rs. Rs. Level 1 Level 2 Level 3 Rs. Rs.

Financial Assets

Financial assets at amortised cost - Loans and Advances - - 3,400,085,475 3,400,085,475 3,418,267,118 - - 2,163,368,910 2,163,368,910 2,184,713,333

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire - - 858,592,064 858,592,064 886,748,708 - - 464,476,392 464,476,392 496,020,155

Financial investments at amortised cost - Debt & other instruments 194,057,741 - - 194,057,741 387,329,553 - - - - -

Financial Investments - Held to Maturity - - - - - 122,479,843 - - 122,479,843 122,468,456

Total Financial Assets 194,057,741 - 4,258,677,540 4,452,735,281 4,692,345,379 122,479,843 - 2,627,845,302 2,750,325,145 2,803,201,944

Financial Liabilities

Due to Customers - - 2,746,279,456 2,746,279,456 2,746,322,013 - - 2,399,134,286 2,399,134,286 2,399,149,502

Total Financial Liabilities - - 2,746,279,456 2,746,279,456 2,746,322,013 - - 2,399,134,286 2,399,134,286 2,399,149,502

Fair Value of Financial Assets and Liabilities not Carried at Fair Value

The following describes the methodologies and assumptions used to determine the fair values for those financial instruments which are not already recorded at fair value in the Financial Statements.

Assets & Liabilities for which Fair Value Approximates Carrying ValueCarrying amounts of Cash and Bank Balances, Financial Investments,Other Financial Assets, Due to Banks & Other Financial Liabilities are approximate to their fair values

For financial assets and financial liabilities that have a short term maturity (original maturities less than a year), it is assumed that the carrying amounts approximate their fair values. This assumption is also applied to fixed deposits and savings deposits which doesn’t have a specific maturity. Carrying amount of the finance lease liability is approximate their fair value as there is no considerable difference in the interest rate at the granted date and as of the reporting date.

Long term deposits accepted from customers for which periodical interest is paid and loans and advances granted to customers with a variable rate are also considered to be carried at fair value in the books.


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Fixed Rate Financial InstrumentsCarrying amounts are considered as fair values for short term credit facilities. There is a significant difference between carrying value and fair value of Reverse Repurchase Agreements and Repurchase Agreements with original tenors above one year. In fair valuing held to maturity securities, rates published by the CBSL for similar trading securities were used. Loans and Advances with fixed interest rates were fair valued using market rates at which fresh loans were granted during the fourth quarter of the reporting year. Conversely, fixed deposits with original tenors above one year and interest paid at maturity were discounted using current market rates offered to customers during the fourth quarter of the reporting year.

Lease Rentals Receivable & Stock Out on HireLease rentals receivable & Stock out on hire with fixed interest rates were fair valued using market rates at which fresh loans were granted during the fourth quarter of the reporting year.

Set out below is the comparison, by class, of the carrying amounts and fair values of the Company’s financial instruments that are not carried at fair value in the financial statements. This table does not include the fair values of non- financial assets and non- financial liabilities.

2019 2018

Fair Value Measurement using Fair Value Measurement using

Quoted Significant Significant Carrying Value Quoted Significant Significant Carrying Value

prices in observable unobservable at amortised prices in observable unobservable at amortised

active markets inputs inputs Total Fair Value Cost active markets inputs inputs Total Fair Value Cost

Level 1 Level 2 Level 3 Rs. Rs. Level 1 Level 2 Level 3 Rs. Rs.

Financial Assets

Financial assets at amortised cost - Loans and Advances - - 3,400,085,475 3,400,085,475 3,418,267,118 - - 2,163,368,910 2,163,368,910 2,184,713,333

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire - - 858,592,064 858,592,064 886,748,708 - - 464,476,392 464,476,392 496,020,155

Financial investments at amortised cost - Debt & other instruments 194,057,741 - - 194,057,741 387,329,553 - - - - -

Financial Investments - Held to Maturity - - - - - 122,479,843 - - 122,479,843 122,468,456

Total Financial Assets 194,057,741 - 4,258,677,540 4,452,735,281 4,692,345,379 122,479,843 - 2,627,845,302 2,750,325,145 2,803,201,944


Due to Customers - - 2,746,279,456 2,746,279,456 2,746,322,013 - - 2,399,134,286 2,399,134,286 2,399,149,502

Total Financial Liabilities - - 2,746,279,456 2,746,279,456 2,746,322,013 - - 2,399,134,286 2,399,134,286 2,399,149,502


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43. CURRENT AND NON CURRENT ANALYSIS OF ASSETS AND LIABILITIES

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled.

2019 2018With in 12 After Total as at With in 12 After Total as at

Months 12 Months 31/03/2019 Months 12 Months 31/03/2018Rs. Rs. Rs. Rs. Rs. Rs.

AssetsCash & Cash Equivalents 469,366,656 - 469,366,656 417,958,339 - 417,958,339Financial assets at amortised cost - Loans and Advances 371,447,708 3,045,087,765 3,418,267,118 536,444,517 1,648,269,216 2,184,713,733Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 26,905,570 859,843,136 886,748,708 7,267,823 488,752,332 496,020,155Financial Investments - Available for sale - - - - 56,300 56,300Financial Investments at fair value through other comprehensive income - 56,300 56,300 - - -Financial Investments at amortised cost 386,238,913 1,090,640 387,329,553 - - -Financial Investments - Held to maturity - - - 121,398,136 1,070,320 122,468,456Investment in Fixed Deposits - - - 152,081,166 - 152,081,166Other Financial Assets 8,936,585 - 8,936,585 1,294,521 - 1,294,521Inventories - Real Estate Stock 386,746,646 - 386,746,646 129,266,607 - 129,266,607Other Non Financial Assets 11,938,288 - 11,938,288 9,135,435 2,280,000 11,415,435Investment Property - 105,439,534 105,439,534 - 105,439,534 105,439,534Property, Plant & Equipment - 27,809,300 27,809,300 - 28,525,141 28,525,141Intangible Assets - 3,240,589 3,240,589 - 2,222,312 2,222,312Deferred Tax Asset - - - - 19,913,154 19,913,154Total Assets 1,661,580,365 4,042,567,265 5,705,879,277 1,374,846,544 2,296,528,309 3,671,374,851

LiabilitiesDue to Banks - - - 42,534,224 149,816,667 192,350,891Due to Banks and Other Financial Institutions 237,576,960 856,640,330 1,094,217,290 - - -Due to Customers 1,739,208,868 1,007,113,145 2,746,322,013 1,061,593,225 1,337,556,277 2,399,149,502Other Financial Liabilities 6,575,856 - 6,575,856 240,422,196 - 240,422,196Other Non-Financial Liabilities 180,847,764 - 180,847,764 223,210,024 - 223,210,024Retirement Benefit Liability - 4,318,233 4,318,233 - 3,167,412 3,167,412Deferred Tax Liability - 6,472,052 6,472,052Income Tax Payable - 46,346,706 46,346,706 - - -Total Liabilities 2,164,209,448 1,920,890,466 4,085,099,914 1,567,759,669 1,490,540,357 3,058,300,024

Net (502,629,083) 2,121,676,799 1,620,779,363 (192,913,125) 805,987,952 613,074,826


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44. COMMITMENTS AND CONTINGENCIES

There were no material contingent liabilities or capital commitments as at reporting date except for the undrawn loan commitment as follows :

44.1 Commitments

2019 2018

Rs. Rs.

Commitment for Unutilised Facilities 210,656,401 13,403,458

Impairment provision in respect of off-balance sheet credit exposures - credit related commitments & contingencies (Note 44.2) (1,731,645) N/A

208,924,756 13,403,458


44.2 Analysis of credit related Commitment and Contingencies based on Exposure to Credit Risk

As at 31 March 2019 Stage 1 Stage 2 Stage 3 Total

Commitment for Unutilised Facilities - 210,656,401 - 210,656,401

Less : Provision for impairment - (1,731,645) - (1,731,645)

- 208,924,756 - 208,924,756

2019

Rs.

44.2.1 Impairment provision- Commitment and Contingencies

Balance as at 1 April 1,595,649

Net charge for the year (Note 12) 135,996

Balance as at 31 March 1,731,645

45. ASSETS PLEDGED

The following assets have been pledged as security for liabilities.

Nature of Assets Nature of Liability Carrying Amount Pledged

2019 2018

Rs. Rs.

Fixed Deposits Overdrafts - 22,699,983

Lease portfolio Loans - Other Financial Institutions 175,000,000 -

Lease portfolio Loans - Other Financial Institutions 468,000,000 -

Mortgage Loan Portfolio Loans - Other Financial Institutions 502,000,000 -

Future receivables of EP Portfolio Loans - Other Financial Institutions 338,000,000 -

1,483,000,000 22,699,983


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46. EVENTS OCCURRING AFTER THE REPORTING DATE

There have been no material events occurring after the reporting date that require adjustments to or disclosure in the financial statements.


The Company carried out transactions in the ordinary course of business with parties who are defined as Related Parties as per the Sri Lanka Accounting Standard - LKAS 24 ‘Related Party Disclosures’.

47.1 Parent & Ultimate Controlling Party

In the opinion of Directors, the Company’s parent undertaking and also Company’s ultimate parent undertaking is Prime Lands (Pvt) Ltd as at the reporting date.

47.2 Transactions with Key Managerial Personnel (KMPs) and their Close Family Members (CFM)

Related party includes KMPs defined as those persons having authority and responsibility for planning directing and controlling the activities for the Company and its parent. Such KMPs include the board of directors of the Company (include executive and non executive directors).

CFMs of a KMPs are those family members who may be expected to influence, or be influenced by, that KMP in their dealing with the entity. They may include KMPs domestic partner and children, children of the KMPs domestic partner and dependents of the KMP or the KMPs domestic partner.

2019 2018

Rs. Rs.

47.2.1 Key Management Personnel Compensation

Short Term Employment Benefits 2,694,444 1,743,651

2,694,444 1,743,651

47.3.1 Transactions with Parent Company

Deposits made by Parent Company (Prime Lands Private Limited) - 450,000,000

Items in statement of Financial Position Reported under

Assets

Deposits made in the Comapany Due to Customers 452,425,381 452,425,381

Interest payable on deposits Due to Customers 7,478,799 -

WHT on deposits (373,940) -

Closing Fee (100) -

Cash withdrawn and utilized for Rights issue on 17 July 2018 (459,530,140) -

- 452,425,381

Items in Statement of Comprehensive Income Reported under

Interest expense on deposits Interest Expenses 7,478,799 9,688,837

Buliding rent Rent Expenses 9,409,500 7,070,300

Land (real estate stock) sold to Parent Company (Prime Lands Private Limited) 39,462,836 54,300,000


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Items in Statement of Comprehensive Income Reported under 2019 2018

Rs. Rs.

Net gain from land sale Net gain/(loss) from trading 2,201,599 18,986,361

* As at 31 March 2019 & 2018, Company has capital and interest receivable of Rs. 761,721,166 and Rs. 414,295,908 respectively on Easy Payments Loans granted to customers which are guaranteed by Prime Lands (Pvt) Ltd.

47.3.2 Transactions with Affiliated Companies

2019 2018

Rs. Rs.

Items in statement of Financial Position Reported under

Assets

Loans given to Prime Lands Residencies (Pvt) Ltd Loans and Advances 50,000,000 -

Loans given to Prime Lands Residencies (Pvt) LtdLease Rentals Receivable & Stock Out on Hire 31,000,000 -

Loans given to Bhoomi Realty Holdings (Pvt) Ltd Loans and Advances 2,745,195 -

Loans given to Bhoomi Realty Holdings (Pvt) LtdLease Rentals Receivable & Stock Out on Hire 3,555,301 -

87,300,496 -

Items in Statement of Comprehensive Income Reported under

Interest Income from Bhoomi Realty (Pvt) Ltd Interest Income 326,527 -

Interest expense on deposits Prime Residencies (Pvt) Ltd Interest Expense - 208,323

47.3.3 Transactions with Directors’ and CEO of the Company

2019

Rs.

Items in statement of Financial Position

Deposits made by directors, their spouses as at 1 April 2018 46,507,391

Net deposits made during the year (43,218,394)

Interest expense 6,144,514

Interest paid (5,011,597)

WHT deduction (358,933)

Deposits made by directors, their spouses as at 31 March 2019 4,062,980

Items in Statement of Comprehensive Income

Interest Expense on Deposits for the year ended 31.03.2019 6,144,514


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Terms and conditions of transactions with related parties

The above mentioned outstanding balances arose from the ordinary course of business. The interest rates charged to and by related parties are at normal commercial rates. The Company has not made any provision for doubtful debts relating to amounts owed by related parties (2018: Nil)

Prime Lands (Pvt) Ltd deposited Rs.450Mn ( Rs.250Mn on 01 February 2018 and Rs.200Mn on 16 March 2018) in the savings account maintained with the Company in order to utilize the same as a part of the consideration to the allotment of rights issue planned in July 2018. The deposited money was subsequently utilised for the rights issue of ordinery shares concluded in July 2018 in order to increase Share Capital as required by the CBSL.

47.3.4 Significant Related Party transactions for the year ended 31 March 2019 are as follow:

Name of the Related Party RelationshipTerms of the Transaction Date Amount Rs.

Prime Lands (Pvt) Ltd. Parent Savings withdrawal17 July 2018 200,000,000

17 July 2018 250,000,000

Prime Lands Residencies (Pvt) Ltd Affiliated CompanyTerm Loans & Finance Leases

27, 28 Feb ’19 & 30 Mar ’19

81,000,000

* This deposit was withdrawn and utilized for Right issue on 17 July 2018 in order to increase the Core Capital of the Company as required by Central Bank of Sri Lanka.

48. CAPITAL

The Company maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Company’s capital is monitored based on the measures, rules and ratios adopted by Central Bank of Sri Lanka.

48.1 Capital Management

The primary objective of Company’s capital management policy is to ensure that the Company complies with externally imposed capital requirements and healthy capital ratios in order to support its business and to maximise shareholders’ value.

49. RISK MANAGEMENT

49.1 Introduction

Risk is inherent in the Company’s activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Company is accountable for the risk exposures under his or her purview. The Company is exposed to credit risk, liquidity risk, market risk and operational risk.

Risk Management Structure

The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed the Integrated Risk Management Committee.

The Company’s policy is that risk management processes throughout the Company are audited and the Audit Committee meets at least each quarter to review the progress of the Internal Audit function, which examines both the adequacy and the Company’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit Committee.


171

Regular Head of the Departments meetings are conducted by the Chief Executive Officer with the senior management who is responsible for implementing the decisions made by the Board and reviews of the operational and business progresses are carried out.

49.2 Credit Risk

Company views credit risk as the risk of a potential loss to the Company when a borrower or counterparty is either unable or unwilling to meet its financial obligations. The Board of Directors has put in place the credit risk strategy and policies of the Company. The strategy includes identification of business sectors, target markets, level of diversification, and cost of capital and probability of bad debts.

Company’s Credit Policy that is laid down by the management which plays a central role in managing credit activities can be described as the rules and parameters within which the Company’s credit environment operates. The policy defines the principles encompassing client selection, due diligence, lending criteria, credit approval discretion, early alert reporting, tolerable levels of concentration risk and portfolio monitoring in line with the Company’s risk appetite.

Given the scale and materiality of the Company’s loan book, managing the credit quality of the lending portfolio is a key focus area with the objective of minimising probable losses and maintaining credit risk exposure within acceptable parameters. Hence, the Company’s credit portfolio remains well diversified by business sector, asset type and customer.

Credit committee is involved in monitoring of credit risk by analyzing the credit risk using several measurement criteria like 20 largest exposures, 10 largest 3-6 months arrears, 10 largest non-performing advances and sectorial exposure. For some of these measures Company has stipulated risk tolerance level and continually monitors the credit exposure in order to ensure the best credit quality possible.

49.2.1 Assessment of provision for impairment

49.2.1 (a) Analysis of the total provision for impairment is as follows.

As at 31 March 2019 Note Stage 1 Stage 2 Stage 3 Total

Cash & Cash Equivalents 19.1 39,955 - - 39,955

Financial assets at amortised cost - Loans and Advances 21.1 22,231,107 24,024,221 185,759,834 232,015,161

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 22.1 6,034,125 7,626,998 15,208,171 28,869,294

Financial investments at amortised Cost - Debt & other instruments

Investment in Fixed Deposits 23.1 17,548 - - 17,548

Credit related commitments and contingencies 44.2.1 1,731,645 1,731,645

Total provision for impairment 28,322,735 33,382,864 200,968,005 262,673,604

49.2.1 (b) Movement of the total provision for impairment during the period

Total

Balance as at 1 April 2019 176,722,745

Net charge to profit or loss 85,950,858

Balance as at 31 March 2019 262,673,604


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49.2.1 (c) Sensitivity Analysis : Impact of staging of loans on collective allowance for expected credit losses

The following table illustrates the impact of staging of loans by comparing the allowance, if all performing loans and advances and lease receivables were in stage 1 or if all such assets were in stage 2 to the actual expected credit loss recorded on these assets.

ECL - If all

Stage 1 and 2 performing Impact of

Actual ECL loans in Stage 1 staging

Rs. Rs. Rs.

Total allowance for expected credit losses 59,916,451 35,373,407 (24,543,044)

ECL - If all

Stage 1 and 2 performing Impact of

Actual ECL loans in Stage 2 staging

Rs. Rs. Rs.

Total allowance for expected credit losses 59,916,451 115,499,612 55,583,161

The management believes that a movement of the entire stage 1 loan portfolio to stage 2 is highly unlikely

49.2.2 Maximum Exposure to Credit Risk

The following table shows the maximum exposure to credit risk by class of financial asset and the net exposure to credit risk.

As at 31 March 2019 2018

Maximum Maximum

Exposure to Exposure to

Credit Risk Net Exposure Credit Risk Net Exposure

Rs. Rs. Rs. Rs.

Cash and Bank Balances 469,366,656 464,173,335 417,958,339 412,052,389

Financial assets at amortised cost - Loans and Advances 3,418,267,118 864,074,155 2,184,713,733 509,674,625

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 886,748,708 576,386,660 496,020,155 322,413,101

Financial investments at amortised cost - Debt & other instruments 387,329,553 387,329,553 - -

Financial Investments at Fair Value Through Other Comprehensive Income 56,300 56,300 - -

Financial Investments - Available for Sale - - 56,300 56,300

Financial Investments - Held to Maturity - - 122,468,456 122,468,456

Investment in Fixed Deposits - - 152,081,166 152,081,166

Other Financial Assets 8,936,585 8,936,585 1,294,521 1,294,521

Total Financial Assets 5,170,704,920 2,300,956,589 3,374,592,670 1,520,040,558


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49.2.3 Credit Quality by Class of Financial Assets

The table below shows the credit quality by class of asset for all financial assets exposed to credit risk.

As at 31 March 2019 Neither Past

Due Nor Past Due But Individually

Impaired Not Impaired Impaired Total

Rs. Rs. Rs. Rs.

Assets

Cash and Bank Balances 469,366,656 - - 469,366,656

Financial assets at amortised cost - Loans and Advances (Gross) 2,160,408,630 1,351,629,059 138,244,590 3,650,282,279

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire (Gross) 379,794,599 533,379,919 2,443,483 915,618,001

Financial investments at amortised cost - Debt & other instruments 387,329,553 - - 387,329,553

Financial Investments at Fair Value Through Other Comprehensive Income 56,300 - - 56,300

Other Financial Assets 8,936,585 - - 8,936,585

Total Financial Assets 3,405,892,323 1,885,008,977 140,688,074 5,431,589,374

49.2.3.1 Aging Analysis of past due (i.e. facilities in arrears of 1 day and above) but not impaired loans by class of financial assets.

Past Due But Not Impaired

Less than 31 to 60 61 to 90 More than

30 days days days 91 days Total

Financial assets at amortised cost - Loans and Advances (Gross) 390,879,407 357,086,713 272,282,635 331,380,303 1,351,629,059

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire (Gross) 221,377,433 119,485,937 110,372,563 82,143,985 533,379,919

612,256,840 476,572,650 382,655,198 413,524,289 1,885,008,977


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As at 31 March 2018 Neither Past Past Due

Due Nor But Not Individually

Impaired Impaired Impaired Total

Rs Rs Rs Rs

Assets

Cash and Bank Balances 417,958,339 - - 417,958,339

Financial assets at amortised cost - Loans and Advances (Gross) 38,829 2,231,699,547 76,638,534 2,308,376,910

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire (Gross) 13,137 498,781,405 1,267,903 500,062,445

Financial Investments - Available for Sale 56,300 - - 56,300

Financial Investments - Held to Maturity 122,468,456 - - 122,468,456

Investment in Fixed Deposits 152,081,166 152,081,166

Other Financial Assets 1,294,521 - - 1,294,521

Total Financial Assets 693,910,748 2,730,480,951 77,906,438 3,502,298,137

Aging Analysis of past due (i.e. facilities in arrears of 1 day and above) but not impaired loans by class of financial assets.

Past Due But Not Impaired

Less than 61 to 90 More than 91

30 days 31 to 60 days days days Total

Financial assets at amortised cost - Loans and Advances (Gross) 1,726,665,415 171,597,046 90,461,254 242,975,832 2,231,699,547

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire (Gross) 444,441,165 26,363,646 12,510,578 15,466,016 498,781,405

2,171,106,580 197,960,692 102,971,832 258,441,848 2,730,480,951


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49.3 Analysis of Concentration Risk

The Company monitors concentrations of credit risk by sector and by geographic location. An analysis of concentrations of credit risk from loans and advances at the reporting date is shown below.

49.3.1 Industry Analysis- As at 31 March 2019

The following table shows the risk concentration by industry for the components of the Statement of Financial Position.

Financial

assets at

Financial amortised Financial

assets at cost-Lease Investments Financial

amortised rentals at Fair Value Investments

Cash and cost- receivable Through Other at Other

Sector wise Bank Loans and & Stock out Comprehensive Amortised financial Total Financial

Breakdown Balances Advances** on hire ** Income Cost assets Assets

Agriculture - 601,803,964 146,893,856 - - - 748,697,820Manufacturing - 466,877,080 142,996,377 - - - 609,873,457Construction - 227,162,983 112,005,986 - - - 339,168,969Financial Services 469,366,656 85,188,055 18,926,900 - 193,250,492 - 766,732,101Trading - 332,946,419 112,497,091 - - 2,017,064 447,460,574Transport - 151,648,658 95,399,064 - - - 247,047,723Retail - - - - -Infrastructure - 45,737 32,985 - - - 78,721Government - - 194,079,061 - 194,079,061Hotels - 100,682,902 16,644,520 - - - 117,327,422Services - 1,451,911,322 241,351,927 56,300 - - 1,693,319,549Total 469,366,656 3,418,267,118 886,748,707 56,300 387,329,553 2,017,064 5,163,785,398

**Provincial breakdown for (01) Loans and Receivable (02) Lease Rentals Receivable & Stock out on Hire from customers with in Sri Lanka is as follows;

Financialassets

Financial at amortised assets at cost - Lease

amortised Rentalscost - Loans Receivable &

and Stock Out onProvince Advances Hire Total

Rs. Rs. Rs.

Western 2,843,746,804 718,627,858 3,562,374,661

North Western 390,983,054 115,063,170 506,046,224

Central 183,537,260 53,057,679 236,594,940

3,418,267,118 886,748,707 4,305,015,825


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49.3.2 Industry Analysis - As at 31 March 2018

The following table shows the risk concentration by industry for the components of the Statement of Financial Position.

Sector wise

Breakdown

Cash

and Bank

Balances

Financial assets at

amortised cost-

Loans and Advances**

Financial assets at

amortised cost-Lease

rentals receivable &

Stock out on hire **

Financial Investments

- Available for Sale

Financial Investments

- Held to Maturity

Investment in Fixed

Deposits

Other financial

assetsTotal Financial

Assets

Agriculture - 185,668,818 41,793,045 - - - - 227,461,863

Manufacturing - 213,561,365 53,251,734 - - - - 266,813,099

Construction - 324,977,453 45,602,423 - - - - 370,579,876

Financial Services 417,958,339 48,724,826 3,762,734 - - 152,081,166 622,527,065

Trading - 216,404,124 64,277,612 - - - 1,294,521 281,976,257

Transport - 54,523,118 33,505,095 - - - - 88,028,213

Retail - - - - - - - -

Infrastructure - 4,833,734 129,194 - - - - 4,962,928

Government - - - - 122,468,456 - - 122,468,456

Hotels - - - - - - - -

Services - 1,136,020,294 253,698,318 56,300 - - - 1,389,774,912

Total 417,958,339 2,184,713,733 496,020,154 56,300 122,468,456 152,081,166 1,294,521 3,374,592,670

**Provincial breakdown for (01) Loans and Receivable (02) Lease Rentals Receivable & Stock out on Hire from customers with in Sri Lanka is as follows;

Province

Financial assets at amortised cost - Loans

and Advances

Financial assets at

amortised cost - Lease Rentals

Receivable & Stock Out on

Hire Total

Rs. Rs. Rs.

Western 1,884,018,635 423,280,307 2,307,298,941

North Western 177,095,984 62,990,885 240,086,869

Central 123,599,114 9,748,964 133,348,078

2,184,713,733 496,020,155 2,680,733,888


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49.4 Liquidity Risk & Funding Management

Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Company might be unable to meet its payment obligations when they fall due under both normal and stressful circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis.

The Company has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected future cash flows.

The Company maintains a portfolio of highly marketable assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Company also has committed lines of credit from banks that it can access to meet liquidity needs. In addition, the Company maintains a statutory deposit with the Central Bank of Sri Lanka for customer deposits. In accordance with the Company’s policy, the liquidity position is assessed and managed under a variety of scenarios giving due consideration to stress factors relating to both the market in general and specifically to the company.

49.4.1 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities

The table below summarises the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31 March 2019.

On Less than

Demand 03 Months 03-12 Months 01-05 Years Over 05 Years Total


Financial Assets

Cash and Bank Balances 469,366,656 - - - - 469,366,656

Financial assets at amortised cost - Loans and Advances 76,283,859 88,283,082 270,281,958 2,171,198,099 1,044,235,281 3,650,282,279

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 2,468,650 118,026 27,956,434 820,206,487 64,868,404 915,618,001

Financial investments at amortised cost - Debt & other instruments 201,912,040 93,712,233 97,055,193 36,127 - 392,715,593

Financial Investments at fair value through other comprehensive income - - - - 56,300 56,300

Other Financial Assets 6,919,521 2,017,064 - - - 8,936,585

Total Financial Assets 756,950,726 184,130,404 395,293,585 2,991,440,714 1,109,159,985 5,436,975,413


Due to Banks and Other Financial Institutions 254,329,194 25,584,995 387,652,506 611,506,891 - 1,279,073,586

Due to Customers 463,693,102 270,474,224 1,256,848,673 1,186,471,457 - 3,177,487,456

Other Financial Liabilities 5,297,144 1,278,713 - - - 6,575,856

Total Financial Liabilities 723,319,440 297,337,932 1,644,501,179 1,797,978,348 - 4,463,136,898

Total Net Financial Assets/(Liabilities) 33,631,287 (113,207,528) (1,249,207,594) 1,193,462,366 1,109,159,985 973,838,515


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The table below summarises the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31 March 2018.

Less than Over 05

On Demand 03 Months 03-12 Months 01-05 Years Years Total


Financial Assets

Cash and Bank Balances 417,958,339 - - - - 417,958,339

Financial assets at amortised cost - Loans and Advances 184,939,210 366,340,220 824,536,223 1,740,895,893 335,451,296 3,452,162,843

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 4,399,339 49,866,370 150,876,520 523,636,563 5,741,510 734,520,302

Financial Investments - Available for Sale - - - - 56,300 56,300

Financial Investments - Held to Maturity - - 128,873,998 1,070,320 - 129,944,318

Investment in Fixed Deposits 51,375,000 23,411,641 84,112,500 - - 158,899,141

Other Financial Assets 3,169,521 3,750,000 16,875,000 18,750,000 - 42,544,521

Total Financial Assets 661,841,409 443,368,231 1,205,274,242 2,284,352,775 341,249,106 4,936,085,763


Due to Banks 42,326,552 3,889,451 32,262,009 114,057,120 - 192,535,132

Due to Customers 515,125,234 516,971,255 1,004,491,974 623,461,802 1,219,792 2,661,270,057

Other Financial Liabilities 2,516,317 2,576,508 258,611,538 - - 263,704,363

Total Financial Liabilities 559,968,103 523,437,213 1,295,365,521 737,518,922 1,219,792 3,117,509,551

Total Net Financial Assets/(Liabilities) 101,873,306 (80,068,982) (90,091,280) 1,546,833,854 340,029,315 1,818,576,212


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49.4.2 Contractual Maturities of Commitments & Contingencies

The table below shows the contractual expiry by maturity of the Company’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. There were no material contingent liabilities as at reporting date.

2019 2018

Rs. Rs.

Commitments

Commitment for Unutilized Facilities On Demand 210,656,401 13,403,458

Impairment provision in respect of off-balance sheet credit exposures - credit related commitments & contingencies (Note 44.1) (1,731,645) N/A

208,924,756 13,403,458

The amounts for the year ended 31 March 2019 have been prepared in accordance with Sri Lanka Accounting Standard - SLFRS 9 (Financial Instruments), whereas prior period amounts have not been restated.

49.5 Market Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to change in market variables such as interest rates and equity prices. Interest rate risk has been identified as the most critical risk given Company’s business profile. The Board of Directors of the Company monitors the market risk through the risk management policies of the company.

49.5.1 Interest Rate Risk

Interest rate risk is the risk of loss of net interest income of the Company due to adverse change in market interest rates and inability to maximise benefits from favorable movements in the market interest rates. We mitigate this effect by balancing interest rates to maximise gains in a rising interest rate environment while minimising losses in an environment of declining interest rates. We continually assess our asset and liability profile in terms of interest rate risk and depending on this assessment necessary realignment structures are undertaken. During the year careful monitoring was done to maintain our funding mix to minimise effects on interest rate movements which as predicted last year continued to decline until the fourth quarter.


180


49.5.2 Interest Rate Risk Exposure on Financial Assets & Liabilities

The table below analyses the Company’s interest rate risk exposure on financial assets & liabilities. The Company’s assets & liabilities are included at carrying amount and categorized by the earlier of contractual reprising or maturity dates.

Up to 03 Months 03-12 Months 01-03 Years 03-05 Years Over 05 Years

Non interest bearing

Total as at 31/03/2019

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Assets

Cash and Bank Balances 308,945,489 - - - - 160,421,167 469,366,656

Financial assets at amortised cost - Loans and Advances 139,803,318 231,832,655 741,693,865 1,290,747,432 1,014,189,848 - 3,418,267,118

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 136,551 26,769,019 217,274,043 578,782,737 63,786,357 - 886,748,707

Financial investments at amortised cost - Debt & other instruments 293,490,677 92,748,236 - 1,090,641 387,329,554

Financial Investments at Fair Value Through Other Comprehensive Income - - - - - 56,300 56,300

Other Financial Assets 8,936,585 - - - - 8,936,585

Total Financial Assets 751,312,620 351,349,910 958,967,908 1,870,620,810 1,077,976,205 160,477,467 5,170,704,919


Due to Banks 285,054,735 362,091,422 384,800,747 62,270,387 - - 1,094,217,290

Due to Customers 667,334,703 1,070,849,021 909,422,231 98,716,057 - - 2,746,322,013

Other Financial Liabilities - - - - - 6,575,856 6,575,856

Total Financial Liabilities 952,389,437 1,432,940,443 1,294,222,978 160,986,444 - 6,575,856 3,847,115,160

INTEREST SENSITIVITY GAP (201,076,817) (1,081,590,534) (335,255,070) 1,709,634,366 1,077,976,205 153,901,610 1,323,589,760


181

49.5.3 Interest Rate Risk Exposure on Financial Assets & Liabilities

The table below analyses the Company’s interest rate risk exposure on financial assets & liabilities. The Company’s assets & liabilities are included at carrying amount and categorized by the earlier of contractual reprising or maturity dates.

Up to 03 Months

03-12 Months 01-03 Years 03-05 Years

Over 05 Years

Non interest bearing

Total as at 31/03/2018

Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Assets

Cash and Bank Balances 376,561,669 - - - - 41,396,670 417,958,339

Financial assets at amortised cost - Loans and Advances 182,644,939 353,799,578 605,262,279 705,176,210 337,830,727 - 2,184,713,733

Financial assets at amortised cost - Lease Rentals Receivable & Stock Out on Hire 782,713 6,485,110 160,716,396 312,554,124 15,481,811 - 496,020,154

Financial Investments - Available for Sale - - - - - 56,300 56,300

Financial Investments - Held to Maturity - 121,398,136 - - 1,070,320 - 122,468,456

Investment in Fixed Deposits 74,852,197 77,228,969 - - - - 152,081,167

Other Financial Assets 1,294,521 - - - - - 1,294,521

Total Financial Assets 636,136,040 558,911,793 765,978,675 1,017,730,334 354,382,858 41,452,970 3,374,592,670


Due to Banks 46,035,275 32,258,465 85,542,840 28,514,311 - - 192,350,891

Due to Customers 631,024,459 430,568,768 978,973,526 301,954,597 56,628,153 - 2,399,149,502

Other Financial Liabilities - - - - - 240,422,196 240,422,196

Total Financial Liabilities 677,059,734 462,827,233 1,064,516,366 330,468,908 56,628,153 240,422,196 2,831,922,589

INTEREST SENSITIVITY GAP (40,923,694) 96,084,560 (298,537,691) 687,261,426 297,754,706 (198,969,227) 542,670,081

49.6 OPERATIONAL RISK

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The Company cannot expect to eliminate all operational risks, but it endeavors to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.


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50. SEGMENTAL INFORMATION

For management purposes, the Company is organised into three operating segments based on services offered to customers as follows.

The following table presents income and profit and certain asset and liability information regarding the Company’s operating segments.

Financial assets at amortised cost - Lease Rentals Receivable &

Stock Out on HireFinancial assets at amortised cost

- Loans and Advances Others Total

2019 2018 2019 2018 2019 2018 2019 2018

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Interest Income 168,647,846 33,204,069 736,038,681 366,689,237 42,494,738 45,557,054 947,181,265 445,450,360Interest Expenses (72,635,428) (15,612,502) (317,006,625) (172,416,711) (18,302,181) (21,420,856) (407,944,234) (209,450,069)Net Interest Income/(Expenses) 96,012,418 17,591,567 419,032,057 194,272,526 24,192,556 24,136,198 539,237,031 236,000,292

Fee and Commission Income 3,864,500 925,747 16,866,039 10,223,490 973,750 1,270,155 21,704,289 12,419,392Other Operating Income - - - - 131,936,585 74,901,339 131,936,585 74,901,339Impairment (Charge)/Reversal for Loans and Other Credit Losses (22,056,527) 1,867,460 (63,764,481) (109,500,087) (503,272) - (86,324,280) (107,632,627)Net Operating Income 77,820,391 20,384,775 372,133,615 94,995,929 156,599,620 100,307,692 606,553,626 215,688,395

Other Costs 47,254,161 12,587,362 206,233,828 139,008,575 11,906,782 17,270,267 265,394,771 168,866,204Depreciation & Amortisation 2,298,158 874,808 10,029,972 9,660,949 579,074 1,200,265 12,907,204 11,736,023Profit/ (Loss) before VAT on financial services 28,268,072 6,922,604 155,869,815 (53,673,595) 144,113,763 81,837,159 328,251,650 35,086,167

VAT on financial services, NBT & Debt Repayment Levy & Income Tax (149,606,166) (21,995,455)Profit/(Loss) for the Year 178,645,485 13,090,713

Segmental Assets 974,228,798 570,630,410 3,755,488,151 2,513,333,544 976,162,328 587,410,898 5,705,879,277 3,671,374,853Segmental Liabilities 697,494,949 475,342,091 2,688,725,712 2,093,637,493 698,879,252 489,320,442 4,085,099,914 3,058,300,025

51. OPERATING LEASE COMMITMENTS (PAYABLES)

The Company has taken on leased a number of branches and office premises under operating leases. These leases have an average life of between 1 to 10 years. Lease agreements include clauses to enable upward revision of the rental payments on a periodic basis to reflect market conditions. There are no restrictions placed upon the Company by entering into these leases. Future minimum rentals payable under non-cancellable operating leases are as follows:

Future minimum rentals payable under non-cancellable operating leases are as follows:

As at March 31 2019 2018

Rs. Rs.

Less than one year 8,121,000 13,974,000

Between one to five years 47,616,600 30,128,000

Over five years 8,730,997 2,000,000

Total 64,468,597 46,102,000


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50. SEGMENTAL INFORMATION

For management purposes, the Company is organised into three operating segments based on services offered to customers as follows.

The following table presents income and profit and certain asset and liability information regarding the Company’s operating segments.

Financial assets at amortised cost - Lease Rentals Receivable &

Stock Out on HireFinancial assets at amortised cost

- Loans and Advances Others Total

2019 2018 2019 2018 2019 2018 2019 2018

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Interest Income 168,647,846 33,204,069 736,038,681 366,689,237 42,494,738 45,557,054 947,181,265 445,450,360Interest Expenses (72,635,428) (15,612,502) (317,006,625) (172,416,711) (18,302,181) (21,420,856) (407,944,234) (209,450,069)Net Interest Income/(Expenses) 96,012,418 17,591,567 419,032,057 194,272,526 24,192,556 24,136,198 539,237,031 236,000,292

Fee and Commission Income 3,864,500 925,747 16,866,039 10,223,490 973,750 1,270,155 21,704,289 12,419,392Other Operating Income - - - - 131,936,585 74,901,339 131,936,585 74,901,339Impairment (Charge)/Reversal for Loans and Other Credit Losses (22,056,527) 1,867,460 (63,764,481) (109,500,087) (503,272) - (86,324,280) (107,632,627)Net Operating Income 77,820,391 20,384,775 372,133,615 94,995,929 156,599,620 100,307,692 606,553,626 215,688,395

Other Costs 47,254,161 12,587,362 206,233,828 139,008,575 11,906,782 17,270,267 265,394,771 168,866,204Depreciation & Amortisation 2,298,158 874,808 10,029,972 9,660,949 579,074 1,200,265 12,907,204 11,736,023Profit/ (Loss) before VAT on financial services 28,268,072 6,922,604 155,869,815 (53,673,595) 144,113,763 81,837,159 328,251,650 35,086,167

VAT on financial services, NBT & Debt Repayment Levy & Income Tax (149,606,166) (21,995,455)Profit/(Loss) for the Year 178,645,485 13,090,713

Segmental Assets 974,228,798 570,630,410 3,755,488,151 2,513,333,544 976,162,328 587,410,898 5,705,879,277 3,671,374,853Segmental Liabilities 697,494,949 475,342,091 2,688,725,712 2,093,637,493 698,879,252 489,320,442 4,085,099,914 3,058,300,025

51. OPERATING LEASE COMMITMENTS (PAYABLES)

The Company has taken on leased a number of branches and office premises under operating leases. These leases have an average life of between 1 to 10 years. Lease agreements include clauses to enable upward revision of the rental payments on a periodic basis to reflect market conditions. There are no restrictions placed upon the Company by entering into these leases. Future minimum rentals payable under non-cancellable operating leases are as follows:

Future minimum rentals payable under non-cancellable operating leases are as follows:

As at March 31 2019 2018

Rs. Rs.

Less than one year 8,121,000 13,974,000

Between one to five years 47,616,600 30,128,000

Over five years 8,730,997 2,000,000

Total 64,468,597 46,102,000


184

For the Year ended 31 March 2019 2018 2017 2016 2015

Rs. Rs. Rs. Rs. Rs.

Value Added

Interest Income 947,181,265 445,450,360 291,728,251 289,589,051 289,636,782

Interest Expenses (407,944,234) (209,450,069) (133,371,807) (125,889,086) (131,142,196)

Cost of services (231,814,349) (94,588,605) (69,466,999) (60,351,189) (70,639,813)

Value added by financial services 307,422,682 141,411,686 88,889,445 103,348,776 87,854,773

Other income 153,640,874 87,320,731 7,452,659 7,323,458 5,703,968

Impairment charges (86,324,280) (107,632,627) (9,027,486) (11,813,583) (116,444,776)

Total 374,739,277 121,099,790 87,314,618 98,858,651 (22,886,035)

Distribution of value added

To employees

Salaries and other benefits 113,663,825 74,277,599 58,798,915 43,370,859 41,037,310

Total to employees 113,663,825 74,277,599 58,798,915 43,370,859 41,037,310

To providers of capital

Dividend to ordinary shareholders - - - - -

Total to providers of capital - - - - -

To the government

Income tax 53,418,511 16,608,375 1,125,961 2,540,809 3,491,480

Tax on financial service 56,214,302 7,962,581 9,343,736 8,332,942 -

Total to the government 109,632,813 24,570,956 10,469,697 10,873,752 3,491,480

To expansion and growth

Retained profits 178,645,483 13,090,713 2,522,957 34,965,973 (44,740,769)

Depriciation and amortisation 12,907,204 11,736,023 10,359,422 8,732,830 8,962,454

Deferred taxation (40,110,048) (2,575,502) 5,163,627 915,238 (31,636,510)

Total to the expansion and growth 151,442,639 22,251,235 18,046,007 44,614,041 (67,414,825)

Total 374,739,277 121,099,790 87,314,618 98,858,651 (22,886,036)

statement of value aDDeD


185

investor information

We are proud to present this section in our Annual Report in appreciation of your continued support extended to us and in conformity with the Listing Rules of Colombo Stock Exchange. We consider this as an important part of our corporate responsibility to have an effective dialogue with investors.

The full Annual Report together with audited Financial Statements and the interim Financial Statements are available on the Company’s website (http://www.primefinance.lk/en/annual-reports and http://www.primefinance.lk/en/interim-financial). Alternatively, shareholders are able to elect to receive a mailed copy of the Annual Report on request.

Stock Exchange Listing

The Ordinary Shares of the Company are listed on the Diri Savi board of the Colombo Stock Exchange since 12 September 2012.

Movement in Ordinary Shares During the Year and All Share Price Index (ASPI)

Index / Price Movement

Pri

me

Fin

ance

Sha

re P

rice

(LK

R)

All

Sha

re P

rice

Ind

ex

Share PriceASPI

0

5

10

15

20

25

30

Mar-19Feb-19Jan-19Dec-18Nov-18Oct-18Sep-18Aug-18Jul-18Jun-18May-18Apr-185,000

5,250

5,500

5,750

6,000

6,250

6,500

6,750

7,000

Share Information

There were 928 Shareholders as at 31 March 2019 (2018 - 891) distributed as follows.

Shareholder Distribution

31 March 2019 31 March 2018

Share RangeNo. of.

Shareholders %No. of

Shares %No. of.

Shareholders %No. of

Shares %

1 - 1000 713 76.83 141,791 0.18 668 74.97 131,957 0.37

1,001 - 10,000 169 18.21 623,448 0.79 181 20.31 692,207 1.92

10,001 - 100,000 35 3.77 1,077,339 1.36 34 3.82 1,049,432 2.92

100,001 - 1,000,000 9 0.97 1,216,314 1.54 6 0.67 707,215 1.96

1,000,000 & Above 2 0.22 76,141,108 96.13 2 0.22 33,419,189 92.83

Total 928 100.00 79,200,000 100.00 891 100.00 36,000,000 100.00


186

INVESTOR INFORMATION

Analysis of Shareholders

Resident / Non Resident

31 March 2019 31 March 2018

No. of. No. of.

Shareholders No. of Shares % Shareholders No. of Shares %

Resident Shareholders 925 79,192,297 99.99 887 35,965,266 99.90

Non Resident Shareholders 3 7,703 0.01 4 34,734 0.10

Resident / Non Resident Shareholders

No

.of

Sha

reho

lder

s

Shareholder Category

0

200

400

600

800

1000

Non Resident ShareholdersResident Shareholders

Individuals / Institutions

31 March 2019 31 March 2018

No. of. No. of.

Shareholders No. of Shares % Shareholders No. of Shares %

Individuals 883 3,809,459 4.81 847 3,339,255 9.28

Institutions 45 75,390,541 95.19 44 32,660,745 90.72

Individual / Institutional Shareholders

No

.of

Sha

reho

lder

s

Shareholder Category

0

200

400

600

800

1000

InstitutionsIndividuals


187

Share Trading of the Company

2016/17 2017/18 2018/19

Trade Volume 6104 1348 536

Share Volume 26,763,425 2,373,720 306,504

Value of shares traded (Rs.’000) 772,914 57,740 6,008

Top 20 Shareholders

Twenty largest shareholders as at 31 March 2019

Name No. of shares % of holding

1 Seylan Bank PLC/Ms. Prime Lands (Pvt) Ltd 74,926,029 94.60%

2 Mr.Peramuna Gamaethige Kumaradasa 1,215,079 1.53%

3 Mr. Francis Jayarupan Pradeep Raj 315,231 0.40%

4 Mr.Ruminda Randeniya 152,000 0.19%

5 Mr.Lalith Rukman Jayaweera 113,795 0.14%

6 Mr.Brahmanage Premalal 110,000 0.14%

7 Mrs.Hena Kankanamge Sandamini Rukmal Perera 110,000 0.14%

8 Ms. Shehana Sonali Ann Piumi Brahmanage 110,000 0.14%

9 Mr.Premadasa Manamperi 105,088 0.13%

10 Mrs. Deyalage Janitha Shamali 100,100 0.13%

11 Mr. Ranasinghe Halnetti Padmaperuma Dushantha Rangana 100,100 0.13%

12 Mr. Suppiapillai Karunamoorthy 100,000 0.13%

13 Mr. Mallikage Adisha Sagara Wijerathne 80,000 0.10%

14 Bansei Securities Capital (Pvt) Ltd/M.A.Waas 71,790 0.09%

15 The Victoria International Private Limited 65,069 0.08%

16 Bansei Securities Capital (Pvt) Ltd/M.A.U. Gnanatilake 59,389 0.07%

17 Mr. Heenatigala Mudiyanselage Nalinda Udesh Kumara 50,000 0.06%

18 Mr.Pathirage Anura Wijesiri Perera 50,000 0.06%

19 Mr. Herath Mudiyanselage Prabath Krishantha Bandara 50,000 0.06%

20 Citizens Development Business Finance PLC/W.G.J.Banda 48,331 0.06%

77,932,001 98.40%

Others 1,267,999 1.60%

79,200,000 100.00%

Public Holding

Details of Public Holding as at 31 March 2019

Percentage of Public Holding (Minimum Requirement - 10%) 4.80%

Number of Shares hold by Public Shareholders 3,800,971

Number of Public Shareholders (Minimum Requirement - 200 Shareholders) 919

Number of Public and Non-Public Shareholders 928

Market Capitalization as at 31 March, 2019 Rs. 1,346,400,000

Float Adjusted Market Capitalization as at 31 March, 2019 Rs. 64,616,507


188


The Company does not comply with option two of the Minimum Public Holding requirement specified in Rule 7.13.1 (b). The reason for the aforesaid non-compliance is that the Company has issued 43,200,000 Ordinary Shares in the proportion of Six (06) new Ordinary Shares for every (05) Ordinary Shares in the Capital of the Company by way of a Rights Issue amounting to Rs. 864,000,000/-, to the holders of the issued Ordinary Shares of the Company at the price of Rs. 20/- per share in order to comply with the Minimum Core Capital requirements specified in the Finance Business Act (Minimum Core Capital) Direction No. 02 of 2017 issued by the Monetary Board of Central Bank of Sri Lanka. The majority shareholder, Prime Lands (Private) Limited, undertook to subscribe all remaining unsubscribed shares to enable the Company to meet the regulatory Minimum Core Capital requirements and subscribed 4,128,194 Ordinary Shares as Additional Shares (in addition to the subscription of 38,630,113 provisionally allotted Ordinary Shares) and the Rights Issue was concluded on 26 July 2018. With the conclusion of the said Rights Issue, the Shareholding of Prime Lands (Private) Limited increased to 94.63% compared to Pre-Rights Issue holding of 89.42%.

Further, pursuant to the request made by the Company by letter dated 22 February 2019, the CSE has by their letter dated 19 March 2019, granted a waiver in terms of 7.13.3(iii) for a period of one year until 26 August 2019 to comply with the Rule 7.13.1(b) of the listing rules of CSE subject to the Company making the appropriate disclosures to the market in this regard.

Market Value per Share and Net Asset Value

For the year ended 31-Mar-19 31-Mar-18 31-Mar-17 31-Mar-16 31-Mar-15

Rs. Rs. Rs. Rs. Rs.

Market value per share

Highest Price 24.00 24.30 30.00 26.3 28.1

Lowest Price 14.40 20.20 25.00 16.1 15.5

Last Traded 17.00 22.90 29.00 18.6 16.4

Net Asset Value per Share (Rs.) 20.46 17.03 14.06 13.93 12.61

Market Price Details

0

5

10

15

20

25

30

20192018201720162015

Rs.

Last TradedLowest PriceHighest PriceNet Asset Value per Share


189

Directors’ & CEO’s Holding

The number of shares held by the Board of Directors and the CEO (as at 31 March 2019) are as follows,

Name of the director No. of shares ( % )

Mr. M. D. Saddha Mangala Goonetilleke 22,000 0.03%

Ms. H. K. Sadamini Rukmal Perera 110,000 0.14%

Mr. B. Premalal 110,000 0.14%

Mr. Nandana A. Wickramage 20,000 0.03%

Mr. Pathirage Anura W. Perera 50,000 0.06%

Mr. Mahinda Perera 1,000 0.00%

Mr. H. M. Hennayake Bandara Nil N/A

Mr. Dhammika Hemantha Kalapuge Nil N/A

Mr. Ruminda Randeniya (Appointed w.e.f.21 June 2019) 152,000 0.19%

Mrs. Konganeege Dinusha Suraji Fernando (Appointed w.e.f.21 June 2019) Nil N/A

Mr. Rasika Kaluarachchi (CEO) Nil N/A

Continuous Disclosure regarding status of utilization of funds raised via Rights Issue

Rights Issue Proceeds Utilization as at 31-03-2019

Objective Number

Objective as per

circular

Amount allocated

as per circular in LKR

Proposed date of

utilization as per circular

Amount allocated

from proceeds in LKR (A)

Percentage of total

proceeds

Amount utilized in

LKR (B)

Percentage utilized against

allocation (B/A)

Clarification if funds are not fully utilized including where the funds

are invested (whether lent to

related party etc.)

01 Expanding loans and advances portfolio

864 MN. 3 months from the date of allotment

864 MN 100% 864 MN 100% N/A

Material issues pertaining to Employees and Industrial Relations pertaining to the Company

There were no material issues pertaining to employees and industrial relations pertaining to the Company that occurred during the year under review which need to be discussed as per the Rule No. 7.6 (vii) of the Listing Rule of the CSE.

Credit Rating

ICRA Lanka: [SL] BBB- (Stable) Rating


190


Compliance report on the contents of annual report in terms of the listing rules of the CSE

We take pleasure in informing that the Company has fully complied with all applicable requirements of Section 7.6 of the Listing Rules of the CSE on the contents of the Annual Report and Accounts of a listed entity. The table below provides details of the relevant sections of this Annual Report where specified information is disclosed together with page references for the convenience of the readers.

Rule No. Disclosure Requirement Section Reference Page/s

7.6 (i) Names of persons who held the position of Directors during the financial year.

Section 17 of the Annual Report of the Board of Directors on the Affairs of the Company

99

7.6 (ii) Principal activities of the Company and its subsidiaries during the year and any changes therein.


97

7.6 (iii) The names and the number of shares held by the 20 largest holders of voting and non-voting shares and the percentage of such shares held as at the end of the financial year.

Investor Relations187

7.6 (iv) The float adjusted market capitalization and minimum public holding percentage.


7.6 (v) Directors’ and Chief Executive Officer’s holding in shares of the Company at the beginning and end of the financial year.

Investor Relations


189

102

7.6 (vi) Information pertaining to material foreseeable risk factors. Risk Management Review 54-60

7.6 (vii) Details of material issues pertaining to employees and industrial relations.


7.6 (viii) Extents, locations, valuations and the number of buildings of the land holdings and investment properties as at the end of the financial year.

Note No. 28 to the Financial Statements on ‘Investment Property’ 150

7.6 (ix) Number of shares representing the stated capital as at the end of the financial year.

Note No. 38 to the Financial Statements on ‘Stated Capital’

160

7.6 (x) A distribution schedule of the number of holders in each class of equity securities and the percentage of their total holdings as the end of the financial year.

Investor Relations185-186

7.6 (xi) Ratios and market price information on:

Equity: Dividend per share, Dividend payout ratio, Net asset value per share, Market value per share (highest and lowest values during the financial year and the value as at the end of the financial year).

Investor Relations


188

99

Debt: Interest rate of comparable Government security, Debt/equity ratio, Interest cover, Quick asset ratio, market prices and yield during the year (highest and lowest prices and last traded price).

Not Applicable to the Company.

N/A

Changes in credit ratings. Investor Relations 189


191

Rule No. Disclosure Requirement Section Reference Page/s

7.6 (xii) Significant changes in the Company’s or its subsidiaries’ fixed assets and the market value of land, if the value differs substantially from the book value as at the end of the year.

Not ApplicableN/A

7.6 (xiii) Details of funds raised through a public issue, Rights Issue and a private placement during the year.


98

7.6 (xiv) Information in respect of Employee Share Ownership or Stock Option Schemes

The Company does not have an Employee Share Option / Purchase Scheme.

N/A

7.6 (xv) Disclosures pertaining to Corporate Governance Practices in terms of Rules 7.10.3, 7.10.5 c. and7.10.6 c. of Section 7 of the Listing Rules.


Corporate Governance Report

Profiles of the Board of Directors

Report of the Board Remuneration and Nomination Committee Report

Report of the Board Audit Committee Report

99

79-81

14-19

96

92-93

7.6 (xvi) Related Party transactions exceeding 10% of the Equity or 5% of the total assets of the Entity as per Audited Financial Statements, whichever is lower.

The Company does not have any non-recurrent related party transactions that exceeds the said threshold. However, recurrent transactions which exceeds 10% of the gross income is disclosed under Section 23 of the Annual Report of the Board of Directors on the Affairs of the Company

102


192

annual General meetinG

Notice is hereby given that the Fifteenth Annual General Meeting of the shareholders of Prime Finance PLC will be held at Prime Lands (Private)Limited, 8th Floor, No. 75, D.S. Senanayake Mawatha, Colombo 08 on the 31st day of July 2019 at 10.30 a.m. to conduct the following business:

AGENDA

1. Notice of meeting

2. To receive and consider the Report of the Directors and the Statements of Accounts for the year ended 31 March 2019 together with the Report of the Auditors thereon.

3. To elect Mrs. Konganeege Dinusha Suraji Fernando, as a Director in terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008.

4. To elect Mr. Ruminda Randeniya, as a Director in terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008.

5. To re-elect Mr. Mahinda Perera who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

6. To re-elect Mr. Brahmanage Premalal who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

7. To re-elect Mr. Dhammika Hemantha Kalapuge who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

8. To re-appoint Messrs. Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

9. To authorize the Board of Directors to determine contributions to charities and other donations for the year 2019/2020

By order of the Board of Directors of

PRIME FINANCE PLC

S S P CORPORATE SERVICES (PRIVATE) LIMITEDSECRETARIES

Date: 08 July 2019

Note:

1. A shareholder entitled to attend and vote at the above meeting is entitled to appoint a proxy to attend and vote his/her behalf.

2. A proxy so appointed need not be a member of the company.

3. A form of proxy accompanies this notice.


193

form of proxy

I/We*…………………………………………………………………………….......................................………… (please indicate full name) bearing NIC

No ……………..........................................…………. of ………………………………………………………. being a member/*members of Prime

Finance PLC hereby appoint:

Mr/Ms ………………………………………………………...........................................………………………. (please indicate full name) bearing NIC No.

……….……........................................……............. of …………………………………………………………………….. or failing him/her

Mr. M D S M Goonatilleke of Colombo or failing him

Ms. H K S R Perera of Colombo or failing her

Mr. B Premalal of Colombo or failing him

Mr. P A W Perera of Colombo or failing him

Mr. H M Hennayake Bandara of Colombo or failing him

Mr. D Kalapuge of Colombo or failing him

Mr. N A Wickramage of Colombo or failing him

Mr. M Perera of Colombo or failing him

Mrs. K D S Fernando of Colombo or failing her

Mr. R Randeniya of Colombo

as my/*our Proxy to represent me/*us and to vote as indicated below on my/*our behalf at the Annual General Meeting of the Company to be held on the 31 July 2019 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

FOR AGAINST

(1) To receive and consider the Report of the Directors and the Statements of Accounts for the year ended 31 March 2019 together with the Report of the Auditors thereon.

(2) To elect Mrs. Konganeege Dinusha Suraji Fernando, as a Director in terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008.

(3) To elect Mr. Ruminda Randeniya, as a Director in terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008.

(4) To re-elect Mr. Mahinda Perera who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

(5) To re-elect Mr. Brahmanage Premalal who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

(6) To re-elect Mr. Dhammika Hemantha Kalapuge who in terms of Section A.8 of the Code of Best of Practice on Corporate Governance 2017 retires by rotation at the Annual General Meeting as a Director.

(7) To re-appoint Messrs. Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

(8) To authorize the Board of Directors to determine contributions to charities and other donations for the year 2019/2020

As witness my/our hand set hereto this …..................... day of …..................... Two Thousand and Nineteen.

Signature :……….………………......


194

FORM OF PROXY

Note:

Instructions as to completion appear on the reverse hereto. Please delete the inappropriate words, and mark ‘X’ in the appropriate cages to indicate your instructions as to voting.

A proxy need not be a member of the Company.

INSTRUCTIONS AS TO COMPLETION OF FORM OF PROXY

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your instructions as to voting, by signing in the space provided and filling in the date of signature.

2. Please indicate with ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given, the Proxy in his/her discretion may vote as he/she thinks fit.

2. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 61, D S Senanayake Mawatha, Colombo 08, not less than 48 hours before the time appointed for holding the meeting.

4. If the form of proxy is signed by an attorney, the relative power of attorney should accompany the completed form of proxy for registration. If such power of attorney has not already been registered with the Company.


Name of the Company

Prime Finance PLC

Legal Form





10 September 2004


12 September 2012


PB 351 PQ


134011947 - 7000

Directors









Registered Office




Bankers


Lawyers




Auditors







Name of the Company

Prime Finance PLC

Legal Form





10 September 2004


12 September 2012


PB 351 PQ


134011947 - 7000

Directors









Registered Office




Bankers


Lawyers




Auditors






primefinance.lk

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AL R

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primefinanceprimefinance.lk/storage/app/uploads/public/5d2/32b/...paul ratnayake associates no. 59...

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